Unpermitted ADU Question

[gorillakimchi]

How do you handle 1004 unpermitted detached structures that function like ADUs with living area, kitchenette, and bathroom?


I have always treated them as guest houses and did not check “One with Accessory Unit” since they are not legally permitted. I still comment on marketability, contributory value, and note that there are no health or safety issues.


Lately, underwriters keep sending revisions implying that I should check the box even when the structure is clearly unpermitted.


Should we still leave the box unchecked when the structure is unpermitted (such as a garage conversion or a new build without permits), or check it at the client’s request with a disclaimer just to avoid repeated revisions?


If unpermitted structures are now treated the same way, what is the point of spending time and money to get a permit?


Curious how others handle this.

 

[Fernando]

It is confusing.
Lately with two unpermitted "ADUs", my kitchenette didn't have a stove (fortunately) so I didn't call it an ADU.
With "ADUs", I put information about CA ADUs and even local ordinances (each city different) and make my determination what I think is best to call it.
And then you have to consider Fannie's rules for ADUs. Ugh.
Fortunately lately, lenders have let me call it.
Still, regardless what you call it, you have to make adjustments on the grid depending on what the market views it. Good Luck!

 

[Tom D]

Firstly, the definition of single family has changed to maybe it being a 2 unit single family Not really anymore, It's still a single family, wink wink. You are playing semantics with your wordings, just like fannie. Guest house, adu. Still smells the same no matter what you call it. Why do you want to keep arguing with underwriters. If you are so stuck in your mind, then figure out a work around the way to do it to their way, but protecting you. Now go over to fannie appraisers web site and search adu, for which you should have already.
Examples of ADUs include, (but are not limited to):

• a living area over a garage,
• a living area in a basement,
• a small addition to the primary dwelling, or
• a manufactured home (legally classified as real property).
• 
  
• Some ADUs may predate the adoption of the local zoning ordinance and therefore be classified as legal nonconforming. An ADU should always be considered legal if it is allowed under the current zoning code for the subject property.
  
  If it is determined that the property contains an ADU that is not allowed under zoning (where an ADU is not allowed under any circumstance), the property is eligible under the following additional conditions:
  
  • The lender confirms that the existence will not jeopardize any future property insurance claim that might need to be filed for the property.
  • The appraisal requirements related to zoning for an ADU are met. See B4-1.3-05, Improvements Section of the Appraisal Report

 

[J Grant]

Since the GSE's and lenders will loan on non-permitted ADU and Guest houses ( typically ) then I check box ADU - it is getting valued in the appraisal.

As to what is the point of getting a permit- if there is a fire or other damage, insurance companies might not pay for the unpermitted structure damage or destruction - and if you try to sell the property, and a title search sees no permits, sometimes the title company will insist on getting a permit. A permit also helps in case of code enforcement, they might come along at some point-

 

[sputnam]

Your assignment usually is to appraise the property. There are options that your Client may request. Interest to be appraised... type of value.... current, retro, or prospective... all of the real property or part of it... etc. The very first task is to understand the Client's request. That's supposed to happen before you accept the assignment. They don't always make that easy. They aren't always 100% clear about what they want. They are not appraisers.

If the Client just tells me that they want an appraisal of a particular address... and that's all I get from them... then they get a current, as is market value of the fee simopl interest in the real property that is at that address... regardless of whether improvements were built with permits or not. If the improvement is of substandard quality or condition, that gets dealt with. If I am made aware that it was built without permit.. that gets commented on and dealt with in whatever way the market indicates.

Code enforcement is not part of the appraiser's job. Lending decisions are not part of the appraiser's job.

 

[Jerry Bone Jr]

How do you handle 1004 unpermitted detached structures that function like ADUs with living area, kitchenette, and bathroom?
I have always treated them as guest houses and did not check “One with Accessory Unit” since they are not legally permitted. I still comment on marketability, contributory value, and note that there are no health or safety issues.
Lately, underwriters keep sending revisions implying that I should check the box even when the structure is clearly unpermitted.
Should we still leave the box unchecked when the structure is unpermitted (such as a garage conversion or a new build without permits), or check it at the client’s request with a disclaimer just to avoid repeated revisions?
If unpermitted structures are now treated the same way, what is the point of spending time and money to get a permit?
Curious how others handle this.

"What qualifies as an ADU? An ADU, commonly referred to as an accessory apartment or in-law suite, is a smaller additional living space on the same lot as a single-family home. It must include space for living, sleeping, cooking and bathrooms independent of the primary residence. While the ADU may or may not include access to the primary residence, it must be accessible without going through the primary residence and there must be some expectation of privacy from the home." https://singlefamily.fanniemae.com/...ng/mortgage-products/accessory-dwelling-units

A permit is not part of the Fannie description.

 

[chad hampton]

At the start of every day, every appraiser should remind themselves that appraisers are not the permit police.

That’s an underwriting decision.

 

[gorillakimchi]

If permits really “don’t matter,” I’m curious why people still spend all that time and money to build a legal ADU. Here’s an example I recently ran into. The subject is a duplex, but the owner built a rear unpermitted structure with a sleeping area, kitchen, and bathroom. It basically functions as a small unit, but it’s clearly not permitted. How would you handle this on the 1025 form? Would you classify it as two units, two units with an accessory unit, or three units? Also, underwriters often send revisions asking to include comps with similar unpermitted structures, but as you know, MLS listings almost never disclose that kind of information. How do you deal with that? I’d really appreciate some insight since I keep getting revisions about this topic and it’s really annoying..

 

[Fernando]

"What qualifies as an ADU? An ADU, commonly referred to as an accessory apartment or in-law suite, is a smaller additional living space on the same lot as a single-family home. It must include space for living, sleeping, cooking and bathrooms independent of the primary residence. While the ADU may or may not include access to the primary residence, it must be accessible without going through the primary residence and there must be some expectation of privacy from the home." https://singlefamily.fanniemae.com/...ng/mortgage-products/accessory-dwelling-units

A permit is not part of the Fannie description.

I didn't know that a permit is not part of Fannie guidelines.
I checked on Copilot and you are right.

"If the ADU is not allowed under current zoning, the property may still be eligible if:

• The lender confirms that the ADU’s existence won’t jeopardize future insurance claims.
• The appraisal includes appropriate commentary and analysis regarding market acceptance, contributory value, and health/safety concerns.
• The appraiser must note the lack of permits and assess how the market views the structure

Appraisal Implications​

• Appraisers should describe the ADU, its features, and its marketability.
• They may need to adjust comps based on how the market reacts to similar unpermitted structures.
• Whether or not the “Accessory Unit” box is checked on the 1004 form depends on client instructions and lender preferences, not just permit status.

If you're dealing with underwriters pushing for the ADU box to be checked despite lack of permits, it’s often best to include a disclaimer and detailed commentary to protect yourself while meeting client expectations."

 

[timd354]

If permits really “don’t matter,” I’m curious why people still spend all that time and money to build a legal ADU. Here’s an example I recently ran into. The subject is a duplex, but the owner built a rear unpermitted structure with a sleeping area, kitchen, and bathroom. It basically functions as a small unit, but it’s clearly not permitted. How would you handle this on the 1025 form? Would you classify it as two units, two units with an accessory unit, or three units? Also, underwriters often send revisions asking to include comps with similar unpermitted structures, but as you know, MLS listings almost never disclose that kind of information. How do you deal with that? I’d really appreciate some insight since I keep getting revisions about this topic and it’s really annoying..

It is a two unit with an unpermitted ADU and that is how you should report and describe it. What is so hard about reporting what actually exists?