Rent Comparability Study (Form 1103A): A market analysis comparing your property's in-place rents to comparable properties in the submarket. If your rents exceed market, underwriters adjust income down to sustainable levels—directly reducing your NOI and loan proceeds.
Why Does Freddie Mac Care What Other Properties Charge?
Your T-12 shows you collected $1,200/month in rent. Your leases confirm it. Why would the lender underwrite to less?
Because Freddie Mac underwrites to sustainable income, not historical income. If your rents are above market, tenants will leave when leases expire. The next owner won't be able to maintain your rent levels. Your "income" is actually borrowed time.
How Does the Rent Comparability Analysis Work?
The appraiser completes a Form 1103A Rent Comparability analysis as part of the appraisal process:
| Step | What Happens |
|---|---|
| 1. Identify Comparables | Find 3-5 similar properties (age, size, condition, location) |
| 2. Collect Rent Data | Survey current asking rents and concessions at comps |
| 3. Make Adjustments | Adjust for differences (renovations, amenities, utilities included) |
| 4. Determine Market Rent | Conclude market rent by unit type for your property |
| 5. Compare to In-Place | Compare your actual rents to concluded market rents |
| 6. Underwrite to Lower | Use lower of in-place or market for valuation |
The Comp Selection Matters: The appraiser chooses the comparables. If they pick inferior properties with lower rents, your "market rent" conclusion will be low. Know your comps and be ready to suggest better ones.
What's the Financial Impact of a Rent Adjustment?
A rent haircut flows directly through to your loan proceeds.
Rent Adjustment Impact Example
Scenario: 20-unit property, average in-place rent $1,200/month, appraiser concludes market rent is $1,050/month.
| Metric | Your Rents | Appraiser's Market Rent | Impact |
|---|---|---|---|
| Monthly Rent | $1,200 | $1,050 | -$150/unit |
| Annual GPR (20 units) | $288,000 | $252,000 | -$36,000 |
| NOI (after 40% expenses) | $172,800 | $151,200 | -$21,600 |
| Value (7% cap) | $2,468,571 | $2,160,000 | -$308,571 |
| Max Loan (80% LTV) | $1,974,857 | $1,728,000 | -$246,857 |
The $150 Trap: A $150/month rent adjustment—just $5/day per unit—cost this borrower nearly $250,000 in loan proceeds. Rent comparability isn't a minor adjustment; it's a deal-shaping conclusion.
When Are Rents Adjusted Down vs. Up?
| Scenario | What Happens | Impact on You |
|---|---|---|
| In-Place > Market | Rents adjusted DOWN to market | Lower NOI, lower proceeds |
| In-Place < Market | May be "grossed up" to market (with conditions) | Higher NOI, higher proceeds |
| In-Place = Market | No adjustment | Underwrite as-is |
When Does Freddie Allow Gross-Up?
If your rents are below market, you might think you'd get credit for the upside. Not automatically:
| Property Must Be Stabilized | 90%+ occupied for 90+ days |
| Rent Increase Plan Required | Document how and when you'll raise rents |
| Lease Expirations Matter | Can only gross up units with near-term lease expirations |
| Partial Credit Typical | Usually 50-75% credit for below-market units, not 100% |
The Gross-Up Reality: Gross-up sounds great but is conservatively applied. If your rents are $100 below market, expect credit for maybe $50-$75, not the full $100. Lenders assume execution risk—you may not actually achieve those increases.
What Factors Drive Market Rent Conclusions?
The appraiser adjusts comparable rents for differences from your property:
| Factor | Higher Rent Justification | Lower Rent Result |
|---|---|---|
| Unit Condition | Renovated units, new finishes | Original/dated condition |
| Amenities | In-unit W/D, dishwasher, balcony | No amenities |
| Utilities Included | Landlord pays utilities | Tenant pays all utilities |
| Property Amenities | Pool, gym, covered parking | No common amenities |
| Location | Better school district, lower crime | Inferior location |
| Age/Vintage | Newer construction | Older building |
How Do I Prepare for the Rent Comparability Analysis?
Pre-Appraisal Rent Preparation
- Know Your Comps: Research asking rents at 5-10 comparable properties before the appraisal
- Document Renovations: If you've upgraded units, prepare before/after photos and scope of work
- Calculate Utility Value: If you include utilities, calculate the monthly value to justify rent premium
- Prepare Rent Roll Notes: Explain any below-market units (long-term tenants, Section 8 caps, etc.)
- Show Lease-Up Evidence: Recent leases at your asking rents prove market acceptance
- Identify Premium Justifications: List every feature that supports above-comp rents
The "Trust Me" Trap: Appraisers work quickly and use readily available data. If you don't provide supporting information, they'll use what they find—which may not reflect your property's advantages. Be proactive.
How Do I Challenge a Rent Comparability Conclusion?
If the appraiser's market rent conclusion is too low, you can challenge through the Reconsideration of Value (ROV) process:
| Challenge Type | Evidence Needed | Success Likelihood |
|---|---|---|
| Better Comparables | Nearby properties with higher rents, similar condition | Medium-High |
| Insufficient Adjustments | Document features appraiser didn't credit (renovations, utilities) | Medium |
| Recent Lease-Ups | Show new leases signed at your rent levels | High |
| Concession Differences | Comps offering 1-2 months free, you aren't | Medium |
| "I Disagree" | Opinion without evidence | Zero |
What If My Rents Really Are Above Market?
Sometimes the appraiser is right—your rents are above sustainable market levels. This happens when:
| Legacy Tenants | Long-term tenants paying above-market rents because they don't want to move |
| Market Softening | You raised rents, then market conditions declined |
| Aggressive Pricing | You pushed rents too high; vacancy will eventually follow |
| Comp Concessions | Competing properties are offering concessions you're not matching |
The Honesty Check: If your rents are truly above market, the appraiser is doing their job. You may not like the result, but underwriting to inflated rents creates risk for everyone. The adjustment protects the loan—and ultimately, you.
How Does Rent Comparability Interact with Other Underwriting?
Rent comparability doesn't exist in isolation—it flows through the entire underwriting:
| NOI Calculation | Adjusted rents → adjusted GPR → adjusted NOI |
| DSCR | Lower NOI → lower DSCR → potentially fails 1.20x minimum |
| Value (Income Approach) | Lower NOI → lower value → lower LTV-based loan |
| Debt Yield | Lower NOI → lower debt yield → sizing constraint |
The Cascade Effect: A rent adjustment doesn't just affect income—it ripples through every underwriting metric. A 10% rent haircut can reduce your loan proceeds by 15-20% when you factor in DSCR and LTV constraints.
The Bottom Line: Rent comparability is where your rent roll meets market reality. Freddie Mac underwrites to sustainable income, not wishful thinking. Know your market, document your advantages, and be prepared to defend your rents with comparable evidence—or accept the adjustment.