7.7.7 Occupancy/Vacancy and Collection Losses

A. The appraiser must establish a factor for vacancy and collection loss when determining the effective gross annual income for the residential units. The factor must consider both historical and current data (applicable for existing properties) of the subject project, the rental comparables, and any anticipated changes in the market. The factor selected must reflect long-term occupancy rates that are expected to continue. The estimate of occupancy should be based on the actual occupancy of the subject without regard to programmatic constraints imposed on the maximum underwritten occupancy when calculating debt service coverage. The estimate of occupancy must take into account the vacancy and collection (bad debt) loss typical for the subject’s market area and, if applicable, be consistent with the subject’s historical performance.

B. In most cases the appraiser should use income from actual operations and market conditions in determining value. In sizing the loan for purposes of debt service, the underwritten vacancy rates will be the greater of the minimums below and the vacancy loss rates for the subject property. However, the following minimums may be used to develop market value if deemed appropriate by the appraiser.

Minimum Vacancy and Collection Loss Rate Property Type 3% ⚫ Properties with HAP contracts covering 90% or more of the units

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Chapter 7 Valuation & Market Analysis 7.7 Estimating Project Income

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