Jim Slough and his son Hayden put up a for

In the eyes of the Douglas County Appraiser’s Office, the Malls Olde English Village Apartment is an apple. The fourplex across the street is an orange.

Both are rentals in the midrange price market in Lawrence. They sit directly across from each other on West 25th Street.

But between 2005 and 2007, the Douglas County Appraiser’s Office increased the value of Malls Olde English Village by 2.58 percent.

The value of the fourplex jumped by 7.7 percent.

This discrepancy in these two rental properties is among many examples in Lawrence in which larger apartment complexes’ value increases more slowly than single-family homes or duplexes next door.

The reason for fruit salad

So why is one an apple and the other an orange?

The appraiser’s office says it’s because the fourplex would sell at a lower price – they estimate $189,000 – so it would have more interested buyers than the $4.6 million apartment complex across the street.

“The less expensive (properties) have a broader market than the larger units,” said Sharon Dominik, who is in charge of the appraiser’s commercial division. “If you are looking at a $16 or $18 million project, you have to have a limited market for that. Those increases are just slower because the market is just different.”

But that’s unfair, says Jim Slough, who owns the fourplex and about 20 other smaller rental properties.

“I feel like I’m getting ripped off,” Slough said.

Measuring the worth

Apartment complexes are hard for appraisers to value, mainly because they don’t sell as often as homes.

And apartments aren’t taxed at the same rate as commercial properties.

But appraisers value apartment properties just as they do commercial properties. Instead of calculating the cost of the complex and grounds or basing the value on what other complexes are sold at, the appraiser’s office looks at how much income the property can generate.

Defined as five or more units, apartment complexes in Lawrence number more than 200.

They vary widely.

Some six-unit apartments are valued at $200,000 or less. On the other end of the scale is a 200-unit complex – The Legends, which sits off Clinton Parkway. It’s worth more than $22 million, according to the county.

Dominik said apartments are the most difficult kind of property to pin a value on.

“We are talking a lot of property, you are talking a lot of income, a lot of expenses, you are talking a lot of variables,” Dominik said. “It’s always a challenge or a struggle to try to figure out if you are really in the right spot or not.”

To help set the value, Dominik said the appraiser’s office sends out surveys to complexes seeking rental rates, amenities and expenses.

The apartment owner is under no obligation to fill out the surveys, so Dominik gets surveys back for only 20 percent to 30 percent of properties. Along with information from surveys, appraisers use newspaper ads to determine rents.

From there, a model is built and a computer generates the value.

Gauging sales and improvements

Property values also can change if apartments sell.

In 2004, for example, the county valued Pinnacle Woods, a 200-unit complex, at $12.5 million. The next year, after it sold, the value soared to more than $16 million.

In general, Dominik said, the state requires the valuation from the appraiser’s office to be within 10 percent of the sale price. If the complex sells for far more than its value, Dominik said, the appraiser’s office will try to determine why.

In some cases, Dominik said, the appraiser’s office has dropped the value in the years after a high sale because the owners discovered they couldn’t get the income off the property they thought they could.

“Sometimes you can’t get rents to match (the sale price) and sometimes adjustments are made to that project,” she said.

Appraisers also can increase the value if improvements are made. For the value to go up, improvements must justify a rent increase. Maintenance – such as a new roof or new heating and air conditioning – doesn’t increase rental income. But adding a garage or more buildings would, Dominik said.

Each year, Dominik said, the appraiser’s office factors in that landlords are likely to raise rent – at least a little bit.

Martin Moore, president of the Lawrence Apartment Association, is pleased with how the appraiser’s office values apartments. The association represents some of the city’s largest complexes.

“Our experience has been they have done their homework and have done a good job at arriving at values based on what they might sell for,” Moore said.

Reasons for the difference

Some owners of smaller apartment properties aren’t quite as happy.

For Slough, it’s not just the property along West 25th Street that he finds unfairly valued.

In 2006, he said, he owned a duplex in the 700 block of Missouri Street that appraisers had valued 12 percent higher than anyone would pay for it. The reason, Slough said, was because the appraiser’s office based the value on sales – not rental income.

Slough, who owns fourplexes, duplexes and single-family homes, said the appraiser’s office uses all kinds of methods to value his properties.

“Why shouldn’t those properties be based on income?” Slough asked.

Another view

Not everyone who owns rental properties across from Malls Olde English Village feels the same as Slough.

Harold and Vivian Nelson recently purchased a rental property on West 25th Street. In the past two years, the value has increased by 16 percent.

They made improvements, while the larger apartment complex next door didn’t.

“We were mindful of the fact that it was going to go up,” Harold Nelson said.

An owner of both single-family rental properties and larger apartment complexes, James Dunn, said he has been “subtly aware” that smaller properties increase in value faster than larger complexes.

“There’s all kinds of disparity with the whole system,” Dunn said.

As president of the Landlords of Lawrence Association, Dunn said one reason smaller property rentals increase faster in value could be that new buyers aren’t as market-conscious as those savvier purchasers of larger complexes.

“People buying megaplexes are looking more realistically at the real cost of running a property. It’s much more analytic and not as emotional. And that would tend to create a scenario where you wouldn’t pay as much per unit,” Dunn said.

He also believes larger apartment complexes are in a better position to lobby.

Allen Ford, a professor at Kansas University’s business school, owns rental property in Lawrence and has similar theories.

Ford said it is much easier to find comparable sales for two- or three-bedroom homes than a 100-unit apartment complex.

“When you don’t have comparable, income becomes the realistic approach,” he said. “If you go out and buy an apartment complex, the income approach is the driver.”

A second theory, Ford said, is that owners of large apartment complexes are more likely to protest when they think their property is overvalued.

Slough said he has made several trips to the appraiser’s office.

“Sometimes I win and most of the time I lose – and this year, I didn’t even bother,” Slough said.