Quick answer
For one-unit rentals, market rent is typically reported on the comparable rent schedule (commonly Form 1007), attached to the appraisal. For two-to-four unit properties, the small residential income property appraisal (Form 1025) includes rent analysis for each unit. DSCR underwriters use the market rent opinion, often alongside any lease, to set the rent in the coverage ratio.
Overview
In DSCR lending, the appraisal does two jobs: it supports value for loan-to-value purposes and it supports rent for the coverage ratio. The rent analysis is therefore as important to the outcome of a file as the value conclusion. Underwriters read the rent schedule closely because it is the independent third-party source for the numerator of the DSCR calculation.
One-unit properties: the comparable rent schedule
For a single-family residence, townhouse or condominium, the appraiser completes the comparable rent schedule (commonly Form 1007) as an addendum to the main appraisal report. The form presents the subject property next to several comparable rentals, usually three or more, and adjusts each comparable for differences such as location, size, bedroom and bathroom count, condition, amenities and utilities included.
After adjustments, the appraiser reconciles the indicated rents into a single opinion of monthly market rent. The form also records the current lease rent, if any, so an underwriter can see both figures side by side.
Two-to-four unit properties: Form 1025
For duplexes, triplexes and fourplexes, the appraiser generally uses the small residential income property appraisal report (Form 1025). Rent analysis is built into the report rather than added as a separate schedule. The appraiser lists the actual and market rent for each unit, analyzes comparable rental properties, and often develops an income approach to value alongside the sales comparison approach.
How underwriters use the rent opinion
- Vacant properties: the appraiser market rent is often the only rent figure available.
- Leased properties: many programs use the lower of lease rent and market rent; some allow the higher lease rent with proof of receipt.
- Short-term rentals: some programs require a separate analysis or third-party data rather than the long-term rent schedule.
- Multi-unit properties: each unit is considered, and vacant units may be counted at market rent or excluded under program rules.
Each of these conventions varies by lender, program and investor guidelines.
Ordering and timing
The rent schedule must usually be requested at the time the appraisal is ordered, since adding it afterward can require a new inspection or additional fee. Appraisals in business-purpose lending are commonly ordered through an appraisal management process to maintain appraiser independence, and borrowers and brokers generally may not select or direct the appraiser.
Common pitfalls
- Expecting the appraiser to match a listing advertisement or a pro forma rent.
- Failing to provide the appraiser with copies of existing leases at inspection.
- Comparing furnished or short-term rents to an unfurnished long-term rent opinion.
- Not reviewing the comparables when a rent opinion seems low; a reconsideration of value request with relevant data may be possible under lender policy.
Related terms
The rent schedule supplies gross rents for the DSCR ratio and may influence the value used in seasoning analysis on a refinance.