Tag Archives: FF&E

Re-Posted – Apartment Appliances are FF&E!!!!!!!! Not Real Property!!!!!!

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.

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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:)

The Mann

FF&E – FIRREA vs. USPAP

January 7, 2016 – Below is a question I received followed by my reply.  Happy New Year to all.

George – Hope your holidays were great and 2015 is finishing off strong.  I was hoping to get your opinion on an item below.

It’s just how non-realty items are reported in the appraisal report. No change at all in the new USPAP – I’ve just been inconsistent in how I treat it. Sometimes I show a $ allocation, sometimes I don’t and just say it is included in the value and has a positive effect on value. Either way, I’m always clear on whether non-real property items are in the value or not.

So just trying to nail down exactly what is right or what USPAP expects. I’ve seen personal property treated many different ways and some appraisers still don’t say anything about it… USPAP doesn’t say much on the topic.

Thanks for any input!

As stated in Standards Rule 1-4, part (G): When personal property, trade fixtures, or intangible items are included in the appraisal, the appraiser must analyze the effect on value of such non-real property items.

My question is what is the extent of “analyzing the effect on value?” For instance, in a multifamily property with appliances necessary for continued operation, do we need to actually state the estimated amount that the appliances contribute to value or is it sufficient to note that the market value includes all personal property items which contribute to the market value?  If the value needs to be broken down and allocated between real property and non-real property items – can the allocation be stated once near the beginning of the appraisal report or does the allocation have to be every place where there is a market value stated?

Just curious because I have heard several versions and I didn’t really see any Advisory Opinions on the topic.

============  MY REPLY ============================

Your question only exists because the ASB and AI and others won’t specifically address the various differences between USPAP and FIRREA.
The bottomline is USPAP does NOT require a value on the FF&E.  Albeit, it would probably help all clients to know such.  More info cannot hurt.
However, FIRREA DOES require values be allocated to FF&E and Business/Intangible Assets so that the appraiser provides the ONLY required value per FIRREA – Market Value As Is of REAL ESTATE ONLY.
So, when doing an appraisal for a Federally-Related Transaction, you MUST provide a value for the non-realty items.  It has been that way since 1990/1991.
Where you place it….well that is up to you.  But, technically, when you state Market Value As Is (as well as Upon Completion and Upon Stabilization) it should just be the Real Estate Only number.
However, 99%+ of appraisers state Market Value INCLUSIVE of FF&E and Biz Value and then have some kind of footnote or wording in parentheses saying ‘the above includes $1,400 of FF&E’. Something like that.  They let the Bank do the math to get to the real estate only number.
So, you can do it that way and you will be in line with your peers.  As I always tell appraisers though, if you want to stand out from the crowd provide what your client really needs, and in this case, state MV without the FF&E and Biz Value and then let the footnote say how much the FF&E and Biz Values are worth.

The reason banks need the Real Estate Only number is it is Federal law (FDICIA of 1991) that LTV must (!) be calculated on this number only.  Any MV number that includes FF&E and/or Biz Value is worthless to a bank!

Now, for non-Bank clients you can forget all of the above.  However, I still recommend providing the separate values.
I hope this helps.