What Is the Multifamily Summary Appraisal Report?

For investors and developers looking to take advantage of HUD financing for a multifamily asset, it is essential to clearly understand the role that appraisals play in qualifying for a loan. At the center of these appraisals is HUD’s Multifamily Summary Appraisal Report, or Form 92264.

At its core, Form 92264 is a tool for an appraiser to analyze a project’s location, expenses, potential earnings, taxes, and so forth. This assessment also includes an analysis of the site’s surrounding areas to determine the need for a HUD-backed project.

The form’s most recent iteration (at the time of this post, it was last updated April 30, 2020) includes eight pages comprising multiple sections, which this article will explore in detail.

Section A: Location, Description of Property

The first part of the report describes the property’s location and neighborhood. The appraiser will list a property’s address, project type (e.g. high-rise, townhouse, etc.), number of units, recreation facilities, building count and so on. Other characteristics listed include when a building was completed, what exterior finishes the property has, and a brief description of the asset’s HVAC systems.

In terms of neighborhood, the appraiser will list some relatively straightforward details — whether the location is urban, suburban, or rural, for example — as well as analyze and describe neighborhood characteristics, including how property values are changing, whether or not the supply of existing housing meets the area’s needs, and if the site is in compliance with zoning restrictions.

Section B: Additional Information Concerning Land or Property

This section includes extra details about the property. The date and price of the previous sale may be included here, as would information about existing ground leases and utility-related details, including whether the water and sewage systems are operated publicly or by the community. 

Finally, this section includes an area for unusual site features, giving an appraiser space to note other relevant concerns about the land. Examples here could be a notation of poor drainage or erosion or if the land has a high water table.

Section C: Estimate of Income

In this section, an appraiser will forecast income for the project. This includes a property’s gross potential rental income but doesn’t stop there. Parking spaces — and their gross potential income — are also noted, as is income related to a building’s commercial space. 

The form also requires specific information about the amount of rentable space, both for multifamily units and any commercial space — even those that will not generate revenue. For example, if one multifamily unit is set aside for property management, there’s a field for that.

Section D: Amenities, Services Included in Rent

The fourth section is largely a list of in-unit features and community amenities, marked with a series of checkboxes. Although there is a field for additional items to be added, the form asks specifically about 14 in-unit finishings, including:

• Kitchen appliances

• Balconies or patios

• In-unit laundry hookups

• Window treatments

• Vaulted ceilings

• Security systems

Amenities for the property are itemized in a similar manner. In addition to a detailed list of potential features, from fitness centers to laundry facilities, there is a large space to indicate other amenities not previously mentioned.

The appraiser also must rate units and the overall project on a number of characteristics. The form requests an overall assessment of good, average, fair, or poor for 10 unit-specific and 11 project-specific factors. These include room sizes and layouts, adequacy of insulation, project location, market appeal, quality of construction, among many others.

Finally, at the very end of this section, information about a property’s gas and electric service is added.

Section E: Estimate of Annual Expenses

In this section, an appraiser will project a property’s annual expenses, taking into account a variety of factors. This will include:

• Administrative costs like advertising and management

• Operating expenses including utilities and payroll

• Maintenance costs, from pest control to general repairs

• Taxes, which includes real estate, personal property, payroll and any other related taxes.

Section F: Income Computations

This section utilizes calculations done earlier in Section C to consolidate all income information at an annual level in one place. Then, subtracting those costs accounted for in Section E and factoring in estimations of occupancy, overall residential and commercial net income is calculated, as are a number of measures including commercial expense ratios, project expense ratios, etc.

Section G: Estimated Replacement Cost

This section is used to analyze and forecast the cost of replacing a multifamily property. Factors considered in this analysis include costs associated with land improvements, all structures, construction fees (and timelines), financing, legal fees, and others.

Section H: Remarks

This very short section includes space to calculate the estimated value of land without improvements for projects involving rehabilitation.

Section I: Estimate of Operating Deficit

In this section, an appraiser forecasts gross income and expenses for defined periods (usually a number of months) when a project will operate at a loss. This is typical for newly opened multifamily assets during construction and the initial lease-up stage.

Section J: Project Site Analysis, Appraisal

This area of the appraisal form looks at the project within the context of its neighborhood to determine a number of factors to assess whether or not the site is acceptable for the project. For example:

• Is the project viable based on its proposed rents, given the area’s market conditions?

• Is the site large enough for the project?

• Are utilities already available on-site? This section also provides a valuation of the project, anchored to comparable sales in the neighborhood. From this basis, the appraiser estimates the total cost of sponsoring the property, adding in factors like zoning costs, recording and title fees, and acquisition costs.

Section K: Income Approach to Value

This section calls for an estimation of a project’s economic life, cap rate, and capitalized value. Some of these calculations are based on entries completed earlier in the form.

Section L: Comparison Approach to Value

In this section, three comparable sales are analyzed to determine the value of the project. Assets are compared on the bases of total sale price, prices per unit and room, gross annual rents, and other factors. The form allows for certain factors requiring adjustments to the comparable properties. For example, a sales comp that involves a multifamily asset built in 1970 may necessitate an increase in that community’s value to account for the property’s loss in value compared to a brand new multifamily project. Similarly, property characteristics and amenities can also be the basis for further adjustment: For example, if a comparable property includes two swimming pools — but the project will have zero — the estimated value of those two pools will be subtracted from the sale comp.

Section M: Construction Cost Analysis

This section is meant to be completed by a certified construction cost analyst. The analyst will assess costs not directly related to the project’s residential use. For example, costs associated with parking and commercial space will be broken out here. Additionally, there is a space for the estimated costs of off-site construction requirements. Extending roads or water lines could fall into this category.

Section N: Signature, Appraiser Certification

This part is, as the section’s name implies, where all people involved in the appraisal sign and list their relevant certifications. The section asks about any potential conflicts of interest, including a disclosure of who is paying for the appraisal, to ensure an objective and accurate assessment of the report.

Section O: Remarks, Conclusions

This final section is where the appraiser writes an overall conclusion about the project, highlighting key elements of the report and indicating anything that may not otherwise be captured in the appraisal.

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