Two numbers, and they disagree
A two-to-four family has to be looked at twice. Once as a building, on what similar buildings sold for. Once as an investment, on what it earns.
The two rarely agree on the first pass, and the gap is the interesting part.
Take a three-family in Jersey City with tenants a decade in place. Its income value may sit well below what the sales comparison suggests, because those sales are set by buyers who expect to re-tenant at market.
A buyer paying the sales-comparison number in cash would be paying for income the building does not currently produce.
So the report develops both approaches, then says plainly which one the market in that municipality is actually pricing on. Reconciling with a sentence about “giving weight to both” is where these reports go wrong.
The unit count has to be legal
This is the single most common reason an owner’s expectation and a supportable value diverge on small New Jersey multi-family.
A great deal of this housing stock predates the zoning that now governs it. Basements and attics have been converted. A legal two-family operating as a three-family is not unusual.
Where a unit is unpermitted or missing from the certificate of occupancy, it generally cannot be given income credit. That income is not legally reliable — a buyer cannot count on collecting it, and a lender will not underwrite it.
The space may still contribute as living area. It does not contribute as a rentable unit.
Finding this out from an appraisal is considerably better than finding it out from a buyer’s lender three weeks before closing.
Many New Jersey municipalities also require a continued certificate of occupancy on sale or on change of tenancy. Where one exists, it is evidence about what is legally there.
Rent control, where it applies
There is no statewide rent control in New Jersey. There is a substantial patchwork of municipal ordinances.
They differ meaningfully from town to town — different caps, different exemptions, different treatment of vacancy decontrol.
Where an ordinance applies, contract rent can sit well below market, and the difference is not simply added back to reach a value.
What a buyer can actually do with the rent roll is constrained. The analysis has to reflect the constraint rather than an unrestricted market rent.
Access
Tenanted units are the scheduling problem on these assignments, and the reason turnaround runs longer than on a single-family house.
Give as much notice as the leases require, and tell us early which units are likely to be difficult.
Where a unit genuinely cannot be inspected, the report proceeds on a stated extraordinary assumption. That is legitimate, and it is also weaker.
If the number has to withstand scrutiny, it is worth pressing for access first.
Why this is quoted rather than flat
The standard residential fee is flat because the work on an ordinary single-family house does not really scale with its size. Here it does.
Multiple units mean multiple inspections scheduled around tenants. An income approach has to be developed and supported. The comparable sales are far thinner.
You get the number in writing before anything starts.
New Jersey specifics
- Two-to-four family stock is heavily concentrated in Hudson, Essex, Union and Passaic counties, and much of it predates the zoning that now governs the block. A legally non-conforming use is common and has to be identified, because it affects what a buyer could rebuild after a loss.
- Many New Jersey municipalities require a continued certificate of occupancy on sale or change of tenancy. An unregistered or non-conforming unit is a valuation issue, not a paperwork issue — an illegal fourth unit in a legal three-family cannot be given income credit.
- Rent control applies in a substantial number of New Jersey municipalities and the ordinances differ locally. Where it applies, contract rent may be well below market and the difference is not simply added back.
What you receive
- Appraisal report with both a sales comparison and an income approach, and a reconciliation explaining which was given weight and why
- Analysis of actual rents against market rents for the municipality
- Unit-by-unit description where access allowed it, and disclosure where it did not
- Signed USPAP certification
What we need from you
- A rent roll, and the leases if you have them
- Recent operating expenses — taxes, insurance, utilities the owner pays, maintenance
- Which units are owner-occupied and which are tenanted
- Notice of any unit you cannot get access to, as early as possible
- Certificate of occupancy or continued-occupancy documentation, where the municipality issues one