Rental Apartments Assessment Practices and Procedures · Assessment Practices and Procedures Rental...
Transcript of Rental Apartments Assessment Practices and Procedures · Assessment Practices and Procedures Rental...
Assessment Practices and Procedures Rental Apartments 1
Rental Apartments
Last Document Review Date: October 2, 2014
TABLE OF CONTENTS
Introduction ......................................................................................... 2
In Scope ..................................................................................... 2
Out of Scope ............................................................................... 2
Resources ............................................................................................ 3
Market Resources ......................................................................... 3
Industry Resources ....................................................................... 3
Compliance Checklist ............................................................................ 4
Processing Rental Apartments ................................................................ 5
General ............................................................................................ 5
Practices and Procedures .................................................................... 6
Appendix A: Frequently Asked Questions ............................................... 15
Appendix B: Occupancy Description ...................................................... 18
Foreword ........................................................................................ 18
Assessment Practices and Procedures Rental Apartments 2
INTRODUCTION
This document deals with the valuation direction for the uniform assessment of single-title rental apartments.
In Scope
The following properties, identified by actual use, are within
scope:
o 049 – MF four plex o 050 – MF apartment block
o 052 – MF garden apartment and row housing o 053 – MF conversion
o 054 – MF high rise o 055 – MF minimal commercial
o 056 – MF residential hotel
Out of Scope
o Rental apartments and residential conversions with less than four units (three units in Vancouver) are out of
scope. These properties will be valued according to Residential Improvements.
o Single family dwellings with rental suites (see occupancy description for residential conversions).
o This document does not include cooperative apartment buildings (i.e., eligible apartment under the Home
Owner Grant Act). Cooperative apartment buildings will
be included in Strata Residential due to similarity of valuation method.
NOTE
Residential hotel properties (AU 056) are distinguished from conventional hotels on the basis of room area dedicated to
monthly rentals. See Assessor Area 09 v. St. Helen’s Hotel and Assessor Area 10 v. North Burnaby Inn for background on the
criteria distinguishing this use.
Rental apartments often hold commercial uses, such as retail,
office and must be valued separately from the rental apartment.
Assessment Practices and Procedures Rental Apartments 3
RESOURCES
Market Resources
CMHC reports
Goodman Report
Industry Resources
BC Apartment Owners and Managers Association
Rental Owners and Managers Association of B.C.
Residential Tenancy Office
Vancouver Apartment Rental Guide
Assessment Practices and Procedures Rental Apartments 4
COMPLIANCE CHECKLIST
The following is a list of items that must be completed in order to be considered compliant with this document:
1. Where they are determined to be the highest and best use
(HBU), rental apartments (as defined in this document) must be valued using a capitalized NOI approach except:
o in rural/remote areas where information from
similar/competitive properties to support an income
approach is not available. In these instances, a cost/DCA approach may be used.
2. Improvement value will be based on an improvement
residual, unless the property is an air space parcel or designated heritage building, where a land residual will be
used.
3. Rental apartments with additional non-apartment components will use a separate model for each significant non-apartment
use (De Minimus rule applies).
4. Market support must accompany any adjustments to the base rate or model for market influencing characteristics
(attributes) at the model level. For example, adjustments to income, expense, vacancy, land, quality, view, etc., that
varies from the base rate or model for the competitive market set.
5. Do not record an occupancy for each apartment tenant/floor.
Instead, summarize all tenants within the same occupancy into one entry.
6. Classification will be Class 1 – residential except where there
are non-residential uses, or where the apartment offers short-term overnight accommodation where Class 6 –
business and other will typically apply.
Assessment Practices and Procedures Rental Apartments 5
PROCESSING RENTAL APARTMENTS
General
1. Valuation method(s):
a. Capitalized NOI – primary method.
b. Cost or DCA methods in rural and remote (unincorporated) areas only when information to
support an income valuation is not available.
c. Units of measure will be dollar per bedroom type (monthly rent).
2. The threshold for application of rental apartment will be four
or more units (three or more units in Vancouver).
3. All properties with less than the document threshold units will
be valued according to Residential Improvements, except in
exceptional circumstances (see Appendix A).
TIP
Inability to obtain information in a local market should not be the deciding factor in selecting the cost or DCA methods. Market
information for competitive properties in similar communities
within the region should first be investigated.
Exceptions:
o The cost method will be used for properties for which the current use is not the HBU.
o The land residual method will be used for value
apportionment in the case of air-space parcels and designated heritage buildings.
o Single family dwellings with rental suites (see Appendix B).
o For mixed-use ICI properties (e.g., rental over retail), no threshold will apply. For example, an income record
will be created for one rental apartment above a retail store.
Assessment Practices and Procedures Rental Apartments 6
Practices and Procedures
1. When completing the mandatory fields in the IncomeDCA
Model viewer/Keypane, keep the following in mind:
Rental apartments with one or more additional
components will be valued through application of a separate model and income record for each significant
non-apartment use within the building. The De Minimus rule will be applied to determine whether
space devoted to non-apartment use is significant enough to require creation of one or more additional income
records (drawing rates from another model). o Model Creation: a model should be designed to
encompass the largest number of relatively similar properties, within the geographically broadest possible
competitive market set. valueBC provides considerable
flexibility to account for the diversity of buildings within a specific model (e.g., income quality, size or suite mix,
variable adjustments). ▪ The starting point for development of apartment
models will be occupancy and region. o Method: select Direct Capitalization
▪ Although GIM is the recommended approach for MF Conversions, the income approach is an acceptable
valuation method (lack of market evidence – relies on the apartment market for comparables) –
occupancy – 1004 residential conversions. o Model Type: select APT – Apartments
o Primary Model Use: select applicable occupancy o Model Description: The model description will be based
on the following naming convention, in the following
order: ▪ Occupancy short description
▪ Geographic area that model applies – region, jurisdiction or NBHD or smaller area (if necessary)
▪ Physical attributes that further define model (if necessary)
▪ Sub-markets included (if any)
- The model description will apply to space with
similar apartment rental amenities in mixed-use properties.
Assessment Practices and Procedures Rental Apartments 7
- Examples:
Apartments with Elevator – North Fraser Region
Office Blg C Class – Victoria – Pre 1960 Office Blg C Class – Vancouver CBD – 1 Sub-
Market Indus Flex Warehse – Vancouver Isl Region –
Small Towns and Rural Strata Res Low Rise – Downtown Poco to Pitt
River Rd Strata Res High Rise – Vancouver Nr Joyce St
Sky Train
▪ Additional information documenting the Model should
be placed in:
- IncomeDCA Model viewer/Notes tab/Category: 08
– General.
TIP
While it is not strictly necessary to identify the occupancy and
geographic application of the model in the model name, addition of this information improves clarity when multiple models are
open at the same time.
2. When completing the mandatory fields in the IncomeDCA Model viewer/Occupancies and Adjustments tab, keep the
following in mind:
Enter a spreadsheet row for each required combination of
Quality and Unit of Measure by Unit of Measure order (e.g., Q1 Bach, Q2 Bach, Q3 Bach, etc.).
o On the Occupancy spreadsheet: ▪ Occupancy: select appropriate Occupancy – refer to
occupancy definitions in Appendix B:
- 1000 Apartment – Over Commercial
- 1001 Apartment – with Elevator - 1002 Apartment – Walk-Up
- 1003 Apartment – Concrete High Rise - 1004 Residential Conversions
- 1005 Apartment Townhouse or Row House
▪ Quality: select appropriate.
- Establish average quality first to determine range of qualities required to encompass the
competitive set.
Assessment Practices and Procedures Rental Apartments 8
- The variance between qualities for additional
occupancy entries (new rows) should be significant, representing a differential of at least
five percent in net operating income. - In many cases, only two to three qualities may be
necessary to encompass a specific rental apartment competitive set.
▪ Economic Rate: enter economic rate associated with occupancy and quality.
- The economic rate for an occupancy, unit of measure, and quality will be recorded to the
nearest five dollars per annualized period (monthly).
- The economic rate applied to a specific occupancy unit of measure (e.g., APT 1BR) and quality will
reflect the overall rent achievable per unit of
measure within the market. The economic base rate will account for variation of location of a suite
within a rental apartment market and individual suite features (i.e., view, suite size, condition,
parking included, etc.). - The Residential Tenancy Act allows annual rent
increases equal to the CPI plus two percent, free from tenant dispute. This provision is not a rent
control. Rental increases above this level are allowed, but they must be justifiable and a tenant
may formally dispute the increase. - The economic rate for an occupancy and quality
may be adjusted to reflect non-typical provision of amenities to the tenant (e.g., tenant pays or does
not pay for parking, hydro, heat, or rental of
furnished apartments, etc.).
TIP
Non-variable adjustments, general vacancy, all model attribute adjustments, CAP rates, and adjustments must market support.
▪ Unit of Measure: select appropriate:
- APT Bachs – bachelor - APT HSK Rms – housekeeping room
- APT 1BR – one bedroom - APT 2BR – two bedroom
- APT 3BR – three bedroom
- APT 1PH – one penthouse (2PH, etc.)
Assessment Practices and Procedures Rental Apartments 9
▪ Annualization: select MON – Monthly
▪ Size Adjustment Curve: Do not use unless listed in exceptions below:
- Exceptions: A size adjustment should be entered as a non-
variable size adjustment in the Non-Variable Adjustment spreadsheet. Commercial size
curves are intended for residential and ICI strata’s.
If a non-variable adjustment does not adequately account for the size issue, apply a
commercial size curve.
o On the General Vacancy/Occupancy field, enter typical
market vacancy as percentage of potential gross income directly (do not use detailed vacancy).
▪ A vacancy entry in the occupancy spreadsheet will
override the general vacancy field entry – use general vacancy only.
o The General Expense field is a non-editable field that shows the amount totals from the Expense and
Adjustment tab. o On the Non-Variable Adjustments spreadsheet:
- Record a non-variable adjustment only if the feature is not captured in the economic rate for a
specific occupancy and quality.
▪ Adjustment Type: select Rev or Vac (Revenue or
Vacancy).
- Do not select expense adjustment type at the
model level. If an expense adjustment is required for anomalies in the competitive set, apply the
adjustment at the income record level. Ensure
you are not adjusting for a landlord’s poor or superior management (value to owner).
- Vacancy adjustments will be expressed as percent of potential gross income.
▪ Attribute: select appropriate.
- Ensure that attribute is not included in economic
rate for the specific model occupancy and quality to avoid double adjusting.
▪ Value: enter “Y” for presence or “N” for absence of attribute.
Assessment Practices and Procedures Rental Apartments 10
▪ Dollar Value/Percent: enter dollar/percent amount
adjustment to economic rate.
- Use dollar adjustments to apply lump-sum
adjustments only for market attributes (expressed in dollars) which are relatively stable over several
years. It will still be necessary to review dollar adjustments on an annual basis along with
associated economic-market rates. Examples of dollar adjustments to economic rates may be
“heat not included” or “parking”. - Use percent adjustments to apply relationship
adjustments only for market attributes which are potentially unstable over the long-term (actual
dollar amounts will fluctuate). Examples of percent adjustments may be location or view.
Percentage adjustments will not likely require
review as frequently as dollar adjustments. - Dollar and percent adjustments will be applied
consistently for all ICI models in a region on a property specific basis. See Appendix A.
o On the Variable Adjustments spreadsheet:
- Variable adjustment will not normally be required
for rental apartments.
▪ Adjustment Type: select Revenue, Vacancy or
Expense.
- Vacancy and expense adjustments will be
expressed as a percent.
▪ Attribute: select appropriate
- A sub-market attribute should only be selected for a significant number of properties in the
competitive set that share a similar range of non-
typical rents or vacancies (e.g., greater than 10). Otherwise, adjustments for anomalous situations
should be made at the income record or property specific level.
▪ To – From Values: enter From/To Values associated with attribute (e.g., room size, total number of suites
in apartment, ceiling height, etc.).
- When applying these adjustments consider the
impact on other model variables such as expenses, vacancy, and OCR.
Assessment Practices and Procedures Rental Apartments 11
▪ Basic Range $/% Adj per unit: enter dollar amount
or percent adjustment. ▪ Quality: select appropriate quality
- Range of qualities selected should be consistent with range of occupancy qualities recorded in
model.
▪ CAP/GIM: enter CAP rate for each quality required.
- CAP rates should be rounded to nearest 0.25%. - GIM will only be available for residential
conversions (not rental apartments). - A CAP adjustment should be made at the model
level. Refer to CAP/GIM User Guide.
o Surplus or excess land will be valued through one or
more additional land component (refer to ICI Land) o On the Non-Variable Adjustments spreadsheet:
- Record a non-variable adjustment only if the
feature is not captured in the economic cap rate for a specific quality.
▪ Attribute: select appropriate.
- Ensure that attribute is not included in economic
cap rate for the specific model quality to avoid double adjusting.
▪ Value: enter description of attribute. ▪ Rate: enter rate adjustments
o On the Variable Adjustments spreadsheet:
- Variable adjustment will not normally be required
for rental apartments.
▪ Attribute: select appropriate
- A sub-market attribute should only be selected for a significant number of properties in the
competitive set that share a similar range of non-
typical rents or vacancies (e.g., greater than 10). Otherwise, adjustments for anomalous situations
should be made at the income record or property specific level.
▪ To – From Values: enter From/To Values associated with attribute (e.g., room size, total number of suites
in apartment, ceiling height, etc.).
- When applying these adjustments consider the
impact on other model variables such as rental rates, vacancy and expenses.
Assessment Practices and Procedures Rental Apartments 12
▪ Basic Range % Adj per unit: enter percent
adjustment.
3. When completing the mandatory fields in the IncomeDCA Model viewer/Expenses tab, keep the following in mind:
o Expense: select overall expense category.
▪ Individual expense amounts should not be recorded
for rental apartment given the difficulty in supporting detail expense itemization.
▪ No new expense items will be added to available expense categories.
▪ The total of all expenses will sum directly to the Income and Vacancy tab\General Expenses field.
o Rate: key percentage of effective gross income.
4. When completing the mandatory fields in the IncomeDCA Valuation viewer/Keypane, keep the following in mind:
Create one or more additional income records for mixed-
use properties where it is necessary to draw rates from a
non-apartment model (e.g., retail tenancies on first floor, office, parking, etc.).
o Model Name: enter Model Name (e.g., APT 220) if known or query IncomeDCA Model viewer to identify
appropriate model based on model type, area, jurisdiction, and neighbourhood.
o Model Type: select APT – Apartment. o Primary Model Use: select apartment.
o Building Name: enter if applicable.
5. When completing the mandatory fields in the IncomeDCA
Valuation viewer/Valuation tab, keep the following in mind:
Do not record an occupancy for each apartment tenant. All tenants within the same occupancy will be summarized
into one spreadsheet entry.
o On the Occupancy spreadsheet: ▪ Tenant Description: key X Unit Apartment (e.g., 20
Unit Apartment) ▪ Occupancy: select Occupancy associated with
appropriate model.
- Do not add an occupancy for each apartment
floor. The economic rate for the occupancy-
Assessment Practices and Procedures Rental Apartments 13
quality-unit of measure should reflect the average
rate for all units in the building.
▪ Quality: select quality that will apply to all space
associated with the selected occupancy. ▪ Unit of Measure: select appropriate units associated
with the apartment model type.
- All combinations of occupancy and unit of
measure at the income record level should have the same quality (e.g., Q 2 Bach, Q2 1 BR, etc.).
Anomalies within a building, if present, should be treated through manual adjustments. Ensure you
are not adjusting for a landlord’s poor or superior management (value to owner).
▪ Num Units: enter number of units. o On the Attributes/Adjustments spreadsheet:
▪ Attribute: select attribute(s) from model or apply a
manual adjustment.
- Do not enter manual attribute adjustments if the
adjustment is already present in the model – this will result in a double adjustment.
- Adjustments for the present value of capital cost to cure items should be made in the Commercial
Building viewer/IncomeDCA Summary tab/Non Assessable spreadsheet (cost to cure capital). Key
reason for deduction in Notes tab.
▪ Value: key value consistent with attribute selected
from model (e.g., ceiling height, number of apartment units, sub-market number, etc.)
▪ Rate Adj $/%: key dollar/percent value only if a Manual Adjustment is recorded.
- If a value is entered for a model adjustment, the
total adjustment applied will be equal to model adjustment plus the amount entered in the Value
field.
▪ Vac/Exp Adj %: key percent only if anomalous
situation with property (e.g., very small rental apartment with non-typical vacancy and expense
and no sub-market created). o On the Distribution spreadsheet:
▪ Property Class: select Class 1.
- Rental apartments that are offered for short-term
overnight commercial accommodation will be
Assessment Practices and Procedures Rental Apartments 14
Class 6. Refer to Classification of Strata Lots Used
for Short-term Overnight Accommodation.
▪ Exempt Tax Code: select 00 – fully taxable.
▪ Exempt Percent: key “100%” (e.g., 100 percent of value associated with income record).
6. When completing the mandatory fields in the Property
viewer/Value Selection tab, keep the following in mind:
o In the Value Method field select INC – Income.
o In the Residual field select BLD – Building Residual Method.
o On the Override spreadsheet, only use for properties: ▪ severely impacted by fire, water, or other impacts;
▪ partially completed structures valued on income method.
Assessment Practices and Procedures Rental Apartments 15
APPENDIX A: FREQUENTLY ASKED QUESTIONS
Question
Conversions – defining features (single family home divided
into two or more suites/rooms) – is it supposed to read more than four suites?
1. Answer
The threshold for application of the apartment (rental)
practice has been established at four or more units. This means that rental improvements that do not meet the
threshold will be valued according to the residential assessment practices and procedures.
Question
How should models calibrated to deal with small or very large
rental apartments (smaller or larger than typical for
occupancy) be dealt with at the model level? For example, a very small walk-up (eight-unit) rental apartment where the
typical size is 16-20 units.
2. Answer
An adjustment for number of units will be recorded at the model level. See the CAP/GIM User Guide. Any adjustment
should reflect non-typical building size for the competitive set and have market support.
Question
In some cases a duplex, with its own title, is part of a larger
complex of rental apartments or row houses. Current practice is to value all the larger properties on the income approach.
In some cases, the one owner hold title to all properties, while in other cases, multiple owners may be involved. Can
an exception to the four-unit threshold for application of the
rental apartment practice be made in this situation?
3. Answer
Some discretion will be required for this type of scenario. If the duplex is clearly part of a larger complex that is valued
through an incomeDCA model, it will be logical to create an income record for the duplex property and apply rates from
an incomeDCA model.
Question
How should differences in rent attributable to smaller or larger (than typical) rental apartment suites be addressed?
Assessment Practices and Procedures Rental Apartments 16
4. Answer
Record a revenue type size adjustment in the non-variable adjustment spreadsheet using the IncomeDCA Model viewer.
The adjustments should be made at the model level. See the CAP/GIM User Guide In rare cases it may be necessary to
apply a commercial size curve (occupancy spreadsheet) where the non-variable size adjustment does not adequately
account for the difference in revenue.
Question
In some cases, older resorts with cabins have been converted to monthly or longer-term rentals. We currently have them
done as small acreages with several residential cards on the RIS. How should this situation be handled in valueBC?
5. Answer
There is no appropriate rental apartment occupancy to
associate cabin units of measure. It will be necessary to value
these properties using a recreation model with cabin units of measure.
Question
This document states that CAP/GIM adjustments based on
effective age should not be used for apartments. What are the exceptions?
6. Answer
In some competitive sets, there will be a measurable
relationship between CAP rates and the effective age of the property. While the preferred practice will be to create a new
model to consistently value these properties, there may be insufficient properties to justify model creation and an
effective age adjustment will be applied. These adjustments should be made at the model level. It will be necessary to
have market support for any effective age adjustment.
Question
This document states that percent and dollar adjustments
must be applied consistently for a property type within a region. What does this mean in practical terms?
7. Answer
The application of a dollar or percent adjustment within a
competitive market set must be consistent to maintain equity of approach and to reduce start-up time required for
appraisers moving to new ICI portfolios. For example, if all
Assessment Practices and Procedures Rental Apartments 17
corner adjustments are made for a specific property type
using percent adjustments, then all appraisers must use percent and not dollar adjustments for corner influence within
the market set.
The basis for all adjustments will be documented in the Notes tab along with market support.
Assessment Practices and Procedures Rental Apartments 18
APPENDIX B: OCCUPANCY DESCRIPTION
Foreword
Determination of rental apartment building occupancies
according to class of building or space within a mixed-use property with similar amenities is subjective since buildings in
each class will exhibit a number of the characteristics but not necessarily all. It will be important to ensure that the
approach taken to determine the occupancy for rental apartment properties within regions is consistently applied for
the competitive market set.
The following occupancies have been replaced:
288 APT-OVER
COMMERCIAL
298 APT-BRICK/BLOCK
289 APT-WITH
ELEVATOR
299 APT-REINFORCED
CONCR 290 APT-WU TENANT
PYS HT
300 APT-3+ STOREYS
291 APT-WU OWNER
PAYS HT
551 ROOMING HOUSE
292 APT-TENANT PAYS
HEAT
596 SHELL APRTMNT
HGH RS 293 APT-OWNER PAYS
HEAT
728 RES CONV-TENANT
PAYS
294 APT-FRAME-LARGE SITE
729 RES CONV-OWNER PAYS
295 APT-BRICK-LARGE SITE
730 RESID CONVERSIONS
296 APT-R C –LARGE SITE
734 ROWHOUSE TENANT-HEAT
297 APT-FRAME 735 ROWHOUSE LANDLORD-HT
Code 1000 Apartment over Commercial
Age Any age
Size No size threshold applies to rental over retail
or office (refer to Exceptions).
Defining Commercial space on ground floor
Assessment Practices and Procedures Rental Apartments 19
Features
Other Features
Any or none of:
Balconies
On-site parking Elevator(s)
Separate residential lobby
Example
Code 1001 Apartment with Elevator
Age Constructed c. 1960 to c. 1980
Size Complex with three to five storeys
Defining
Features
Low rise
Elevator
Other
Features
Any or none of:
Balconies
On-site parking (often one stall per suite; open, covered or secured)
Penthouse suite(s) on roof
Assessment Practices and Procedures Rental Apartments 20
Example
Code 1002 Apartment with Walk-up
Age Older for market area; built c. 1900 to c. 1965
Size Complex with one to three storeys
Defining
Features
No elevator
Other Features
Any or none of:
Basement or below ground-level suites
Example
Assessment Practices and Procedures Rental Apartments 21
Code 1003 Apartment Concrete Hi-rise
Age Built c. 1970 to 1980
Size Complex six storeys or higher.
Defining Features
Mid to high rise structure Elevator(s)
Other Features
Any or none of:
On-site parking Balconies
Example
Assessment Practices and Procedures Rental Apartments 22
Code 1004 Residential Conversions
Age Reflects housing stock in market area
Size Variable – Refer to Exceptions for threshold
number of units.
Defining
Features
A house divided into four or more
suites/rooms. This occupancy does not include
single-family dwellings with rental suites e.g., basement suites
Other Features
Any or none of:
Self-contained suites
Housekeeping rooms (Greatly variable features)
Example
Assessment Practices and Procedures Rental Apartments 23
Code 1005 Apartment, Townhouse, or Row House
Age Built since 1970
Size Complex with two to three storeys.
Defining
Features
Individual exterior entry door for each suite
Other Features
Any or none of:
Single or multi-story Basement
Assigned yard area Balcony/patio
Example