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Commercial Appraising During COVID-19: A Lender’s View


COVID-19 has an ongoing impact on the multifamily housing appraisal process and the multi-family apartment market. Read on for an understanding of how appraisers have adapted due to the pandemic what to expect in terms of market changes.

The Impact of COVID-19 on the Appraisal Process

There are many aspects of the commercial appraisal process that have been, and will continue to be, impacted by COVID-19. Here are a few of the key differences to be aware of.

Limited Inspections

For HUD insured properties, it is possible that a waiver request can be made to reduce the sampling requirements, and inspect units that are currently vacant.  This is one of the concessions that may be available in regards to normal appraisal requirements. 

Due to the pandemic, in some cases appraisers are able to reduce the sample size of individual units, to avoid exposure to the virus. In some circumstances, inspection will be limited to only interior common areas and vacant units, in order to avoid occupied units that place the appraiser and residents at risk.

However, whether requirements are waved and the above concessions are made is decided case-by-case and is determined based on property age and insurance.

Increased Expenses

Many appraisers and underwriters will factor in increased expenses for projects due to daily sanitization practices that have been put in place to keep the residents of apartment communities safe.  Common spaces in apartment buildings, such as elevators, hallways, community rooms, and fitness centers are being sanitized daily.

Analysis of Market Conditions

One of the most important aspects of an appraisal is the analysis and breakdown of current and near-future market conditions.  The appraisal report will include an assessment of the possible impact of the coronavirus pandemic, but it is very difficult to predict the long-term impact on the multifamily apartment market. 


The Impact of COVID-19 on the Multifamily Apartment Market

There are many factors impacting how the multifamily apartment market will fare overall, including the impact of COVID-19 on income, transactions, supply and demand.

Impact on Income

Some multifamily projects may see a short-term decrease in income, due to increased unemployment and the economic fallout caused by the pandemic.  However, the stimulus checks received by most individuals should help to mitigate some of the risk of lost rental income due to short-term job loss. 

Impact on Market Transaction Volume

The market transaction volume has seen a slight increase since the initial stay-at-home orders have been lifted and different states are slowly beginning to reopen the sectors that were deemed the highest risk.  However, there has been a slowdown in new construction due to the shutdown and limit of different trades on the site, to ensure worker safety and meet required social distancing measures that are in effect.

Impact on Supply

The pandemic will certainly have an impact on future supply.  Current markets that are over-supplied will fall back into equilibrium, and markets that are undersupplied will see a shortage.  This will lead to increase in occupancy and rents in the undersupplied markets.

The Impact on Property Value

The current pandemic may impact property value. Appraisers use various methods to value properties. The income approach is used by some appraisers to determine property value. The income approach involves using estimated future property income to estimate property value. This method is often used by appraisers of rental properties, due to the rental income received.

The Purchase of Multifamily Apartments to Mitigate Risk

Many investors in retail or office properties will likely seek to purchase multifamily apartments as a safe haven to weather the economic downturn suffered by restaurants, retail and more.  With ownership of multifamily apartments, income is spread over a large number of rental units, mitigating risk.  However, the short-term income loss from tenants that lose their jobs and are unable to pay their rent will cause an increase in legal expenses for owners, and a decrease in (NOI) Net Operating Income in the near future that will decrease the value of the project in the short term. 


It is impossible to predict the full impact of COVID-19 on the multi-family apartment market and all appraisals, but awareness of these key factors can help us to manage risk. 

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