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The world of real estate appraisal is evolving rapidly with the surge in short-term rentals (STRs) like Airbnb. However, integrating STR data into traditional appraisal methods is complex and poses significant challenges for appraisers.
An obstacle appraisers face is the use of the outdated rental data form 1007, last revised in August 1988. Trying to apply short-term rental data on this form could lead to misleading conclusions. To address this, appraisers have explored the direct capitalization approach, considering occupancy rates, expenses, projected operating expenses, and average daily rental rates (ADR). However, the form lacks market rent opinions, making it unsuitable for the current market.
Compounding the issue, there is no consensus among states on appraising short-term rental income. Some appraisers question their authority in valuing such properties, as STR income differs from traditional real estate income. This raises the question of whether STR income should be treated as business or real estate value.
Valuating Accessory Dwelling Units (ADUs) and STR properties poses additional challenges. Although lease data and ADU sales information can simplify the process, understanding zoning and associated risks remains critical.
The IRS considers STR income as business income, adding complexity to the appraisal process. The income’s association with the host, amenities, and permits makes it challenging to determine its relation to the real property.
Appraisers must exercise caution when including the entire Airbnb business and its assets’ value in property assessments. Doing so could lead to inflated valuations, making such comparisons inadequate for justifying the value of a regular house.
The use of computer-assisted valuation tools and regression analysis has raised concerns about their impact on appraisal credibility. To maintain credibility, appraisers must fully understand and explain these tools before implementing them.
For short-term rental data, appraisers can rely on specialized platforms like DataRabu or AirDNA.
In conclusion, appraising short-term rentals presents unique challenges due to their distinct income sources and commercial aspects. Appraisers must adapt their methods, considering both the underlying real estate value and the value of the STR business as the market continues to evolve. While STR income can aid borrower qualification, it should not be the sole determinant of collateral value. Navigating these complexities allows appraisers to accurately assess the ever-changing landscape of real estate and short-term rentals.
