Houses of Multiple Occupation (HMO) are defined by the Housing Act 2004 to be a property which is let to two or more households, is not self-contained (i.e., includes shared basic amenities such as a kitchen or WC), and the property must be the tenants’ only or main residence. Our Valuers are regularly asked to value a HMO and we share some insights into the process here.
During our inspection of a HMO we measure the property using IPMS3C (to meet the RICS Property Measurement requirements) and must measure each room to ensure that they meet the minimum room size set by the Licensing of Housing in Multiple Occupation (Mandatory Conditions of Licenses) (England) Regulations 2018. For single occupancy rooms this is 6.51m2 whilst for double rooms this is 10.22m2. Further to this, any floor area where the ceiling height is less than 1.5m must be disregarded and attic rooms must have a ceiling height of 2.14m for a minimum of 75% of the floor area. However, these room size requirements could be increased depending on the location due to local authorities being able to exceed the national requirement and impose their own requirements.
HMOs which are currently let out to tenants are valued using the income approach and investment method of valuation. When valuing a HMO on an investment basis we use recent investment sale evidence, supported by our knowledge and understanding of the local market and a range of other factors such as location and condition, to calculate a yield for the property. We typically adopt a gross yield when valuing HMO properties. Due to the nature of a HMO there can be variations in costs occurred by the landlord, for example utilities and management fees. Therefore for consistency we exclude any deductions of cost to this effect.
In order to value a HMO, the valuer must have a detailed specialist knowledge of HMO rental and capital valuations, the local market, the local authority’s policy requirements of HMOs, and a thorough understanding of the regulations affecting the HMO sector. At Vickery Holman our valuers are experienced in carrying out HMO valuations across the south-west and would be pleased to discuss any HMO valuation queries.
