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


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.

http://www.bclaws.ca/EPLibraries/bclaws_new/document/ID/freeside/00_96194_01

http://www.bclaws.ca/EPLibraries/bclaws_new/document/ID/freeside/00_96194_01

StrataResidentialAPP.docx


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

http://your-insite.bca.bcgov/teams/ho2/MarketData/Forms/CMHC.aspx



http://www.bcapartmentowners.com/

http://www.suites-bc.com/

http://www.rto.gov.bc.ca/

http://www.apartmentguide.ca/


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.

MarketStudiesInformationBulletin.docx


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.

ResidentialImprovementsAPP.docx


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.


- 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.


- 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.)



▪ 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.


▪ 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.


▪ 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.

ICILandAPP.docx


▪ 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-


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


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.

ClassificationSAPsAPP.docx

ClassificationSAPsAPP.docx


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?



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



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.



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


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


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


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


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


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

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