Part E. Utilities (lines 33 through 39)

Lines 33 through 39. Since tenants make housing choices based upon total shelter cost (rent + utilities), estimated outlays for utilities reduce, dollar for dollar, the amount a prospective tenant is willing to pay for rent. If a utility is included in the subject’s rent, but not in the rent of the comparable (or vice versa), the RCS appraiser must estimate the rental value of that utility and adjust accordingly. For projects with typical utility costs, the ‘rental value’ is probably close to what prospective tenants would expect to pay. However, for projects with unusually low utility costs, prospective tenants initially may overestimate utility costs, putting rental value slightly above actual cost. For projects with unusually high utility costs, the reverse may be true. Prospective tenants initially may underestimate utility outlays, causing rental value to be less than utility costs they incur following move-in.

For lines 33 through 39, the RCS appraiser must enter “Y” if the service is included in the rent and “N” if it is not. The RCS appraiser must follow the Y or N entry with a slant bar and the energy source for the utility addressed on that line. If the project does not have a utility listed here, the RCS appraiser may leave the space blank. “Other Electric” on line 37 includes the cost of electricity for things not listed separately on the form (e.g., lights and outlets).

When making adjustments on lines 33 through 39, the RCS appraiser must consider if a utility is:

1. excluded from the comparable rent but included in the subject rent, the RCS appraiser must enter a positive adjustment that reflects the amount prospective tenants would reasonably expect to pay for that utility at the comparable.

2. included in the comparable rent but not the subject rent, the RCS appraiser must enter a negative adjustment that reflects what prospective tenants would reasonably expect to pay for that utility at the subject. Since tenants make housing choices based upon total shelter cost (i.e., rent + utilities), estimated outlays for utilities reduce the amount a prospective tenant is willing to pay for rent.

Appendix 9-1-1 – Published March 2023

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3. included in the rent at both the subject and the comparable, a prospective tenant would probably perceive these as equal choices even if the energy sources (gas, electric, or oil) differ, and no adjustment would usually be needed by the RCS appraiser. However, if the RCS appraiser has evidence that the type of utility affects tenant preferences and rents, then the RCS appraiser may consider adjustments for tenant preferences. Example: Tenants may prefer gas over electric heat in severely cold locations. Such adjustments, when applicable, should not exceed a nominal amount of $10 or 2 percent of unadjusted rent of the comparable, whichever is larger; the RCS appraiser needs to explain any adjustment exceeding that nominal amount.

The RCS appraisers may use any reasonable method to value expected utility outlays, but must identify the method used and explain how the dollar adjustment was derived. Some data sources commonly used to value utility adjustments are listed below.

1. Regional Utility allowances published by independent public agencies. When using this source as the basis of adjustment in any utility item, RCS appraisers must be mindful that such published allowances typically represent the very high end of a reasonable range for each respective utility item.

2. Data gathered from utility providers.

3. Data gathered from tenants and landlords.

4. A HUD/CA approved utility allowance if the type of service and building attributes considered in developing the utility allowance are similar to the comparable being adjusted.