Two Ways to Price a Six-Unit
Broker Sam is competing for the listing of a six-unit apartment building. The owner paid $740,000 in 2019 and wants $985,000. Sam's data: three comparable six-unit sales at $1.05M, $1.12M, and $1.28M, the last closed with seller financing at below-market rates. The subject's rents total $82,000 per year gross, vacancy and credit loss run 6%, operating expenses are $31,000, and the going cap rate for this asset class is 6.0%. A neighbor tells the owner a similar building 'went for $1.3 million.' Sam's condo CMA nearby suggests $950,000. The owner needs to net $700,000 to retire the mortgage and says, 'Just list high and let it sit.'
1. Compute the income-approach value and reconcile it against the comparables.
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Income approach:
- Effective gross income: $82,000 × 0.94 = $77,080
- Net operating income: $77,080 − $31,000 = $46,080
- Value at a 6.0% cap rate: $46,080 ÷ 0.06 = $768,000
Sanity check with a gross rent multiplier: $768,000 ÷ $82,000 = 9.4 GRM.
Reconciliation. The comparables imply cap rates of 4.4%, 4.1%, and 3.6% if they carried the same NOI - far below the 6.0% Sam is using. That inconsistency means one of two things: the comparables have materially higher rents and lower expenses, or Sam's cap rate is wrong. The $1.28M sale involved below-market seller financing, which typically carries a price premium and should be adjusted downward or weighted lightly.
The condo CMA is not a real comparable - different property type, different buyer pool, different income profile - and should be excluded, not averaged in. Sam's defensible range is roughly $740,000 to $800,000 pending verification of the comparables' actual rent rolls.
2. How should Sam respond to 'list high and let it sit'?
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Sam may accept a lawful pricing instruction - the client sets the price - but Sam owes honest advice and must not misrepresent value.
What Sam should say: at $985,000 the implied cap rate on a $46,080 NOI is 4.7%, which this buyer pool will not pay. An overpriced income property develops a stale listing: days on market climb, buyers assume something is wrong, and the eventual reduction usually lands below where a correctly priced launch would have. Show the arithmetic rather than argue.
What Sam must not do: quote $985,000 as an appraised or supported value, promise a sale at that number, or advertise the property in a way that misstates its income or condition. Sam should document the pricing recommendation and the owner's decision in writing. Sam can also propose a staged plan - launch near $795,000 with a review date - which respects the client's goal without staking the listing to an unsupportable number.
3. What price does the owner actually need, given the $700,000 payoff?
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Work backward from net proceeds. Assume a 6% total commission and roughly 2% in closing costs (transfer taxes, attorney, title, prorations): the seller nets about 92 cents per dollar of price.
Required price ≈ $700,000 ÷ 0.92 = $760,900.
That is a useful number, because it sits just below Sam's income-approach value of $768,000. At $768,000 the seller nets roughly $768,000 × 0.92 = $706,600 - about $6,600 of cushion over the payoff.
At the owner's $985,000 the net would look far better on paper (about $906,000), but only if a buyer appears. Sam should present all three figures side by side - payoff floor, income-approach value, and the aspirational number - and make clear that the $761,000 floor is achievable in this market while $985,000 is not. That framing turns a pricing argument into the owner's own math.