Dixie & Value Testing


Today’s assignment for Commercial Real Property Analyst Dixie Phair is an apartment property. Dixie always uses an income model (and you surely should too!) to aid in apartment valuation. In this case, her model is especially helpful because it allows her to test under three valuation scenarios.

The particular model used by Any Municipality County stratifies multifamily property by Gross Rent Multiplier (GRM) and Overall Capitalization Rate (OAR) as follows:

GRM for 2 to 4 unit properties
GRM for 5 to 19 unit properties
OAR for 20 to 59 unit properties
OAR for 60+ unit properties

The model stratification has proven reliable through diligent local research, and the resultant values are uniform within the unit count ranges.

Dixie’s subject is a group of six individual buildings under one ownership; each building has six units. Two buildings are on the same parcel with the four others platted on individual parcels. Two streets traverse the property holding. All buildings and all 36 units are similar in achievable rental rate and expense structure.

Dixie sees what seems to be a choice in model application to this property, but knows there is only one answer. She knows to test for the highest aggregate value under three combinations…

  • one 36 unit property,
  • one 12 unit and four 6 unit properties,
  • two properties containing 12 and 24 units respectively.

Your jurisdiction may have different guidelines, but if market value is the objective, the property must be appraised to Highest and Best Use. This principle intrinsically demands the highest return (value) to the property.