CHAPTER VII - RENT REASONABLENESS/SURVEYS*

Issued September 2007, Effective Immediately

Table of Contents

* “Surveys” (Elite language) are the same as Rent Comparables.

Introduction

Ensuring rent reasonableness is essential for effective program operations. If a Public Housing Agency (PHA) approves rents that are too high, government funds are wasted and limited housing subsidies are squandered. If rents are approved at levels lower than comparable units in the private market, the better owners do not participate in the program, or they participate only with their lowest-cost and lowest-quality units. In addition, participants may be inappropriately restricted in where they can live.

Rent reasonableness surveys must be completed when negotiating rent amounts. The Elite data system used by MSHDA is to catalog and provide individual unit data to support the rent requested for the subject unit. Rent surveys ensure the Gross Rent requested for the subject unit is reasonable and the rent requested for the unit does not exceed rents currently being charged for comparable unassisted units.

Submission of the case by the Housing Agent (HA) for approval is certification that the rent is: 1) reasonable in relation to the rents currently being charged for comparable units on the private unassisted market, and 2) not in excess of rents currently being charged by the owner for comparable unassisted units.

Section A: Survey Requirements

Surveys are required in the following circumstances:

• All re-examinations with contract rent changes, utility allowance changes, and FMR decreases.
• All New Contracts (i.e. Initial, Move)
• Re-examinations where the Gross Rent is increased or decreased. NOTE: New surveys are not required if Gross Rent remains the same unless the FMR decreases (discussed below); however, three surveys must be present in Elite for the subject unit. 
• Gross Rent increase occurring at a time other than re-examination.
• Counties where there has been a 5% decrease in the FMR 60 days prior to the anniversary date. [NOTE: The decrease refers to the FMR – not the Payment Standard (PS). A memo will be issued to affected counties if/when a FMR decrease occurs.]

Section B: Survey Documentation Requirements

Each HA is responsible for entering and updating the comparable data in Elite. The Reasonable Rent Test/MSHDA 37 may be used to gather/consolidate the comparable information for subsequent Elite data entry. Housing Agents working in the same county share the data collection/entry requirement.

When gathering the survey information, focus on the following:

• Use similar unassisted (i.e. non-subsidized) units, currently vacant unassisted units, or unassisted units leased within the past twelve months. Units cannot be subsidized units, tax credit units, or currently receiving Housing Choice Voucher (HCV) assistance. 
• Three (3) surveys are required to support a unit’s rent.
• Surveys must be dated less than one year from the transaction effective date. Purge or update all rent surveys older than one year. It is recommended that the updating and purging of old surveys be completed on an ongoing basis. 
• Surveys must be in close proximity to the subject unit, in the surrounding neighborhood, whenever possible. If the database provides few units for the selected location, the geographic area may need to be expanded to include the entire survey area. (See Exhibit A for identified Survey Areas.) 
• The survey bedroom size and unit type must be identical to the subject unit. (For example: a family with a two-bedroom voucher requesting a three-bedroom unit would require a three-bedroom survey.)
• Survey units may be located in the same building as the subject unit of an apartment complex/multifamily property. Survey units must be unassisted units and may not be located in a substantially assisted apartment complex/multifamily property.
• An unassisted unit in a different building within an apartment complex may be used for one of the surveys.
• The Gross Rent of each survey must equal or exceed the Gross Rent of the subject unit. Gross rent equals contract rent plus utility allowance. NOTE: Any changes to the contract rent or utilities will change the gross rent amount.
• New rent surveys must be entered into Elite. 
• Space Rent situations use Space Rent surveys. The Space Rent (versus the Gross Rent) is utilized.
• Use the MSHDA utility schedule allowances based on the actual unit size for the subject unit and the surveys when determining Gross Rent.
• In rare circumstances, if surveys are not available for the same unit size and type, surveys for a smaller unit of the same type would be acceptable. Elite will only compare identical bedroom size and unit type. For example, if no 4BR apartment rent surveys are available in your survey area, you would use a 3BR apartment survey. The smaller unit must have similar services, amenities, etc.

Every effort must be made to find rent surveys for these subject units. If unable to locate rent surveys, document the rent surveys used by completing Reasonable Rent Test Evaluation forms (MSHDA 38) for each rent survey needed. (Note: Because three surveys are required, if one survey is available on Elite, two MSHDA 38 forms would be needed to meet the documentation requirements.) Document the reason surveys are unavailable under “Comments” on the MSHDA 38, sign, and date. The MSHDA 38 forms would be filed in Part 4 (Landlord Section) in the MSHDA file. 

Section C: Potential Survey Sources

• Applicants – A Reasonable Rent Test form (MSHDA 37) is contained in the Briefing Packet to record comparable data for this purpose.
• Participants – A Reasonable Rent Test form (MSHDA 37) may be given to participants to assist in securing comparables for this purpose.
• Current/Previous MSHDA landlords (except for currently assisted units)
• Apartment Listings/Ads in Telephone Directories
• Telephone Surveys
• Landlord Associations
• City/Town List of Registered Landlords
• Other local Public Housing Agencies (PHAs)
• Newspaper Rental Ads
• Apartment Shopper’s Guides
• ‘For Rent’ signs in windows or on lawns
• Bulletin boards in community locations (such as grocery stores, laundry facilities, churches, social service agencies, etc.)
• Rental Unit Information Forms (MSHDA 51b) that do not ultimately become assisted units
• Units Cancelled from Program
• Realtors (Real estate comparable databases)
• Rental Referral Services
• Websites:
  • http://www.michigan.gov/mshda/0,1607,7-141-8002_45090---,00.html
  • http://www.apartmentguide.com/
  • http://www.apartments.com/
  • http://www.forrentmag.com/
  • http://www.allapartments.com/

 Section D: Survey Selection

Each selected survey must be the same unit type, same unit size, and be located in the same Survey Area and within close proximity to the subject unit. The selection for surveys should be made first by municipality and neighborhood, secondly by county, and finally by MSHDA Survey Area (Exhibit A).

The point value of the survey unit that has a point value of 5 points greater or 5 points less than the point value of the subject unit is/are acceptable provided that the gross rent of the survey(s) are greater than or equal to the gross rent of the subject unit . For example: The point value for the subject unit equals 12. The point value for each survey must equal from 7 to 17 points.

The Reasonable Rent Test Evaluation (MSHDA 28138) may be used as a tool to calculate rent reasonableness if desired.

Amenities of units are entered on Elite under Unit Entry, features, scoring. The appropriate amenities would be selected on the screen. The Rental Unit Information form (MSHDA 51b) may be a useful tool in ensuring all amenities are selected.

Section E: Elite/Rent Reasonableness Certificate

 In HCV unit entry into Elite, the Survey Area must be entered on all existing units prior to attempting a rent comparison.

The Rent Reasonableness Certificate (Elite screen) must be present in the Elite system for each subject unit, if applicable.

Refer to Elite Manual, User Guide for instructions on how to enter data into the Elite System.

• Completing the screen completes the Rent Reasonableness Certificate. If a printed version were required for the file:
• Print the screen.
• Sign and date the Rent Reasonableness Certificate.
• Submit the Certificate with the file material. The Rent Reasonableness Certificate would be located in Part 4 (Landlord Section), item 5 in the MSHDA file.

Section F: SEMAP and File Reviews

During Quality Control file reviews for SEMAP reviews and complete (100%) file reviews by department technicians (DT), the reviewer must verify in Elite:

• Three surveys are present.
• The address of survey units appears on the screen.
• The survey property’s address is in close proximity to the subject unit.
• Surveys are within 365 days of the Contract effective date.
• The point value appears on the screen in the Rent Reasonableness module.
• The point value is within (+ or -) 5 points of the point value for the subject unit.

The file reviewer or DT must report deficiencies to the Housing Agents (HA) to initiate corrective action.

Section G: Applicable Forms List

Effective September 2007