SFR 3 ADUs

[PushinValue]

-Conventional loan
-Zoning is 1 family res
-Planning approved the construction of 3 ADUs on a .15 acre lot. They specifically say it is permitted as multiple adus.
- old town (mostly 50-150 year old homes with a mix of SFR and 2-4 unit with no pattern).

Told the lender this is a dead deal if it is for FNMA due to multiple ADUs. They tell me all units are permitted and proceed with 1025. I tell them this is SFR with multiple adus. They say “yes we know, that’s why it’s a 1025”


Now they insist to proceed. Which form? 1004 or 1025?

Comps on a 1004 form would be 75~100% 2-4 unit properties due to the income nature of the property. 1025 does not make sense because it’s zoned SFR. Butttt occasionally I complete 2 homes on one lot with a 1025 with SFR zoning depending on the circumstances (city or county states “two single family residences”)

Help me out. Thanks

One more thing


Since this does not comply with standard secondary market, do you discount based on financing restrictions? Cash only deals have to happen time to time and tend to sell at a discount.

 

[Overimprovement]

Unless you are prepared to find comps with multiple ADU's, it might be best to run. I can see an appraiser getting stipped to death if this is going secondary market.
Just because planning "OK'ed" it, does not mean it is properly zoned for that. I have run into situations before where existing zoning trumped whatever a planning official OK'ed. Be careful with that too, and gets things in writing if possible. All it takes is one complaint from a neighbor to open that can of worms wide open.

So you have four dwellings on a .15 acre lot? Just curious--all separate utilities? Is one home noticeably the main one, and the others little one bedroom cottages, or what?

FWIW, I have always reserved the 1025 for a true multi-family situation--a duplex, triplex, etc. Sounds like a lender is trying to run it up the flagpole and hope it sticks.

 

[Mejappz]

I was assigned a similar one last year. Mine had about six ADUs. I took pictures, measured, got back to the office, and told the lender to have it reassigned. If the loan defaults, they will go after you and your E- & O

 

[J Grant]

Planning can okay additional ADU's with a main house, but that does not turn it into a legal multi family property. It is what it is, a SFR with 3 ADU's and that makes it not eligible for a res SFR for A GSE loan. People are free to modify their properties and get planning approval variances but is not the same thing as they are guaranteed a loan on it...

I would decline, it just is not worth it and if you call it a multi family and do it on a 1025 form, the problem remains it is not legal per zoning.

OR, here is a great way to get rid of an assignment like this, tell them you can do it, but would need a fee of $4000 and a month turn time because you need to go to planning and zoning in person and figure out if their variance allows multi family use. And that you still can not guarantee it can be done on a 1025 form. The 4k is for the time spent trying to find out

 

[sputnam]

It's a multi-family property. The Lender can call it what they want to however, it's not 3 ADUs. It's a four unit property. The fact that the dwelling units aren't identical doesn't change that. Depending on the Intended Use and User, reporting on a 1025 may be appropriate.

 

[Tom D]

why would you have 3-6 adu units on your property? it has to be for rental purposes. so your choice is a 1004 single family appraising the house & capitalizing the income generated by the adus adding it to the value of the house. or a 2-4 family. i think if you explain what you are doing, then either is fine. but the lender is asking for a specific form, which to me is a choice of the 2 options.
and how can you have 3-6 adu units with it only a single family zoning? either there actually is no zoning, or you got a variance. definitely gotta know the zoning
also depends on the comps, maybe easier with 2-4 family. one is attached rental units, the other is detached rental units. i think the data probable isn't there for a similar single family dwelling +. i would do the 2-4 form with a good explanation. either that, or run like h.ll away.

 

[nstanbru]

-Conventional loan
-Zoning is 1 family res
-Planning approved the construction of 3 ADUs on a .15 acre lot. They specifically say it is permitted as multiple adus.
- old town (mostly 50-150 year old homes with a mix of SFR and 2-4 unit with no pattern).

Told the lender this is a dead deal if it is for FNMA due to multiple ADUs. They tell me all units are permitted and proceed with 1025. I tell them this is SFR with multiple adus. They say “yes we know, that’s why it’s a 1025”


Now they insist to proceed. Which form? 1004 or 1025?

Comps on a 1004 form would be 75~100% 2-4 unit properties due to the income nature of the property. 1025 does not make sense because it’s zoned SFR. Butttt occasionally I complete 2 homes on one lot with a 1025 with SFR zoning depending on the circumstances (city or county states “two single family residences”)

Help me out. Thanks

One more thing


Since this does not comply with standard secondary market, do you discount based on financing restrictions? Cash only deals have to happen time to time and tend to sell at a discount.

You need to check the ADU "rules" for this city. Can they be rented? Are there owner occupancy requirements,etc.?

 

[J Grant]

It's a multi-family property. The Lender can call it what they want to however, it's not 3 ADUs. It's a four unit property. The fact that the dwelling units aren't identical doesn't change that. Depending on the Intended Use and User, reporting on a 1025 may be appropriate.

An owner can USE it as a multi family property. And monetize it by renting out the ADU's.

However, it is physically, one main dwelling, and 3 ADU's. Zoning, if SFR and they got a variance or city allows more ADU's , problem is FAnnie won't loan on it. AND a multi family for fannie also does not permit an ADU. A property to qualify for a loan program is either a multi family dwelling, OR a SFR with an ADU. It can not be both. If what a lender calls it does not change it- The lender is trying to call it a multi family - it is not, it is USED as a multi family, but the physical characteristics, and zoning is SFR with ADU.

This brings up an increasing problem in Res RE intended for res owner occupant or owner as investor and the loans these properties qualify for - Value in use, vs Market value. If we read about it, the $ value amount opinion might be the same for either, but they remain different, one is a value in use, the other is market value. And since most assignments are for market value, and an assignment condition is property be valued at its HBU , one of the four tests of HBI is legally permissible. This creates problems for the appraiser when a value in use practiced by owner is different from, not legal, or not compliant with legally permissible zoning or approved land uses or a city ordinance or HOA or condo rules wrt occupancy/use.

 

[sputnam]

It is a multi-family property. How the owner uses it doesn't change that. The owner can rent all 4 units or live in one and rent 1, 2, or, 3 of the other units. The idea of an ADU isn't special. It's a Lender/GSE concept that allowed appraisers to use the URAR to report the appraisal of a property that is a single family dwelling with an additional, rentable rentable dwelling unit.... which is, by definition, a two unit property.

 

[J Grant]

It is a multi-family property. How the owner uses it doesn't change that. The owner can rent all 4 units or live in one and rent 1, 2, or, 3 of the other units. The idea of an ADU isn't special. It's a Lender/GSE concept that allowed appraisers to use the URAR to report the appraisal of a property that is a single family dwelling with an additional, rentable rentable dwelling unit.... which is, by definition, a two unit property.

A SFR with an ADU is a distinct property type and a zoning category it is not just a label. It is not a concept or idea. It is its own property type. Calling it a multi family does not change that. Neither does how the owner uses it or if they rent it or not.

Whether per lender direction an appraiser should appraise a SFR with 3 ADU's as a small income/multi family to get it approved for lending is the issue. Anything is possible with disclose and describe, but the appraiser is taking on risk regarding zoning compliance/legal