Step 1: Adjust the income and expenses reported by the property being valued
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We adjust a property’s reported income and expenses in a variety of ways to capture market conditions. We also strive to protect property owners from spikes or sharp decreases in value based on one year’s data. Below are a few adjustments:
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Trending: We project a property’s income and expense to the taxable status date (January 5th) from data filed in the previous year and reported for the year before that. So for tax year 2015-2016, which had a taxable status date of January 5, 2015, RPIEs were filed by owners in 2014 and owners reported data for 2013.
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Addbacks for vacancies and owner occupancy: We add on income for vacancy levels in a property beyond what is typical and for owner-occupied portions of a property that don’t generate income but potentially could.
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Lease termination income: We cap the percentage of income for payments for leases being terminated by renters.
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Amortize leasing commission and tenant improvement expenses: We spread out the costs of commissions for bringing in tenants and improving renters’ residences over the term of the tenancy.
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Adjust management expenses: We establish a minimum expense for management expenses based on management expenses reported by all similar properties. This increases reported expenses for properties reporting management expenses below the minimum.
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Add a reserve replacement: We establish a reserve replacement amount for short-lived items for buildings like roofing and appliances based on the median reported in previous years. This increases a property’s reported expenses.
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Properties are also assigned an overall cap on the ratio of their expenses to their income in order to remove outliers, such as owners reporting minimal net income or net operating losses that, if left unadjusted, could distort a property’s value