Real Estate Appraisal

A real estate appraisal is a licensed appraiser's opinion of a property's market value, and on rental property, of its market rent. DSCR lenders rely on the appraisal for both inputs: the value that caps the loan-to-value and the rent schedule that sets the ratio's numerator.

For a single-family rental the appraiser completes a comparable rent schedule (Fannie Mae Form 1007). For two to four units, the small residential income property form (Form 1025) covers value and rent together. The lender typically qualifies on the lower of the lease and the appraiser's market rent.

The income approach to value, NOI divided by a market cap rate, is one of three appraisal methods and the primary one for commercial property. For one to four unit rentals, comparable sales usually drive the value and the rent schedule drives the DSCR. A rent estimate that comes in below the lease is the most common reason a DSCR file is re-underwritten at a lower ratio.

Further reading: Real Estate Appraisal on Wikipedia.