9-9. ANALYZING THE SUBJECT PROJECT

This section provides guidance to RCS appraisers for inspecting and analyzing the subject Section 8 project and its surrounding neighborhood.

• A. Unit Breakdown. The RCS appraiser must identify the unit breakdown at the subject project as primary versus secondary , as defined in paragraph 9-9.A.2, below. The RCS appraiser must estimate a market rent for each Section 8 unit type, but a Rent Comparability Grid is required only for each primary unit type. For secondary unit types, the RCS appraiser need not complete an entire Rent Comparability Grid . Instead, the RCS appraiser may start with the market rent for a primary unit type and adjust for the minor difference(s). The RCS appraiser must review paragraph 9-13.C regarding estimating market rents for primary and secondary unit types. To identify primary and secondary unit types, the RCS appraiser must:

  1. Identify all unit types that will be included in the renewal contract and any other units the Owner elected, per Section 9-7, to include in the study. The RCS appraiser must recognize a unit type for each rent level for which the Owner is seeking renewal.

  2. Label each unit type as a primary or secondary type using the guidance below. It is possible to have multiple primary unit types.

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• a. The RCS appraiser must consider the number of bedrooms and baths, the unit size, the structure (e.g., townhouse, elevator, walk-up), and any other factors the market would consider to be significant differences. Units will be categorized as “primary” or “secondary” based on having similar unit size, the same number of bedrooms and bathrooms (including additional toilet or shower/bath fixtures), and the same unit configuration (e.g., stacked versus townhome, or walk-up versus elevator-served).

Example: Project has 100 3-bedroom, 2-bath, 1,000–square foot units and 30 3-bedroom, 1.5-bath, 900–square foot units. The Owner charges different rents for these two unit types. The RCS appraiser will label the most common unit type (the 2 bath, 1,000–square foot unit) as primary and the other as secondary.

  - b. If the units being renewed are located on scattered sites, the RCS appraiser must determine if separate unit types will be designated for the different sites. The RCS appraiser must visit each site and assess the extent of any differences in neighborhood, condition, street appeal, services, or market area. If units are located in different market areas or other differences suggest that separate comparables are appropriate, the RCS appraiser must create separate unit types for each site if the sites vary significantly and must use professional judgment in categorizing the unit types at each site as primary or secondary. 

• B. Project Condition and Appeal. The RCS appraiser must conduct a visual inspection of the subject project to observe physical characteristics and assess the project’s condition. More specifically, the RCS appraiser must:

1. Inspect at least one unit of each primary unit type, the project grounds, and the interior and exterior common areas (e.g., lobby, laundry rooms, community or dining rooms, recreation rooms, parking areas, outdoor play areas). If the units being renewed are located on scattered sites, the RCS appraiser must visit each site.

   2. Determine or verify the size of each unit type. Estimate the rentable interior square footage of the unit, excluding the square footage of balconies, mechanical areas, or other non-living spaces.

   3. Take color photos of the items listed below and additional close-up photos as needed to show the project’s condition.

      • a. Subject’s exterior, showing location on the site, exterior design, site layout, and site amenities;

      • b. Interior of typical units; and

      • c. Interior common areas.

   4. Determine and document the project’s design, age, and type of structure (e.g., walk-up, townhomes, low-rise, etc.). Assess the project’s physical condition and overall appeal. Determine the extent of any major renovations.

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• C. Project Amenities and Services. The RCS appraiser must identify all amenities and nonshelter services offered at the subject project and whether they are included in the rent or incidental. The RCS appraiser must:

  1. Identify all unit and site amenities and the type of utilities. The RCS appraiser must consider all characteristics listed on the Rent Comparability Grid and any other characteristics that would affect the rent a tenant would be willing to pay.

  2. Assign a value to the services and amenities available at the property. If a service is available to renters at other properties in the market area, it may carry market value at the subject property and should be considered in the valuation. The value of a service or amenity may be affected by the availability in the community of similar services or amenities. For example, if a project offers a small collection of books as a library, but it is located in close proximity to a municipal library that contains a much larger selection, then the value of that amenity may be diminished.

ct property and should be considered in the valuation. The value of a service or amenity may be affected by the availability in the community of similar services or amenities. For example, if a project offers a small collection of books as a library, but it is located in close proximity to a municipal library that contains a much larger selection, then the value of that amenity may be diminished.

If a service is not available at comparable properties or otherwise observed in the local market, HUD may nonetheless allow an adjustment to RCS rents to reflect the market value of such a service to tenants of the subject property. HUD may limit such adjustments to those services that are appropriate to support low-income families or vulnerable populations in an independent setting and those services which are not already receiving funding support from HUD or another source aside from tenant fees. Examples of such services include after school programs for children of low-income households, a shuttle service to enable households to access social services in the community, cleaning services for elderly or disabled households, etc. In order to assign a valuation to these services, the appraiser should use data from similar markets where possible. The process for determining the valuation must be explained in the narratives accompanying the rent grid. If an owner or appraiser is unsure of whether a service qualifies under this provision, the assigned HUD AE can provide further information regarding inclusion in the RCS.

3. One factor in the appropriate valuation of a service is whether that service is included in the rent. A service is included in the rent if tenants may reliably access it for no additional charge, and if there is either a demonstrated record of providing the service or an agreement with a service provider. Conversely, a service is considered incidental and not included in the rent if there is no history or providing such service, no designated provider, no service plan, and no agreement between the Owner and the provider. The appraiser should make the determination of whether a service is included in the rent or incidental after evaluating evidence supplied by the Owner and agent.

   • a. Services included in the rent. A service is considered to be included in the rent if tenants do not need to pay an additional fee to access the service, it is not primarily funded by a third-party source, and if one of the following two criteria is met. All services that are included in the rent must be reflected annually in Part B of the Rent Schedule (form HUD-92458). If services are added, interrupted, or discontinued, those changes must appear on the next year’s Rent Schedule.

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1. An Owner has an agreement with a credible service provider that specifies the services offered, the hours or frequency of services, and is expected to provide continuity throughout the five-year term of the RCS (even if the term of the agreement is for less than five years). The services must be available on the date of the RCS.

2. An Owner has a credible services plan, that Owner has demonstrated a successful record of providing the service, and that Owner commits to take all reasonable steps to maintain services for the five-year term of the RCS. The services must be available on the date of the RCS.

   3. Chapter 15 Capital Repairs Program . If an Owner plans to add new services to a property following a renewal under the Chapter 15 Capital Repairs program, those services may appear in an RCS subject to HUD approval if the includes a services plan with detailed information about the services that will be introduced. Such a plan should include an explanation of who will provide the services, which facilities will be used to provide the services, a full analysis of the impact of the service provision on the property’s budget, and explanation of who will be able to access the services, how they access such services, and how the users will be made aware of such services. This plan should ensure equitable access of new services to all persons, regardless of protected class (i.e. persons with disabilities, families with children, etc.). These new services must be related to the capital repairs and must be described in the Scope of Work submitted pursuant to a Chapter 15 Capital Repairs HAP renewal request. If an owner fails to implement the services as described in the Scope of Work, the project’s rents may be reduced pursuant to the contract’s Addendum to Renewal Contract under Option One or Option Two for Capital Repairs and/or Acquisition[4] .

• b. Incidental services. A service is incidental if one of the following criteria is met. Incidental services may still warrant a valuation or adjustment of a comparable if there is market evidence that the availability of that service has value to tenants in that market. Only the value of the convenience or availability of an incidental service may be included in an RCS.

  1. Tenants are required to pay to use the service (fee-for-service).

  2. The service is provided on a sporadic or infrequent basis.

  3. The service does not qualify as a service included in the rent and is provided at will by the Owner or a third party, including a third party that has no service agreement with the property. These services may be terminated or altered at any time with no recourse, thus reducing their market value to potential tenants.

  4. The service is primarily funded by a third-party source, such as Medicaid or from the budget of a nonprofit organization. If the owner makes nominal or no financial contributions to provide the service, it is

4 Form HUD-93181 or HUD-93182, depending on the underlying financing.

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considered incidental. For instance, if an owner works with a community organization to provide regular health screenings on-site to elderly tenants with minimal cost to the owner, the appraiser should determine the value of the convenience to a tenant who could access comparable health services through Medicare instead.

• D. Consider the tenant profile at the subject project. When preparing an RCS for a project designed for the elderly/disabled, the RCS appraiser’s valuation of the available amenities and non-shelter services must consider the project’s occupancy. For example, irrespective of the proximity to the project of a municipal library, the value of having a small collection of books at the project may be greater if the project’s occupants are unable to access the library due to their status as elderly or disabled families. Scope of Planned Repairs. If the Owner anticipates an increase in rents based on repairs to be commenced within 12 months of HAP contract renewal (such as in the case of a Chapter 15 HAP renewal), then the RCS appraiser must review the complete list of planned repairs, evaluating each item on the list for its effect on marketability and appeal to prospective tenants.

  1. Typically, the replacement of components that are worn or at the end of their useful lives will not affect marketability. On the other hand, the installation of equipment or systems that represent upgrades may increase the appeal of the property. Examples of upgrades include installing air conditioning or adding dishwashers. Examples of upgrades that do not directly affect living units but may improve marketability include improvements to on-site parking facilities (e.g., providing covered parking at a property formerly offering only open parking or adding additional parking spaces) or adding a non-shelter service such as an onsite childcare facility.

  2. The RCS appraiser must take care to distinguish between outlays that increase marketability and those that do not. For example, an Owner’s plan to install a berm on the site to improve drainage would be unlikely to affect marketability.

  3. If in the RCS appraiser’s judgment, any of the items within the Owner’s scope of planned repairs will affect marketability, then the RCS appraiser must prepare two versions of the Rent Comparability Grid . One version will show pre-repair (“asis”) estimated market rents and the other will show post-repair (“as-repaired”) estimated market rents. It is possible that “dual” Rent Comparability Grid s will not be required for every type of living unit. For example, if kitchen renovations will be completed only for the 2-bedroom units, then “dual” Rent Comparability Grid s will be required only for the 2-bedroom plan.

  4. If the RCS appraiser determines that none of the items on the Owner’s list of planned repairs to the subject property will affect market rent, then the RCS must contain an affirmative statement to that affect.

• E. Neighborhood Characteristics. The RCS appraiser must assess and describe the project’s location and surrounding neighborhood and must:

  1. Evaluate and note factors that would affect market rent levels, such as access to schools, employment and medical centers, transportation, shopping, recreation,

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and community services. The RCS appraiser must identify nuisances (e.g., street noise) and other factors that affect the perceived quality of the neighborhood.