How appraisers set market rent, and what to do if it comes in low

Where the number comes from

Along with the appraisal of value, the appraiser completes a rent schedule, commonly a form called the 1007. They find recently leased comparable properties nearby, adjust for size, condition, and features, and arrive at a market rent for your property.

If the property is already leased, the lender typically compares that lease with the appraiser's figure and uses the lower of the two. A below-market lease you inherited can therefore hold the file down even if the property could rent for more.

What moves the figure

Appraisers work from evidence. The things that help are the things that show up in comparable listings.

• Bedroom and bathroom count, and finished square footage
• Condition and the age of kitchens, baths, and flooring
• Parking, garage, and outdoor space
• Whether utilities or lawn care are included in the rent
• The exact location, which can differ street by street

What to do if it comes in low

First, read the report. Check that the square footage, bedroom count, and condition are right, and look at which comparables were used. An appraiser working from outside your submarket sometimes pulls comps from a weaker pocket.

If something is factually wrong, or stronger comparables exist, you can submit a reconsideration of value through your loan advisor with the specific addresses and data. Opinion is not useful here. Evidence is.

If the number is simply right

Sometimes the rent is what it is. In that case the levers are on the other side of the fraction. More down payment, an interest-only structure, a cheaper insurance policy, or a lower purchase price can all bring the ratio back over the line.

It is also fair to walk away. A deal that only works with an optimistic rent assumption is a deal that will disappoint you on the first lease.