Updates to Rent Comparability Studies Chapter of Section 8 Renewal Guide Makes Things More and Less Clear

Published by H. Blair Kincer on Tuesday, January 17, 2017 - 12:00am

The content highlights provisions unique to RCSs when prepared for an annual adjustment factor (AAF) rent determination (Section 9-2.C).

The U.S. Department of Housing and Urban Development (HUD) issued substantial revisions Dec. 1, 2016, to Chapter 9 of the Section 8 Renewal Policy Guide, which provides guidance to appraisers and reviewers for completing a rent comparability study (RCS).

The changes to Chapter 9 go into effect March 1 and the alterations can be significant, so users and authors of RCSs should understand the changes and how they affect conclusions and reporting. The following highlights some of the more pertinent revisions:

  • Chapter 9 was reorganized to identify the responsibilities of each business partner (owners, appraisers and reviewers) in one place. Section 9-3 now provides the following graphic illustrating the new chapter’s organization and the application among stakeholders.
Blog Chart Section 8 Chapter 9 Breakdown
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  • The revised chapter clarifies that the option to use fair market rents (FMRs) or rents in non-Section 8 units to determine the market rent are only available for Option Two contracts (Section 9-4).
  • HUD clarifies that the options described in Section 9-4 can only be used by the owner upon approval by HUD (Section 9-5.D).
  • Triggers are established for a second review if the substantial review is undertaken by a non-appraiser.
  • Clearer qualifications are provided for HUD reviewers (Section 9-15.A).
  • More precise instructions are provided about why and how adjustments to the rent grid are made (Section 9-12.C).
  • Additional documentation is required of appraisers if an adjustment on the rent grid exceeds a nominal amount or a percentage of the unadjusted rent of the comparable, whichever is greater (Section 9-12.C).

The two most significant changes to Chapter 9 for appraisers are the final two items, which relate to rent grid adjustments in RCS reports. The chapter now makes it clear that for rent grid line item adjustments beyond a nominal figure–now defined by HUD per Appendix 9-1-2–appraisers must provide both the “why” and the “how” for the concluded adjustment in order to be considered a HUD-compliant RCS report. Bifurcating the discussion is a significant step in documenting the reasoning and support required in all RCS documents. This may become a significant hurdle in supporting some adjustments. 

Stating why an adjustment was considered is typically more straightforward, such as recognizing a deficiency or advantage of a subject property relative to a comparable property. The requirement to adequately explain how the adjustment was derived goes a step further in emphasizing the importance of documentation in the narrative adjustment support. While it has long been an expectation that adjustments be reasonable and supported, the guide now makes clear the degree of documentation required and acceptable methods of support for adjustments. This is a significant addition to the previous guide. Practitioners will have to be vigilant and support the adjustments with data and analyses that are reasonable and acceptable to HUD reviewers. This clearly raises the bar for appraisers.

Please contact H. Blair Kincer, MAI, CRE for questions regarding Chapter 9 changes or for appraisal and rent comparability study services.