What information should be included on my apartment expense statement?
If your apartment is being professionally managed, your property manager should be able to provide this information for you. Apartment expense statements typically break down the property taxes, property insurance, water, sewer, trash, electric, maintenance, landscaping, pest control, property management fees, and reserves. Please note that you may already have this information on Schedule E of your tax returns.
What other information will be helpful and facilitate the appraisal process?
Providing a building plan that includes a proper accounting of the unit's square footage is highly recommended. The less familiar you are with the asset, the more critical it is that you obtain a clear picture of the square footage of each unit and the common areas. The unit sizes will dictate the rent, and if this information is inaccurate, you may end up overcharging or undercharging for rent. As a result of the rent control laws in California, the AB-1482 Tenant Protection Act of 2019, if you enter into a rental agreement assuming an incorrect unit size or configuration, you must honor the original lease and are only allowed to increase the rents in keeping with the annual increases that are legally allowed based on the area's consumer price index and 5%.
How many units will the appraiser need to see when they come to inspect the property?
The extent of the property inspection will be stipulated by the intended user of the appraisal. If it is a bank or private lender, they will often have specific regulations about how many units they would like the appraiser to inspect. The appraiser will typically want to see a sample of each unit's floor plan and all of the common areas. However, if the appraisal is for personal administrative use, it is not necessary for the appraiser to inspect any of the apartment units. It is possible for the appraiser to do an exterior inspection and prepare an appraisal that assumes the units are in average condition or inferior or renovated condition. When the appraisal makes this assumption, the appraiser is obligated to prominently disclose that the units were not inspected and that the condition of the units is an assumption of the appraisal. This assumption disclosure statement must be mentioned throughout the report, and it is typically mentioned in the transmittal letter, description of improvements, throughout the valuation discussion, reconciliation, and assumptions and limiting conditions sections of the appraisal report. The assumption statements are repeated throughout the appraisal in order to ensure that the intended users are aware of the due diligence that was completed and to ensure reporting transparency.
How long will the inspection of my apartment building take?
The appraiser will try to keep each interior unit inspection brief. They will typically want to take photos of each room and measure the gross unit size by taking measurements that measure the basic dimensions of the overall unit. This normally takes an experienced appraiser less than ten minutes per unit. Assuming a smaller apartment complex with six to ten units, after the interiors are inspected, the appraiser will typically spend an additional half hour taking exterior measurements, exterior photos, and photos of the common areas, garages, parking areas, and surrounding streets. The person showing the building does not have to remain for the exterior inspection but needs to let the on-site management and tenants know there will be someone out at the property.
What happens if my apartment appraisal does not come in with the value I expected?
If the concluded value for your apartment appraisal reports a value that you or your realtor believe is aberrant or unexpected, you should feel comfortable talking with your appraiser and asking questions. A good appraiser will welcome appraisal review questions and will be glad to respond to any and all questions. If you are aware of additional comparable data or any additional information that you believe is relevant to the assignment, our appraisal office will be glad to review and consider this information.
What are some important factors for apartment owners to keep in mind based on the current market conditions?
Apartment owners that are managing properties themselves need to monitor the current regulations, rental rates, and utility expenses. As a result of the pandemic and the housing crisis, several moratoriums were put in place and have now expired. However, as the housing crisis goes unabated, it is increasingly common for local municipalities to implement their own regulations to prevent no-fault evictions. Chula Vista is one of the first cities in San Diego to implement new regulations specifically pertaining to the residential rental market. While, to date, there have not been many legal challenges, San Diego County is expected to follow the same patterns as other municipalities. As housing becomes increasingly scarce, the government will become more involved, and local governments will adopt their own regulations.
Apartment owners need to regularly monitor the rents in their market area because once a new tenant has moved into a unit, the base rent is established, and rent control laws will limit annual increases. Until the unit turns over, depending on the rental rate increases in the subject property market area, the lease may potentially trail the fair market rents. Only after the unit turns over can the unit be brought to fair market rents. Ten years ago, monitoring apartment rents was not an important factor because average apartment rental rates were lower, average apartment rental rate appreciation was lower, and the apartment rental rate increases that were legally allowed were higher. Over the past three years, in most market areas, rental increases have exceeded the local Consumer Price Index (CPI) plus five percent. As such, it is now essential for multi-family property owners to be aware of the asking rents in their market area.
Our appraisal office is hearing increased reports of aberrantly high utility bills being submitted to property owners from SDG&E for electric bills and the City of San Diego Public Utilities Department for water bills. With SDG&E, in some instances, it is due to a recent rate increase and pertains to the usage hours for the electric expense. With the City of San Diego Water Department, it has been reported that some of the meters are not functioning correctly or that the readings are not being properly recorded and invoiced. Unless you are monitoring this expense, you may not notice until looking at the annual figures, at which point it may be too late to have the invoices corrected.
How does the San Diego County Assessor's office estimate apartment building values?
The San Diego County Assessors will look at the responses and information that were submitted at the time the property was purchased, and the most recently recorded sales price and significant weight will be placed on this information. The Assessor's office will also run its own cash flow projections to determine the fair market value of your apartment building. If the Assessor believes a below-market or above-market price was paid based on their analysis and a review of the subject property documents, they will adjust the assessed value to be in keeping with the information that they believe is most probable for the asset. It is important to note that the Fair Market Value definition used by the County Assessor when it reassesses an income-producing commercial property assumes that rents are at fair market value. In the past (before the statewide rent control mandate), the County Assessor's office would assume that fair market rents were in place and would not provide allowances for below-market contract rents, also referred to as adverse leaseholds. As adverse leaseholds become a more prominent factor in the valuation of multi-family properties, the assessors may have to adjust this long-standing policy because the definition of Fair Market Value used by the Assessor's Office also requires them to assess properties based on all regulations in place, which would include the state rent control regulations.
When are San Diego apartment owners required to have an on-site manager?
If your apartment building has 16 units or more associated with a single assessor's parcel number, you are required to have an on-site manager.
