How to Value Airbnb Properties: The Appraiser’s Dilemma with Short-Term Rentals
As the short-term rental market continues to expand across the United States, more real estate professionals are asking a critical question:
How do you appraise an Airbnb property?
Valuing short-term rentals such as Airbnb or Vrbo listings presents unique challenges. These properties function not just as homes, but also as income-generating assets. This dual nature creates what many call “the appraiser’s dilemma” choosing between a traditional market-based appraisal or an income-based valuation approach.
At Appraiser X Suite, we equip appraisers with the tools and insight needed to produce accurate and compliant reports on today’s evolving real estate market, including the growing short-term rental segment.
Market-Based vs Income-Based Valuation Methods
The first and most important decision is determining which appraisal method is most appropriate for the subject property.
Market-Based Approach
The market-based method is the traditional approach used for owner-occupied homes and long-term rental properties. It relies on comparable property sales in the local area. However, this model does not account for the unique income potential of Airbnb properties, especially in high-demand tourist destinations or cities with seasonal traffic.
Income-Based Approach
The income-based method values the property based on its revenue potential. This is typically done using a gross rent multiplier (GRM) or a capitalization rate (Cap Rate). This approach is often better suited for vacation rental properties that generate consistent income from short-term guests.
When a property is primarily operated as a short-term rental, the income-based approach may provide a more accurate reflection of its true market value.
Appraisers must also evaluate local zoning regulations and short-term rental permits to determine whether the property legally qualifies as an income-producing asset.
Key Metrics That Affect Short-Term Rental Appraisal Value
If you are using an income-based valuation method, there are three performance metrics that should be included in your appraisal analysis:
1. Occupancy Rate
This measures how frequently the property is booked throughout the year. Higher occupancy rates typically indicate higher gross income and may increase the property’s value.
2. Nightly Revenue or Average Daily Rate (ADR)
Nightly revenue provides insight into how much the property earns on average per night. ADR varies based on location, season, and property features. Properties in popular tourist destinations or major event hubs usually have higher ADRs.
3. Seasonality
Short-term rental income can fluctuate dramatically due to seasonal demand. For instance, beach homes may perform better in the summer, while ski cabins generate more revenue in the winter. Including seasonal income projections leads to more accurate valuations.
Reliable data sources such as AirDNA, STR Insights, and property-specific income reports help support these metrics and build a defensible income-based appraisal.
Aligning Appraisals with Lender Requirements and Investor Expectations
Many mortgage lenders still require appraisals to use a market-based approach, especially if the property is not zoned for commercial use or if it is being purchased with a residential loan.
However, real estate investors typically view Airbnb properties through the lens of income potential. This disconnect between market value and income value can lead to appraisal disputes.
Appraisers must include clear explanations of their chosen methodology, provide supporting documentation, and disclose any income history, permits, or third-party data sources used in the analysis.
In a nut shell
Appraising Airbnb and short-term rental properties requires a specialized understanding of both residential appraisal standards and income-producing asset valuation. The choice between market-based and income-based valuation can significantly affect the final report and the financing process.
With solutions from Appraiser X Suite, licensed appraisers can access tools, resources, and industry-leading support to confidently appraise short-term rentals in any market.
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