How are duplexes, triplexes and fourplexes appraised?
A duplex, triplex or fourplex is appraised with comparable sales plus an income approach. For Fannie Mae loans, the income approach is required on two- to four-unit properties, with supporting rental and sales data and the gross rent multiplier math. The appraiser must also support market rent, which may differ from the rent tenants pay today.
A small multifamily gets valued two ways
A single-family house is mostly valued by comparing it to similar homes that sold. A duplex, triplex or fourplex gets that treatment too, plus a second test: what is the income worth?
Fannie Mae's Selling Guide (B4-1.3-10) says the income approach is required in the valuation of two- to four-unit properties. When it is used, the appraisal must include the supporting comparable rental and sales data and the calculations used to determine the gross rent multiplier.
The cost approach is a different story. Fannie Mae does not require it except for manufactured homes, and says an appraisal that relies solely on the cost approach is not acceptable. Nobody buys a fourplex because of what the lumber cost in 1974.
These are Fannie Mae rules. FHA, VA, portfolio and private lenders have their own requirements, and the lender's overlays control.
How the gross rent multiplier works
The gross rent multiplier (GRM) is simple. Take what a comparable income property sold for and divide it by its monthly rent. Hondros College, which trains appraisers, puts it the same way: the sale price divided by the rent gives the GRM for that property.
Here is a hypothetical. A fourplex down the street sold for $1,200,000 and rented for $8,000 a month. That is a GRM of 150. If several similar sales land in the same neighborhood, and the subject's market rent is $7,600 a month, the income approach points to something near $1,140,000.
The GRM is not magic. It ignores expenses, so two buildings with the same rent but very different water bills look identical. That is why it works best when the comps are truly similar: same kind of units, same neighborhood, same rough age and condition. Done carelessly, it is a calculator with a confidence problem.
Current rent is not always market rent
This is the part that surprises owners. Hondros puts it bluntly: current rent of the subject unit may not be market rent.
Maybe the tenant in Unit B has been there since flip phones were cool and pays half what a new tenant would. Maybe the seller raised rents right before listing and the new numbers are a stretch. Either way, the appraiser has to support a market rent opinion from comparable rentals, rather than copying the rent roll.
That matters for the loan too. Lenders often look at rental income when qualifying a borrower, and the appraisal is where market rent gets supported. If you are buying, ask what the leases actually say and how long they run. A below-market lease is real, and it may not end when you want it to.
What the sales comparison side looks like
On the sales side, the appraiser compares the subject to other small income properties that sold. Hondros notes that value per unit or per bedroom may be the best indicators, and lists value per room among the units of comparison on the sales grid.
That makes sense. A buyer shopping for a fourplex is often thinking "how much am I paying per door?" more than "how much per square foot?"
Hondros also points out that the most similar sales often were not leased at the time of sale. A fourplex bought by an owner-occupant who plans to live in one unit can sell differently from one bought by an investor running the numbers. A good report explains which buyers are active in that market and why. If house hackers are bidding up duplexes in your area, the sales will show it, and the report should say so plainly.
Condition still matters here. Buyers react to condition more than age, and a building with updated units can rent and sell at a different level than one with original kitchens in every unit. The adjustment for that should come from real sales and rents, not a rule of thumb.
The forms are changing
For years, 2–4 unit properties have been reported on the Small Residential Income Property Appraisal Report, known as Form 1025 (Freddie Mac Form 72). Freddie Mac lists it among the forms being retired and replaced under the redesigned appraisal format.
Freddie Mac says UAD 3.6 will be mandatory for all new appraisal reports submitted to the GSEs' portal (UCDP) on or after November 2, 2026. The redesigned report takes the place of the old set of separate forms. For a borrower, the analysis does not change much. You still need supported sales, supported rents and an income approach. The paperwork just gets a new outfit.
How to get ready for a 2–4 unit appraisal
- Gather the leases for every unit, with rent, start date, end date and who pays which utilities.
- Make a rent roll showing current rent, deposits and any vacant units.
- List the units: bedrooms, baths, approximate size and any recent updates in each one.
- Arrange access to every unit. Tell tenants the date in writing, following your lease and local rules.
- Share operating facts like separate meters, laundry, parking and storage.
- Disclose anything unusual, such as an unpermitted unit or a unit used by a family member. Surprises are the enemy of a clean report.
One more tip: if a unit is vacant, say what it would rent for and why. Bring any recent listings or showings you had for it. An empty unit with no information leaves the appraiser to rebuild its rent from scratch, and that takes longer.
Key takeaways
- Fannie Mae requires the income approach on 2–4 unit properties, with rental data and the GRM calculation.
- The cost approach alone is never acceptable to Fannie Mae, and it is only required for manufactured homes.
- Current rent may not be market rent. The appraiser must support market rent from comparable rentals.
- Value per unit or per bedroom is often a key indicator for small income properties.
- Form 1025 is being retired as UAD 3.6 becomes mandatory on November 2, 2026.
People also ask
Is a fourplex appraised like an apartment building?
Not usually. Two- to four-unit properties are covered by residential lending and appraisal rules like Fannie Mae's Selling Guide. Larger apartment buildings are generally financed and appraised as commercial property.
Does a higher rent automatically mean a higher appraisal?
Only if the rent is supported as market rent and the sales show buyers pay for it. The appraiser checks rents against comparable rentals.
What is a good GRM?
There is no universal number. A GRM is only meaningful when compared with similar properties that sold in the same market.
Sources
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