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The HUD Multifamily Appraisal Process

HUD 221(d)(4) Appraisals: The Basics

One of the most important third-party reports required in the HUD 221(d)(4) application process is the appraisal. During the appraisal, a qualified property appraiser will examine the development project to determine its potential value, income, and profitability. All of this means that before ordering a HUD site appraisal, owners/developers need to be extremely prepared, and engage in constructive discussions with their architectural firm, their lender, and their general contractor. This information has been taken directly from the HUD Multifamily Summary Appraisal Report

Basic, Neighborhood and Site Information  

The first part of the appraisal process for HUD multifamily construction loans reviews information about the general site layout, construction plans, and an analysis of the local real estate market, including the growth rate and various applicable trends. 

  • Basic information, including:

    • Address

    • Project size and type

    • Number of units

    • Number of buildings

    • Building foundation information

    • Basement floor information

    • Planned recreation areas

  • Neighborhood information, including:

    • Growth rate

    • Area type (urban, suburban, rural)

    • Property values

    • Demand/supply

    • Rent controls

    • Present land use (i.e. commercial, multifamily, 2-4 family, vacant, etc.)

    • Predominant occupancy (i.e. owner, tenant, vacant)

  • Site information, including:

    • Dimensions

    • Zoning compliance (legal, illegal, legal nonconforming (grandfathered))

    • Market rent plans (percentages of low end/high end, rent restricted, etc.)

  • Additional property information, including:

    • Date acquired

    • Purchase price

    • Additional costs paid or accrued

    • Relationship between buyer and seller

    • Utilities on-site

    • Unusual site features (rock formations, cuts, fills, retaining walls, etc.)

Income Estimate, Amenities, and Services 


The next parts of the HUD 221(d)(4) appraisal process will review the estimated income that the project can generate on a monthly basis. It will review factors like the number of units and how much income they can produce, as well as other sources of income, like parking. The appraiser will also list any features or amenities that are available to residents, including both those that are inside the unit (i.e. kitchen appliances, patios, unit security systems) and those for the project as a whole (i.e. tennis courts, swimming pools, building security systems.) By doing this, the appraiser can help determine the financial viability of the project, as well as get an idea of what the project has to offer potential residents. 

  • Estimate of income, including:

    • Number of each family unit type

    • Rentable living area (sq. feet)

    • Composition of units

    • Unit rent per month

    • Total monthly rent per unit type

    • Laundry fees

    • Commercial income (with attached documentation)

    • Off-street parking and other non-commercial ancillary income

    • Total estimated monthly gross income at 100% occupancy

    • Non-revenue producing spaces (i.e. rooms for live-in employees)

    • Personal benefit expenses (i.e. utility expenses for live-in employees)

And, including: 

  • Exercise rooms

  • Sauna/steam rooms

  • Tennis courts

  • Racquetball courts

  • Coin laundry facilities

  • Picnic or play areas

  • Swimming pools

  • Community rooms

  • Jacuzzis/community whirlpools

  • Amenities and services included in rent, such as:

    • Gas or electric ranges

    • Gas or electric fridges

    • Microwaves

    • Balcony/patio

    • Carpet

    • Disposal/compactor

    • Dishwasher

    • Window treatments

    • Washer/dryer (in units)

    • Unit/project security systems

Unit rating, project rating, and annual expenses

The next parts of the HUD multifamily appraisal process consists of unit ratings. These involve an examination of the suitability and adequacy of individual units and their features, and a project rating. This examines the quality and livability of the project as a whole. They also examine the annual expenses of the project in order to compare them against the project's projected income. 

  • Unit rating, consisting of:

    • Room size and layout

    • Adequacy of closets and storage

    • Adequacy of plumbing

    • Adequacy of soundproofing

    • Adequacy of electrical

    • Livability

    • Marketability

  • Project rating, consisting of:

    • General appearance

    • Amenities and recreational facilities

    • Density (units per acre)

    • Unit mix

    • Quality of construction

    • Condition of exterior

    • Condition of interior

    • Vertical and horizontal soundproofing

  • Estimate of annual expense, consisting of:

    • Administrative costs (advertising and management)

    • Maintenance costs, including:

      • Decorating

      • Repairs

      • Exterminating

      • Insurance

      • Ground expense

    • Operating costs, including:

      • Elevator expenses

      • Fuel (heating and domestic hot water)

      • Lighting and misc. power

      • Water

      • Gas

      • Garbage and trash removal

      • Payroll

    • Tax costs, including:

      • Real estate, estimated assessed value

      • Personal property, estimated assessed value

      • Employee payroll tax

Financial Metrics 


During the final part of the HUD appraisal process, the appraiser reviews a variety of financial metrics, which helps them determine the project's potential financial health. These include income computations, estimates of legal and organizational costs, and other metrics. 

  • This information includes:

    • Income computations

    • Estimated replacement cost

    • Carrying charges and financing

    • General fees

    • Legal, organization and audit fee

    • Estimate of operating deficit

    • Project site analysis and approval, including:

      • Location and neighborhood acceptability

      • Utility site availability

      • Size/site adequacy

      • Site zoning permissions (accepted use)

      • Market analysis (i.e. will people rent at the proposed price?)

    • Value fully improved

    • Acquisition cost

    • Other costs

    • Value of land and cost certification

    • Income approach to value

    • Comparison approach to value

    • Reconciliation

    • Construction cost analysis (must be completed by a construction cost analyst)

To lean more about how a HUD 221(d)(4) loan can fund your multifamily project, fill out the form below and an expert HUD loan advisor will get in touch.