All Forum Posts by: Axel Scaggs

 "On the seller disclosure, they checked "No" under "governmental ordinances affecting the condition or use of the Property.""

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Which is a true statement. Your concern only kicks in if there is a total loss. Your seller properly disclosed.

Personally, I would call your alderman and see about getting an ordinance through the city council allowing rebuild at same-scale/kind of residential use if there was a total loss. Worst he can do is say "No."

I believe zoning matters are excluded from coverage in most standard title policies but there may be some coverage if you purchased a Homeowner's form policy.  Even then there may not be coverage unless the city forces you to remove the improvement.  I suggest you submit a claim to the insurer and see what they say.  The worst they can do is deny coverage.

Sorry to hear that Axel, have you tried to reach out to the city and see if you can be grandfathered in to being able to build the exact same home in the event of a total loss? I've had a few clients that have been through this and it just took getting to the right person to get that figured out but in each case they were able to get that taken care of. 

 > I do think it is common sense that the rent should be higher, if ALL active listing within 1 miles are over $1400 per unit

You think that but 1) you want to ignore the current rent operator (the previous owner) was charging this amount.  It sets the best comp there is.  It is little difference than if the property next door sold last week for $50k less than other comps.   It is a top comp (near, recent, etc) regardless of the motivation of the seller. 2) units that are up for rent have been tenant flipped and are typically in good shape.  Any carpet usually replaced, walls painted, repairs made to everything.  Your units have 10+ years of occupancy.  I expect the tenant flips will be expensive and take significant time.  I expect in the units’ current condition you would get far below market rent. I had a unit turnover late last year that needed a unit flip not a tenant turnover.  We had a family that offered to rent it for $700/month less than rehab market rent in its current condition which would eliminate vacancy and the costs of the unit rehab.  We turned it down because we do rehabs often and benefit from the value add. The rehab cost $40k and placing the tenant took a total of 2.5 months (about half on rehab and half acquiring replacement tenant and having them move in).  market rent prior to the unit rehab was probably fairly close to $700 less than the rent comps. That is what someone was willing to pay to rent that unit.

Condition has a role in determine fair market rent and I suspect is why your rent appraisal came in low.  I guarantee the appraiser knows that an extra BR typically gets more than $5/month in rent.  Does your appraisal have a current condition entry?   What does it list the current condition?  Note fair is actually bad, bad is horrendous.  

Good luck

I am taking a different approach in that I am going to attempt to justify the appraiser’s rent valuation and you may find some truth in the response.

Start with any competent appraiser recognizes that a 2/1 rents for more than $5/month more than a 1/1 even in low rent markets.   So why would he have the adjustment of only $5/month?  I believe the answer is in this statement “Unfortunately the current tenants of the property pay even less; $300 below the low appraisal and have been in the unit for over a decade.”.  It is very unlikely that a unit that has had a tenant in place for over a decade is in similar condition to units that are currently being listed for rent.   Add to that fact that the tenant is only paying $700 ($300 less than the $1k given).  Seeing Texas does not have rent control, I think you could have easily got a $700/month rent valuation as that is the rent that you are getting.   If the unit was worth a higher rent price, why is it only getting $700?   It is likely because raising the rent could result in a vacancy and a large tenant turn over cost.   Tenant vacates and tenant turn over is $10k with 3 months of vacancy (unit turnover, time to obtain replacement tenant, time for tenant to provide current LL proper notice)

Just like not closed sales should not be used to establish property value, listed rents should not be used to obtain market rent.  

You can attempt to appeal the appraisal but I suspect the comps you used on the rent to be in a different state of condition than your units and your chance of successful appeal is low.

Good luck

I had the same issue. The ARV came in higher than expected, which was nice. I put new tenants in at 3200/mo but the appraiser said fair market rent was 2700. Public listings like Zillow/FB/apartments.com/etc all support my 3200 (which is why I chose that number in the first place). I contested it and the appraiser bumped it to 2900/mo. The issue was the appraiser only looked on hte MLS, which is where property managers post their rentals and show "closed" listings. Whereas zillow only shows active listings for rent.

I don't know if that is the norm across the country but, in the future, I'm going to run numbers based off of what I see on the MLS and not what I see on Zillow. It's aggravating because we know we can get rent for higher but apparently that's not how the appraiser operates in my market.