7.8.1 Purpose

A. The appraiser shall determine the costs to maintain, operate, and repair the project and to defray the costs of ownership. An accurate analysis of operating expenses is essential to determining a realistic estimate of net income before debt, depreciation, or the Borrower’s other non-operating costs. This net income is commonly known as net operating income (NOI).

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Chapter 7 Valuation & Market Analysis 7.8 Project Operating Expenses, NOI

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B. Appraisers must use form HUD-92274 (Operating Expense Analysis Worksheet) to develop project expense estimates to be included in Section E of form HUD-92264 (Project Income Analysis and Appraisal). Form HUD-92274 must be included in the processing file as supporting documentation for form HUD-92264.

C. Market expenses attributed to the subject should not be speculative and should bear some reasonable relationship to the project operating history, understanding that some savings in operating expense line items may be gained when proposed repairs are completed. An example of savings might be reduced utility expenses based on the installation of certain energy-efficient features. Reduced real estate taxes based on a new assessment classification would also be justification for estimating operating expenses lower than indicated by the project-specific operating history.