Analysis

What Are Normalized (Adjusted) Financials?

Normalizing a property's financials means restating the seller's reported numbers to reflect the income and expenses a new owner will actually experience.

Sellers present the most flattering version of the numbers that is still technically true, so their reported NOI is almost always too high. Normalized, or adjusted, financials correct that. The recurring adjustments are a market management fee (even if the owner self-manages), a real capital reserve, realistic repairs, property taxes at their reassessed level, and honest, trailing occupancy instead of a peak-season figure.

The result is an NOI you can defend and finance against, and the gap between it and the seller's version is negotiation evidence. Work through it in rebuilding the seller's NOI, or let the underwriter do it for you, every adjusted line shown with its reason.

Related terms

• Net Operating Income (NOI)
• Operating Expense Ratio
• Pro Forma

Part of the RVP Underwriter glossary of income-property underwriting terms. Browse all definitions, or put them to work with the free calculators.