Market Rent Studies
Independent Market Rent Appraisals for Residential, Multi-Residential & Commercial Properties
Understanding what a property can reasonably rent for in the current market can be important for financing, investment decisions, leasing, legal matters and property management.
An asking rent from an online listing does not necessarily represent market rent. A professional market rent study analyzes the property together with relevant rental market evidence to develop an independent and well-supported opinion of market rent.
Cade Appraisals Inc. provides professional market rent studies and rental property appraisal services for property owners, investors, lenders, mortgage professionals, lawyers, accountants and other authorized clients.
Depending on the property and purpose of the assignment, the analysis may consider comparable rental properties, location, property characteristics, condition, amenities, lease terms, vacancy and other factors that influence rental value.
What Is a Market Rent Study?
A market rent study is a professional analysis used to develop an opinion of the rent a property or space could reasonably command within its relevant market, subject to the specific terms and conditions of the appraisal assignment.
Rather than relying on one advertised rental or an owner's estimate, an appraiser researches relevant rental evidence and analyzes how the subject property compares with competing properties.
Market rent studies may be useful for:
Mortgage financing and refinancing
Rental and investment property analysis
Residential rental properties
Multi-residential properties
Commercial properties
Lease negotiations
Legal and litigation matters
Estate-related matters
Financial planning and reporting
Property acquisitions
Other situations requiring an independent opinion of market rent
The appropriate scope depends on the property and intended use of the report.
Market Rent vs. Actual Rent
Market rent and actual rent are not necessarily the same thing.
Actual rent is the amount currently being paid by a particular tenant under an existing rental arrangement or lease.
Market rent is an opinion developed from relevant market evidence for the property and assignment being analyzed.
For example, a long-term tenant may be paying a rent that differs from what a similar property would command if offered to the market under current conditions.
Conversely, an advertised asking rent does not automatically establish market rent simply because a landlord hopes to achieve that amount.
An appraiser analyzes the available evidence rather than assuming that either the existing rent or asking rent represents market rent.
Why Is an Independent Market Rent Opinion Important?
Rental income can significantly influence decisions involving investment real estate.
Property owners and investors may naturally have expectations about the amount of rent a property can generate. However, a professional appraisal should be based on market evidence rather than the desired financial outcome.
An independent market rent study provides a neutral analysis of the property's rental potential.
This can be particularly valuable when market rent is being considered by a lender, investor, lawyer or another party who requires professionally supported valuation evidence.
How Is Market Rent Determined?
The appropriate analysis depends on the type of property.
For a residential property, the appraiser may research comparable rental properties and consider differences between them and the subject.
Relevant factors may include:
Location
Property type
Unit size
Number of bedrooms
Number of bathrooms
Condition and quality
Renovations
Parking
Garage facilities
Basement or above-grade location
Private entrance
Outdoor space
Laundry facilities
Utilities
Included amenities
Furnishings, where relevant
Lease terms
Other characteristics affecting tenant demand
The appraiser analyzes the available rental evidence and determines which properties provide meaningful information about the subject's market rent.
Residential Market Rent Studies
Residential market rent assignments may involve:
Detached houses
Semi-detached homes
Townhouses
Condominiums
Apartments
Duplexes
Triplexes
Multi-unit residential properties
Cottages or other residential properties where appropriate
Rental markets can vary significantly even within the same municipality.
Two similar units may achieve different rents because of location, condition, parking, size, amenities or other characteristics.
For this reason, a professional market rent study considers the subject property's specific competitive market rather than relying solely on broad city-wide averages.
Market Rent Studies for Investment Properties
When purchasing or refinancing an investment property, expected rental income can be an important consideration.
An investor may want to understand whether the existing rent appears consistent with the market or what rent may reasonably be achievable under market conditions.
A market rent study can provide independent rental evidence to assist with investment analysis.
However, market rent is only one component of an investment decision. Operating expenses, vacancy, financing, maintenance, capital expenditures and other factors can also influence investment performance.
Market Rent for Financing & Refinancing
Lenders may request market rent information when evaluating a rental or investment property.
The exact requirements can vary between lenders.
Some financing assignments may require a market rent opinion as part of a broader real estate appraisal rather than as an independent standalone service.
Before ordering a market rent study for mortgage purposes, confirm the lender's requirements and ordering process.
This can help ensure the report is prepared in a format and scope appropriate for its intended use.
Secondary Suites & Basement Apartments
Secondary suites can create additional considerations when determining market rent.
A basement apartment, accessory dwelling unit or other secondary residential unit should not automatically be treated as a legally rentable independent unit simply because it physically exists.
Depending on the assignment, relevant considerations can include:
Zoning
Permitted use
Municipal requirements
Available permits
Unit configuration
Private entrance
Kitchen and bathroom facilities
Parking
Fire and life-safety considerations
Other applicable property information
The appropriate appraisal scope depends on the circumstances and intended use.
Where the legal status or authorization of a unit is uncertain, additional investigation may be required before the appraiser can determine how the space can appropriately be treated within the assignment.
Why Legal Use Can Matter
The physical existence of a rental unit and its legally permitted use are two different questions.
For example, a property may contain a finished basement with a kitchen, bathroom and separate entrance. Those physical characteristics alone do not necessarily establish that the space is authorized as a separate dwelling unit.
This distinction can be important when market rent is being relied upon for financing or another formal purpose.
The appraiser must appropriately identify and address relevant property and land-use information within the scope of the assignment.
Multi-Residential Market Rent Studies
Properties containing multiple rental units may require a broader analysis.
Depending on the property, the appraiser may consider:
Unit mix
Unit sizes
Bedroom counts
Existing rents
Comparable market rents
Vacancy
Parking
Utilities
Laundry
Building condition
Location
Amenities
Lease information
Other factors affecting tenant demand
A multi-residential property's existing rental schedule does not automatically represent current market rent.
Each assignment must be analyzed based on the relevant property and market information.
Commercial Market Rent Studies
Market rent analysis is also important for commercial real estate.
Commercial rental arrangements can be considerably more complex than residential rentals because lease structures and terms can differ significantly.
Depending on the property and assignment, the appraiser may consider:
Property type
Location
Unit or building size
Lease terms
Rental rate structure
Tenant inducements
Operating costs
Additional rent
Parking
Building quality
Condition
Exposure and access
Market vacancy
Comparable lease transactions
Other relevant market evidence
Commercial market rent studies may involve retail, office, industrial, mixed-use and other income-producing properties.
Asking Rent vs. Achieved Rent
Online rental listings can provide useful market information, but an asking rent is not necessarily the amount ultimately agreed upon between a landlord and tenant.
Where available, the appraiser considers the reliability and relevance of different sources of rental evidence.
A professional market rent analysis therefore involves more than searching current listings and averaging the asking rents.
The evidence needs to be considered in relation to the subject property and the terms of the rental arrangement.
What Information May Be Required?
The information needed depends on the property and assignment.
Helpful documentation may include:
Existing leases
Rental agreements
Current rent roll
Property address
Unit information
Floor plans
Utility arrangements
Parking information
Renovation details
Property expense information
Relevant permits or municipal documentation
Information regarding included amenities
For commercial and larger income-producing properties, additional financial and lease
information may be required.
Market Rent & Property Value Are Different
Market rent and market value are related concepts, particularly for income-producing real estate, but they are not interchangeable.
A market rent study develops an opinion of rental value.
A real estate appraisal develops an opinion of the value of the property or property interest defined in the appraisal assignment.
Depending on the client's needs, one or both may be required.
For income-producing properties, rental information may also form part of a broader income approach to property valuation.
Frequently Asked Questions About Market Rent Studies
What is a market rent study?
A market rent study provides an independent professional opinion of the rent a property or unit could reasonably command within its relevant rental market, subject to the scope and assumptions of the assignment.
Is market rent the same as the rent my tenant currently pays?
Not necessarily. Existing contract rent and market rent can differ.
Can you determine market rent for an investment property?
Yes, depending on the property, intended use and assignment requirements.
Can you provide market rent for a basement apartment?
Potentially, but the legal and physical characteristics of the unit may need to be established. The presence of a basement apartment does not automatically mean it can be treated as an authorized separate rental unit.
Do you inspect the property?
Inspection requirements depend on the nature and intended use of the assignment. For property-specific valuation work, sufficient reliable property information must be available to properly analyze the subject.
Can you provide market rent for commercial properties?
Yes. Commercial market rent analysis can be completed depending on the property and assignment requirements.
Can a lender use the market rent study?
Possibly, but lenders may have specific appraisal requirements and ordering procedures. Confirm the requirements with the lender or mortgage professional before ordering the assignment.
Can you use online rental listings as comparables?
Rental listings may provide useful market information, but asking rent and achieved rent are not necessarily the same. The appraiser considers the quality and relevance of the available rental evidence.
Independent Market Rent Analysis
Whether you own a single rental property, a multi-residential building, an investment property or commercial real estate, understanding market rent can provide valuable information for financial and real estate decisions.
Cade Appraisals Inc. provides independent market rent studies based on property-specific analysis and relevant rental market evidence.
Our goal is to provide a clear and well-supported opinion of market rent appropriate to the property and intended use of the assignment.
Need a Market Rent Study?
Contact Cade Appraisals Inc. to discuss the property, rental units and purpose of the market rent analysis.