Which Approach to Value an Addition to a Daycare in a Dwelling

[Terrel L. Shields]

Did a house being used for daycare. They now want to value it with a 1,600 SF addition, which will be connected by a breezeway to the rear of building. No issues with zoning etc. Have cost and bids etc. But how to value it? No daycare sales in the entire MLS over past 2 years. No daycare sales in adjacent county across the state line.

 

[George Hatch]

Daycare is commonly characterized as being an office use. Depending on the floorplan it might also fit other instructional or even religious use. And group homes.

 

[KHS445]

Get out the Ouija Board.

Seriously, I would probably consider all three approaches and see what kind of value range results.

Cost: Run the depreciated numbers on the existing and add in the new. Functional depreciation will be your biggest wildcard, but I would wait to see what the other two approaches show before finalizing that percentage.

Sales: Value the land and current improvements and then see if you can find any sales involving a rather large ADU or maybe a duplex with similar square footage. Depending on the daycare related improvements you may need to adjust for buildout costs for things like a kitchen, full bathroom, bedroom walls, etc.

Income: Consider single family rental on the existing, and daycare income for the addition. I would also look at converting to a duplex, or a multiple unit commercial rental.

Highest and Best Use will be interesting and I would probably wait to finalize that until you have decided which valuation makes the most sense and what you can support.

Then it comes down to telling the client there are no good comps and if this is what you want and this is where you want it, this is probably as good evaluation as you are going to get. It may be just a misguided over improvement and the final decision is going to be between your client and the property owner.

 

[Tom D]

For FHA, if the owner has an in house day care it is doable FHA if the % of the dwelling being used is below 25%. Not sure about that number, but i have done them. But is was in the finished basement or a small part of the dwelling. Essentially you are not appraising the day care business, it is just finished space being used as. In this city an owner like a doctor or attorney, account, etc can have their office in their residence without any special zoning. In your case how can we say, what does addition mean.

 

[Surf Cat]

Did a house being used for daycare. They now want to value it with a 1,600 SF addition, which will be connected by a breezeway to the rear of building. No issues with zoning etc. Have cost and bids etc. But how to value it? No daycare sales in the entire MLS over past 2 years. No daycare sales in adjacent county across the state line.

There's a lot of these here in CA. A house being utilized as a day care or elderly care (a six pack) usually up to six senior citizens being cared for by live in care takers. Both get licenses to run the business from the house. It's still an SFR and that's how it's valued......as a house. I just comment in the appraisal that it's currently functioning as a daycare or senior citizen care.

As for the addition.....are they adding bedrooms with baths? Or a large room? If they're adding square footage that's not typical for SFR's in your area.....they could be spending $$ for a big functional problem that regular market participants wouldn't want. Yet, you state no zoning issues.....

Also, what's with the crotchety old man avatar?

 

[J Grant]

Did a house being used for daycare. They now want to value it with a 1,600 SF addition, which will be connected by a breezeway to the rear of building. No issues with zoning etc. Have cost and bids etc. But how to value it? No daycare sales in the entire MLS over past 2 years. No daycare sales in adjacent county across the state line.

Market value is a sale to the typically motivated buyer (representing a pool of similar buyers)
Would most buyers be purchasing a property like that for daycare use ? Or would some buy it for using the rear building for a number of other purposes?

RE your comps do not have to be "Daycare sales ", instead look for sales with as similar guest house or detached or semi-attached building

 

[Larry Phillips]

Perhaps it will be beneficial to start with Highest and Best Use. It would be easy to fall into the pit of value in use, rather than market value. If the assignment is market value, the value should reflect market value and approach or approaches to value that best represent market reaction. There is some logic in the Residential Appraisal 1004, in which H & B Use is addressed before any approach to value. Hope this helps, have a great day.

 

[KHS445]

Also, what's with the crotchety old man avatar?

I thought it was an updated selfie. I heard it has been cold Arkansas.

 

[Tom D]

Is the breezway open, or enclosed, to the addition.

 

[alebrewer]

The CA will give you the most flexible option WRT arriving at an opinion of value. As such, I've found the CA to be especially handy when trying to attain an opinion of value that might otherwise not be attainable under one of the other approaches.