Notes for Rent Grid Analysis and Triggers for Secondary Review

All substantive reviewers must use the notes provided below when completing the Rent Grid Analysis checklist (Excel-based version). The following notes provide line-by-line guidance to substantive reviewers for identifying areas that may warrant a closer evaluation, or in some cases trigger a mandatory second review, as provided in Section 9-16 if the substantive reviewer is a non-appraiser HUD staff. The second reviewer would assess the appropriateness and reasonableness of the specific line item that triggered a second review, as opposed to the entire RCS. The minimum qualifications for performing a substantive review and/or a second review are provided in Section 9-15. A.2 (“Substantive Review”). If the first and second reviewers do not reach consensus, then the trigger item will be reviewed by an RCS review appraiser, whose opinion will prevail as to what revisions, if applicable, need to be made to the RCS. Seeking a second reviewer’s input is not a requirement if the rent grid analysis review is being performed by an RCS review appraiser.

Line 1: $ Last Rent/Restricted. Using a comparable from an affordable/restricted project should only be a “last resort”. Adjustments that would need to be made to a restricted comparable are inherently subjective. Likewise, using a comparable from other categories of project types, such as independent or assisted living facilities or master-planned retirement communities, for an agerestricted Section 8 project, may be difficult to justify because tenants at those types of projects choose them over conventional apartment projects due to the non-shelter services offered at such facilities, and because non-shelter services offered in a Section 8-assisted project are valued differently. In particular, a comparable property that offers a daily meal or meals included in the monthly rent poses specific challenges with regard to determining appropriate rent adjustments. Accordingly, use of rent-restricted projects will trigger a second review. Using a rental comparable that offers one or more daily meals included in the monthly rent, whether that comparable is an independent or assisted living facility, or a master-planned retirement community, will also trigger a second review (the trigger will not apply if the RCS appraiser has used units that do not include daily food service in the rent, even if that comparable provides the option of taking daily food service; the trigger will only apply if paying for daily food service is mandatory at that comparable).

Line 2: Date Last Leased. Adjustments on this line item should be rare since the RCS appraiser should only be using recent lease transactions to begin with. Accordingly, an adjustment on this line exceeding $15 or 3 percent of the comparable’s unadjusted rent, whichever is larger, would be unusual, and thus the substantive reviewer needs to carefully review the RCS appraiser’s explanation for that adjustment exceeding the threshold amount.

s line item should be rare since the RCS appraiser should only be using recent lease transactions to begin with. Accordingly, an adjustment on this line exceeding $15 or 3 percent of the comparable’s unadjusted rent, whichever is larger, would be unusual, and thus the substantive reviewer needs to carefully review the RCS appraiser’s explanation for that adjustment exceeding the threshold amount.

Line 3: Rent Concessions. Concession adjustments should be based on a simple mathematical formula for calculating effective rent (i.e., the total rent paid over the lease term divided by total months of occupancy, including rent-free periods). Difference between nominal rent and effective rent is then entered as the amount of the negative adjustment to the comparable. Use of an amount other than that indicated by the formula above should trigger a second review.

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Line 4: Occupancy Rate. This line item is rarely adjusted. Should be only used if the RCS appraiser is confident that the comparable project consistently runs at unusually high or low occupancy rate because the asking rent is either too low or too high, respectively (See Appendix 9-1-1 under Line by Line instructions). Accordingly, an adjustment on this line exceeding $15 or 3 percent of the comparable’s unadjusted rent, whichever is larger, would be unusual, and thus the substantive reviewer needs to carefully review the appraiser’s explanation for that adjustment exceeding the threshold amount.

Line 6: Structure/Stories. Adjustment on this line item can be based on a variety of factors, such as walk-up versus elevator, or stacked flat versus townhome configuration. The appraiser should try to select comparables that have the same structure type as the subject project. Scale of adjustments should typically be modest. An adjustment on this line exceeding $15 or 3 percent of comparable’s unadjusted rent, whichever is larger, would be unusual, and thus the substantive reviewer needs to carefully review the RCS appraiser’s explanation for that adjustment exceeding the threshold amount.

Line 7: Year Built/Yr. Renovated. This adjustment is inherently subjective and needs to be accompanied by a clear, comprehensive explanation by the RCS appraiser. Typically, adjustments should not be made at all for age differences of just a few years. An ideal approach is to adjust in multiples of a fixed number of years of age difference. For example, each multiple of three years of age difference between the subject and the comparable would be assigned a certain dollar amount of adjustment. An adjustment on this line exceeding $5 or 1 percent of comparable’s unadjusted rent, whichever is larger, for each year of age difference should be a trigger to for a second review.

t in multiples of a fixed number of years of age difference. For example, each multiple of three years of age difference between the subject and the comparable would be assigned a certain dollar amount of adjustment. An adjustment on this line exceeding $5 or 1 percent of comparable’s unadjusted rent, whichever is larger, for each year of age difference should be a trigger to for a second review.

Line 8: Condition/Street Appeal. This adjustment is often subjective and needs to be accompanied by a clear, comprehensive explanation by the RCS appraiser. Based on the mandatory five levels of ratings (Excellent, Good, Average, Fair and Poor), an adjustment of more than $20 or 4 percent of comparable’s unadjusted rent, whichever is larger, for each level of rating difference triggers a second review. For example, a positive adjustment for an “Average” rated comparable versus an “Excellent” rated subject, should not exceed $40. Due to the potential for overlap between adjustment parameters, if the RCS appraiser has made an adjustment also on Line 7 for Year Built/Renovated, the trigger for a second review is $15 or 3 percent of comparable’s unadjusted rent, whichever is larger, for each level of rating difference for Line 8.

Line 9: Neighborhood. This adjustment is inherently subjective and needs to be accompanied by a clear, comprehensive explanation by the RCS appraiser. Based on the mandatory five levels of ratings (Excellent, Good, Average, Fair and Poor), an adjustment of more than $20 or 4 percent of comparable’s unadjusted rent, whichever is larger, for each level of rating difference triggers a second review. For example, a positive adjustment for an “Average” rated comparable versus an “Excellent” rated subject, should not exceed $40 or 8 percent of comparable’s unadjusted rent, whichever is larger.

Line 10. Same Market. Using a comparable from a different market should be rarely used, as adjustments that would need to be made to a comparable in a different market are inherently subjective. Accordingly, an adjustment on this line item should typically not exceed $15, whether it is to account for a different market or for distance to the subject project. For adjustments exceeding $15 or 3 percent of comparable’s unadjusted rent, whichever is larger, the substantive

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reviewer needs to carefully review the RCS appraiser’s explanation for that adjustment exceeding the threshold amount.

Lines 11-13: Number Bedrooms/Bathrooms/Unit Interior Square Feet. The appraiser should be able to justify adjustments with specific market data, such as paired comparable analysis. A trigger for a second review would be if the RCS appraiser adjusts for a size difference less than 10 square feet. The RCS appraiser should be using comparables with units as close as possible in size to the subject units, so very large adjustments based on large differences in unit size are likewise discouraged. Total net adjustments for line items 11 through 13 exceeding $100 or 20 percent of comparable’s unadjusted rent, whichever is larger, would suggest that the comparable may not be suitable, and thus for an adjustment exceeding that threshold amount, the reviewer needs to carefully review the appraiser’s explanation.

Line 14: Balcony/Patio. Adjustment for this line should typically be nominal, generally not exceeding $10 (but for some special cases such as resort areas, warm climates, adjustments may be slightly higher). RCS appraiser must describe the basis for any dollar amount of adjustment that exceeds $10 or 2 percent of comparable’s unadjusted rent, whichever is larger.

Line 15: AC/Central/Wall. While adjustment for type of AC will rarely exceed $10 or $15, adjustment for lack of AC may be more substantial in some markets. RCS appraiser must describe the basis for any dollar amount of adjustment that exceeds $10, or 2 percent of comparable’s unadjusted rent, whichever is larger.

Line 16: Range/Refrigerator. It is not unusual in some markets for Owners to not provide a refrigerator. The amount of adjustment should typically not exceed the monthly cost of equipment rental.

Line 17: Microwave/Dishwasher. The substantive reviewer needs to carefully review the RCS appraiser’s explanation for an adjustment on this line exceeding a total of $20 or 4 percent of comparable’s unadjusted rent, whichever is larger.

Line 18: Washer/Dryer. If the unit includes hookups but the equipment is not provided by the Owner, the amount of adjustment should typically not exceed the monthly cost of equipment rental.

Line 19: Floor Coverings. As floor coverings typically vary little within a given market (e.g., carpet, except vinyl in kitchens and baths), an adjustment on this line should rarely exceed $10 to $15, if made at all. For adjustment amount exceeding $10 or 2 percent of comparable’s unadjusted rent, whichever is larger, the RCS appraiser must discuss and provide market evidence. Adjustments for specialty coverings (e.g., ceramic tile in some areas of the living unit) should be in Line 22 (“Special Features”) rather than in this line item.

Line 20: Window Coverings. While is it common to adjust for Owner-provided vs. tenantprovided window coverings, any adjustment at all for type of window covering is unusual, and thus would only be acceptable if RCS appraiser provides market evidence for adjustments exceeding $10 or 2 percent of comparable’s unadjusted rent, whichever is larger.

Line 21: Cable/Satellite/Internet. If the Owner provides connection but the tenant pays the monthly service fee, the amount of adjustment should not exceed the published monthly fees.

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Line 22: Special Features. If the RCS adjusts more than $10 or 2 percent of comparable’s unadjusted rent, whichever is larger, for any individual item, market evidence must be cited in the RCS.

Lines 23. Blank line. The RCS appraiser should use this line to add a unit amenity that is not listed but significantly affects the rent a tenant would pay. The RCS appraiser must describe the amenity on the line provided and make dollar adjustments as appropriate.

Line 24: Parking. As described in Appendix 9-1-1 (Line-by-Line Instructions), there are three distinct types of adjustment may be included in this line. These are (a) availability of parking, (b) cost of parking, and (c) type of parking facility. Explanation provided in the RCS should be sufficiently clear for the substantive reviewer to follow just how the adjustments made fit into these respective categories. A chart is suggested if more than just a few simple adjustments are made.

Line 25: Extra Storage. As described in Appendix 9-1-1 (Line-by-Line Instructions), RCS appraiser must distinguish between adjustments for availability of storage versus cost of storage. The substantive reviewer needs to carefully review the RCS appraiser’s explanation for a total adjustment on this line exceeding $20 or 4 percent of comparable’s unadjusted rent, whichever is larger.

Line 26: Security. The substantive reviewer needs to carefully review the RCS appraiser’s explanation for an adjustment on this line exceeding $15.

Line 27: Clubhouse/Meeting Rooms. The substantive reviewer needs to carefully review the appraiser’s explanation for an adjustment on this line exceeding $10.

Line 28: Pool/Recreation Areas. While generally nominal, adjustment on this line could be $15 or more in some markets. RCS appraiser must provide market evidence to justify adjustments exceeding $10 or 2 percent of the comparable’s unadjusted rent, whichever is larger.

Lines 29-31: Business Center/Service Coordination/Non-shelter Services. RCS Appraiser should explain any adjustment within these categories. Since it is rare for a project to offer more than a few distinct categories of non-shelter services, total net adjustments to any comparable for these line items exceeding $50 or 5 percent of the comparable’s unadjusted rent, whichever is larger, should be a trigger for a second review.

Service Coordination/Non-shelter Services. RCS Appraiser should explain any adjustment within these categories. Since it is rare for a project to offer more than a few distinct categories of non-shelter services, total net adjustments to any comparable for these line items exceeding $50 or 5 percent of the comparable’s unadjusted rent, whichever is larger, should be a trigger for a second review.

Lines 33-39: Utilities. To account for Owner-paid versus tenant-paid items, the RCS appraiser should explain the criteria used. Typically, published housing authority utility allowances will represent an upper limit for any category. Use of adjustment amount for any utility category that exceeds the respective published allowance would be a trigger for a second review. The RCS appraiser may also choose to adjust for tenant preferences, when applicable, for type of utility (e.g., gas cooking versus electric, gas heat versus electric), but those adjustments will typically be small (see discussion in Appendix 9-1-1).

Line 46: Estimated Market Rent. As described in Section 9-13 and Appendix 9-1-1, the RCS must note which comparables were weighted over others for purposes of evaluating the adjusted rents, and also the reasons why those comparable were weighted over others.

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