February 2019 – This item was originally posted in 2015. Four years later I still hear that an appraiser or reviewer wants to say that kitchen and laundry appliances are real property. NOT! Geez folks, get over this already. Appliances are appliances are equipment and not real property. This is basic knowledge.
I will add one suggestion (from my wife when she was a reviewer) for those dealing with this issue. My wife would tell the appraiser that all they had to do is provide rent comparables of units with no appliances and rent comparables of units with appliances and if the rents were the same, then the FF&E does not contribute to value. That simple and it would be market evidence.
In our combined 50+ years of reviewing appraisals we have not seen this analysis done. I have seen many appraisals where a rent adjustment IS made for comps with only washer/dryer hookups versus ones with washer/dryer units. That has been an adjustment greater than $0 in 100% of the cases I have seen. Definitive proof that FF&E has a positive value in apartments.
I have not seen any rent comparables that lacked kitchen appliances, so no evidence there that I know of. In foreign countries this exists. In some markets tenants actually move their refrigerator and such from apartment to apartment:)
When I started appraising in 1986 in South Florida, my first apartment complex appraisal I separated out FF&E. It wasn’t a requirement (that I can recall). It was just obvious. Common sense.
I do want to commend those appraisers that I review that always value the FF&E separately. Some go so far as to provide a value even if there is only one or two apartment units in a property (e.g. retail first floor, 2 apartments on 2nd floor). Might be only $400 in FF&E, but FIRREA doesn’t care about the amount. Just that it is excluded from Market Value ‘As Is.’
Also, please do not pull the ol’ ‘this is absorbed in rounding and thus is not added or deducted’ routine. Make the addition or deduction to get to Market Value ‘As Is’ and move on.
Please contact me if you have any questions. Any other topics for me to blog about. et al. Thanks for taking the time to read my blog:)
The original post follows.
It is 2015 and I continue to encounter appraisers (albeit fewer and fewer thankfully!) who do not value the FF&E in apartment properties. Since 1990, FIRREA has required this. This issue should have been settled 25+ years ago.
The most common response I get when I ask an appraiser to separately value the FF&E is ‘In our market these items transfer with the real estate.’ To which a whole list of questions and replies come to mind:
Who cares how the FF&E is transferred – it is still FF&E!
FF&E in hotels transfers with the real estate – how does that differ from an apartment complex? The same goes for many other property types.
Having been frustrated by this issue for 23+ years as a reviewer, a few years ago I took the opportunity to have this item added to the 14th Edition of The Appraisal of Real Estate. There is a list of property types with FF&E and that list now includes apartments:)
For bank/credit union appraisals, appraisers need to realize that it is Federal Law that requires LTV (Loan-To-Value) ratios be calculated on the Market Value As Is of REAL ESTATE ONLY. Examiners have been focusing on this very item for the past 5 years. It is important that fee appraisers help their clients comply with Federal Law. Provide a value for the FF&E and be done with it. And do NOT include the amount in the Market Value ‘As Is’ figure as again it is supposed to be Real Estate Only.
I will agree that in some cases this amount is minimal. But, Federal Law still requires a separate value. There are many cases where this amount can be in the millions of dollars – e.g. those high end condo projects that did not sell out before the bubble burst and have been rented as apartments ever since.
Lastly, as one instructor told a class I was in – If I can drop it on my foot, it is FF&E:)