Five units changes everything
Not a little. Almost all of it.
Four and under is residential: the small income property form, residential lending, and a credential a residential appraiser holds. It has its own page.
Five and above is commercial property in valuation terms, whatever the people inside it call home. Narrative report rather than a form. Income approach leading rather than supporting. A commercial lending channel. And a certified general credential to sign it.
So count the legal units before deciding what to order — legal, not mailboxes, not what the seller says. The difference decides the product, the fee and the turnaround, and getting it wrong wastes all three.
Where these valuations actually go wrong
Not the rent. The expenses.
An owner-operated building frequently shows no management fee, no replacement reserve, and a maintenance line that reflects the owner doing the work himself on Saturdays. Those are real savings to that owner and they do not transfer. A buyer will pay somebody to manage it and will face the roof when it arrives.
So the analysis puts management and a replacement reserve in whether or not they appear in your statements, because the valuation reflects a purchaser’s position rather than yours. That is not a comment on how you run the building.
The second half of the same problem is the reserve figure itself. Taking it from an investor survey rather than from the building is the commonest way one of these goes wrong — and in the pre-war walk-up stock through Paterson, East Orange and Union City, where boilers, roofs, pointing and electrical services are frequently near the end of their lives, a survey number can be a long way under what the building will actually demand.
Capital expenditure history is the document I most want and least often get.
The sample, and why it is stated
Nobody inspects fifty apartments and any appraiser who says he did is telling you something.
The standard is a representative sample — across unit types, floors and condition — with the sample described in the report so a reader knows exactly what was seen. A vacant unit is worth more than three occupied ones for this purpose, because it shows base condition without somebody’s furniture in the way.
Where access is unusually restricted, that is a limitation and it gets disclosed rather than papered over.
Rent control is a ceiling, not a discount
There is no statewide rent control in New Jersey. There are municipal ordinances, they differ substantially town to town, and several of the towns in this service area have one.
Where an ordinance applies, the achievable rent is what the ordinance permits. The gap between that and open-market rent is not money an owner can reach, so it is not added back — a report that treats it as recoverable is describing a building that does not exist.
What the ordinance does create is a different growth profile, and a buyer prices that. The report reflects it explicitly rather than burying it in a rent assumption.
Violations are a cost, not a footnote
New Jersey requires registration and periodic inspection of multiple dwellings. Outstanding items are a real liability, a buyer prices them, and a lender asks.
The report identifies what was disclosed and reflects it. What it does not do is estimate what curing them would cost — that is a contractor’s number, and an appraiser who invents it has produced a figure with nothing behind it in the one part of the report most likely to be tested.
New Jersey licensing note: a building of five units or more requires a state-certified general appraiser. If your matter needs a credential I do not hold, you will hear that on the first call rather than after an engagement letter.
New Jersey specifics
- Rent control is municipal and varies town by town, with no statewide scheme. In a controlled building the achievable rent is what the ordinance permits, and the gap to market is not recoverable by an owner who cannot lawfully charge it.
- New Jersey requires registration of multiple dwellings and periodic inspection under the Hotel and Multiple Dwelling Law. Outstanding violations are a real cost and appear as one.
- The pre-war walk-up stock through Paterson, Passaic, East Orange and Union City carries deferred capital — boilers, roofs, pointing, electrical services — often enough that a reserve assumption taken from a survey rather than from the building is the commonest way one of these valuations goes wrong.
What you receive
- Net operating income built from actual figures, tested against market
- A capitalisation rate supported from comparable sales rather than asserted
- Sales analysed per unit and per dollar of net income, with a reconciliation
- A unit-mix schedule and a stated inspection sample
- Reserve and capital expenditure treatment, explained
- Signed USPAP certification
What I need from you
- A current rent roll and the leases
- Two to three years of operating statements, ideally with a trailing twelve months
- Capital expenditure history — roof, boilers, service, facade
- Access to a representative sample of units, including at least one vacant where possible
- Registration status, and whether a municipal rent control ordinance applies