Chicago Basement Units

[William K]

How are Chicago area appraisers handling Basement apartment units? On the southwest side ( areas 8064,8065,8066,8062,8063) I have run across no fewer than 30 sales of residential properties with "in-law units", "summer kitchen" units, "Garden Units" and the like in properties which if the units were reported as such would mean the properties would not comply with current zoning. (i.e. bungalow with attic and or basement unit with a single family zoning or 2 units up with a garden unit down with a 2 unit zoning).
It seems like more and more I keep running across these properties with the parties having a fit when I point out they are not in compliance with zoning, " every body has these", " the city doesn't care", " just condition the appraisal on the removal of the unit", " this is typical of the area, no body cares"...... and so on.

Was just wondering how others are handling these properties?

 

[Lee Lansford]

Common as sand in the desert...basement apartments that are not represented as being a legally rentable unit, that is.

So you have 2-units above-grade and such conforms with zoning (whether legal or legal nonconforming), yes? I assume yes. The basement unit is "an-law" as no one represents (based upon what you have shared) that the basement unit is a legally rentable unit.

The market provides you with MANY competing properties where there is an "in-law" or "extended living" or "finished basement with full bath"; some even include the comment "neither owner or broker represent the legality of the basement unit" (or similar words). Am I correct thus far? For the moment, I'll guess that the answer is yes.

The subject has a finished basement and it is an apartment; if it is rented, report this status. The rents are not included in the income approach. The market provides MANY competing (i.e., same or VERY similar zoning status + physically similar to the subject) properties for the appraisal, yes? Again, I assume yes. Thus, you have measured how the market reacts to the presence of these (i.e., not represented as legally rentable) basement apartments.

What else?

 

[William K]

The problem is under city zoning you can call it what ever one wants ( in-law, related living, etc) the city zoning department views it as a dwelling unit.
Therefore it is a 3 unit not a 2 unit building, or a 2 unit and not a single family as the case may be.
Everyone is fine until the city realizes lost revenue for the non-reported unit, or the city due to complaints about lack of parking starts checking your block and begins fining owners, or someone dies in a fire or is injured in the non-legal unit.
The fact is it is not legal, and in most instances is illegal.
I completely understand the prevalence of these units however as the appraiser how long do we keep turning our backs on the gorilla in the room.
I've heard of several buybacks by lenders that are being looked at for any reason to blame the appraiser. I would think non-conforming or illegal units would be a pretty simple argument one would be able to make.

 

[Lee Lansford]

You may want to decline the assignment.

 

[Lee Lansford]

OK, if you don't decline the assignment, how will you go about appraising it?

 

[Lee Lansford]

...

I've heard of several buybacks by lenders that are being looked at for any reason to blame the appraiser. I would think non-conforming or illegal units would be a pretty simple argument one would be able to make.

I'll wager that the appraiser who will have a problem will be the one who did not describe the subject property as it exists (both the physical nature and zoning status) and/or did not select appropriate comps for analysis.

 

[William K]

You may want to decline the assignment.

And that solves what exactly?

So do you believe every appraiser should turn down an assignment once they learn that there is an illegal or Non-conforming dwelling unit?

 

[William K]

OK, if you don't decline the assignment, how will you go about appraising it?

"Subject to" meeting zoning or provide evidence that the subject currently is in accordance with city zoning.
( I love it when they get the city zoning certification showing it's legal as a 2 unit, of course they also tell the city there are only 2 units and say nothing of the illegal garden unit when they apply for the city cert. knowing the city won't do an inspection for confirmation)

I don't know how an appraiser can state it's "legal" or " non-conforming, grandfathered use" when neither are accurate in an "as-is" appraisal.

I understand the city has, shall we say "selective enforcement". How ever the facts are the zoning permits "X" amount of units and if the subject exceeds this number then yes I would think it should be addressed with something better than an "everybody else dose it".

After inspecting and finding the "illegal unit" I inform the client and ask as to how and if they want me to proceed. Some have said no don't proceed please provide an inspection with your findings of the additional unit and current zoning, while others will say complete "subject to".
The baffling ones try "give us an "as-is" with no consideration of the added unit."m2:


Valuation of these properties is seldom the problem because there are usually several sales of similar properties, it's the reporting of the subject that becomes the issue.

 

[William K]

Common as sand in the desert...basement apartments that are not represented as being a legally rentable unit, that is.

So you have 2-units above-grade and such conforms with zoning (whether legal or legal nonconforming), yes? I assume yes. The basement unit is "an-law" as no one represents (based upon what you have shared) that the basement unit is a legally rentable unit.
Why would what they represent have to do with if it is legal, legal nonconforming(grandfathered use) or Illegal? They can call a 6 unit a 3 unit because 3 of the units are just a shell, that doesn't make it a 3 unit.

The market provides you with MANY competing properties where there is an "in-law" or "extended living" or "finished basement with full bath"; some even include the comment "neither owner or broker represent the legality of the basement unit" (or similar words). Am I correct thus far? For the moment, I'll guess that the answer is yes.
Again what they state and what is fact can and is 2 different things. The city is quite clear on what constitutes a "dwelling unit".

The subject has a finished basement and it is an apartment; if it is rented, report this status. The rents are not included in the income approach. The market provides MANY competing (i.e., same or VERY similar zoning status + physically similar to the subject) properties for the appraisal, yes? Again, I assume yes. Thus, you have measured how the market reacts to the presence of these (i.e., not represented as legally rentable) basement apartments.

What else?[/quote]

If its "Illegal" its not eligible for financing (FNMA, FHLMC, FHA) and how does one appraise it at highest and best use while indicating it's illegal?

This is where the Lie comes in, appraisers are ignoring it, because "everybody else does", or are reporting it as "non-conforming" when it was never grandfathered in.

I am quite aware that value is not usually the issue as there are several comparables within these markets however if they were reported accurately by their respective appraisers ( as having illegal units) would they have sold?

 

[mitrich2001]

It is so easy to verify the legality of the "garden" unit - just ask for the certificate of zoning compliance. If the owner of a 2-flat with garden apartment has never heard about such certificate, the garden unit is most likely illegal. And if the owner has the certificate, you will see the number of permitted units.