9-4. ALTERNATIVES TO RENT COMPARABILITY STUDY

In lieu of procuring an RCS to demonstrate that proposed Section 8 rents do not exceed comparable market rents, an Owner requesting renewal under the renewal options indicated below may, with prior written approval from HUD, rely on one of the following two alternative methods for establishing comparable market rent levels. These alternatives may also be available for fifth-year comparability adjustments, subject to a determination by the assigned AE that market conditions have not significantly changed since the prior comparability adjustment.

Method One: Available only to Owners requesting renewal or fifth-year comparability adjustment under Option Two, this method involves comparing the proposed Section 8 rents to Small Area Fair Market Rents (SAFMRs). (See Section 9-5.)

Method Two: Available only to Owners requesting renewal or fifth-year comparability adjustment under Options One or Two, this method involves comparing proposed Section 8 rents to rents charged for comparable unassisted units in the same project. (See Section 9-6.)

Both of these alternative methods are intended to provide additional flexibility and local market specificity, subject to the Owner’s discretion, to avoid the cost and processing time associated with obtaining an RCS. Use is limited to a HUD determination that market indicators strongly suggest that the proposed Section 8 rents do not exceed comparable market rents, and an Owner must obtain HUD’s prior written approval to use an alternative method. If such approval is granted, then SAFMR or unassisted comparable rent level establishes a comparable market rent for the Section 8 rents which is used in rent conclusions pursuant to the chosen renewal option.

9-5. METHOD ONE: COMPARING PROPOSED SECTION 8 RENTS WITH SAFMRS

• A. Small Area Fair Market Rents (SAFMRs). Under this method, the SAFMR rent level serves as the comparable market rent ceiling that is otherwise established by an RCS. The SAFMR is an estimate of rent plus the cost of utilities for a ZIP code area, set at the 40th percentile level (i.e., the dollar amount below which the rent for 40 percent of standard quality rental housing units within the ZIP code area falls). HUD publishes SAFMRs annually, by posting them to https://www.huduser.gov/portal/datasets/fmr/ smallarea/index.html. SAFMRs are published for ZIP codes in metropolitan areas only; HUD does not calculate SAFMRs for ZIP codes in nonmetropolitan counties. For properties in nonmetropolitan areas, FMR should be used instead: https://www.huduser.gov/portal/datasets/fmr.html

• B. Eligibility. An Owner who requests renewal under Option Two or who wishes to use Method One to establish a fifth-year comparability adjustment rent ceiling may request HUD approval to establish a comparable market rent ceiling using Method One if the proposed Section 8 gross rent potential at renewal is less than 90 percent of the SAFMR potential for the units under the HAP contract being renewed. Since the SAFMRs are inclusive of utilities, the Section 8 gross rent potential must include utilities in order to make the two figures comparable.

eiling may request HUD approval to establish a comparable market rent ceiling using Method One if the proposed Section 8 gross rent potential at renewal is less than 90 percent of the SAFMR potential for the units under the HAP contract being renewed. Since the SAFMRs are inclusive of utilities, the Section 8 gross rent potential must include utilities in order to make the two figures comparable.

• C. Owner’s Request. To request renewal using this method, an Owner must submit the following no later than 120 days before the expiration of the Section 8 contract:

  1. Request to Renew HAP Using FMRs as Market Ceiling (Form HUD-9630).

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  - a. The proposed Section 8 gross rent potential used in the above comparison must be the current rent potential, adjusted by the OCAF or budget; 

  - b. The potential must be the gross potential (contract rent plus utilities) to make the figure comparable to SAFMRs, which include utilities; and 

  - c. The Section 8 gross rent potential must be less than 90 percent of the SAFMR potential for the units being renewed under the request. 

2. Cover Sheet (Form HUD-9624). The Owner must identify all HAP contracts to which the project is subject, including the HAP contract for which renewal is being requested.

3. Either Budget Worksheet: Income and Expense Projections (Form HUD-92547A), if seeking a budget-based adjustment; or Steps 1 and 2 of the Operating Cost -

Adjustment Factor (OCAF) Worksheet (Form HUD 9625), if seeking an OCAFdriven adjustment.

• D. HUD processing. The Account Executive (AE) will review the Owner’s request to determine whether the use of SAFMRs is appropriate and will render a decision within 20 calendar days of receiving the request, documenting the decision on the Request to Renew HAP Using FMRs as Market Ceiling, as completed by the Owner, and in the Integrated Real Estate Management System (iREMS). The AE may consult the Production Technical Specialist Branch Chief to assist with this determination.

  1. Due Diligence. The AE who processes the request must be familiar with the project’s condition and amenities and must seek a state-certified appraiser’s input as to prevailing rent levels in the subject’s market area. In addition to verifying and validating the Owner’s computations, the AE must consider the following questions:

     • a. Are the subject project’s units unusually small or large? Are they substantially similar to or different from units typically offered in the market area?

     • b. Did an RCS completed on another project in the market area within the last three years produce market rents that were significantly lower than the SAFMRs?

     • c. Does the project’s prior RCS show that the project’s Section 8 rents exceeded rents in the market area?

  2. Approval/Denial. The AE must approve the Owner’s request to use SAFMRs in lieu of an RCS unless, based on the AE’s due diligence review and/or the input of a state-certified appraiser, the AE concludes that the proposed rents are above market.

• a. If HUD denies the Owner’s request, HUD may, upon the Owner’s request, issue a short-term renewal contract to allow the Owner a reasonable period of time to obtain an RCS prepared in accordance with Sections 9-9 through 9-13. Chapter Two explains how to set rent levels for short-term renewal contracts.

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• b. An Owner may not appeal HUD’s denial of their request to use SAFMRs in lieu of submitting an RCS.