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2 Units Converted To 1

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liliput

Freshman Member
Joined
Dec 15, 2017
Professional Status
General Public
State
California
Hello I'm trying to refinance and a problem arise. When we bought this house it was already SFR but title still show 2 units. WE have 2 meters but we only use 1. The existing loan is always have been one unit. We tried to refinance but appraiser made a comment that its more functional value wise to put it back to 2 units so my loan has been denied to to "conformity". I really want to consolidate so I need advise should i apply as 2 units but we have no kitchen upstairs or if i stick to one unit how do i fight for it given the title says 2 units zoning
please help
 

hastalavista

Elite Member
Joined
May 16, 2005
Professional Status
Certified General Appraiser
State
California
There are two issues here, but in my opinion, your significant question is more of a lending question than an appraiser question.

The appraisal issue is how to value the property. If it is determined that the H&BU of the improvements are as a 2-unit, then that would result in the maximally productive use (highest value) of the property. The as-is value of your property should, therefore, be values as a 2-unit with whatever adjustment is necessary to return it to its 2-unit configuration. From what you describe, that modification would seem to be a kitchen upstairs and an alternation to ensure the two units are separate.
Let me put it to you this way: As a house, in its as-is configuration, the property is worth $100k. As a duplex, configured as such, the property is worth $175k. If it costs $30k in costs (all of them, which includes more than just the cost to install the kitchen, etc.) to install the kitchen and separate the single unit into two units, then the as-is value of the property (a 2-unit property needing the required alternation) is $145k.

Your ability to qualify for the loan is based on the terms/conditions for an owner-occupied 2-unit property as well as the lender's willingness to loan on the property as-is or require that the property be converted first (which would mean the value is $175k).

You see?
The appraisal values the property, as-is. That tells the lender what exists and what it is worth.
The lender determines what loan program fits what exists and how it wants to loan on what exists.

Critical to the above scenario is that the original appraiser valued the property correctly. If it is worth more, as-is, as a 2-unit property vs. a one-unit property, it should have been valued that way to begin with.

What I would recommend is that you go to your lender and discuss what the options are to get the property qualified for the loan based on what the appraisal has determined.

Good luck!
 

liliput

Freshman Member
Joined
Dec 15, 2017
Professional Status
General Public
State
California
There are two issues here, but in my opinion, your significant question is more of a lending question than an appraiser question.

The appraisal issue is how to value the property. If it is determined that the H&BU of the improvements are as a 2-unit, then that would result in the maximally productive use (highest value) of the property. The as-is value of your property should, therefore, be values as a 2-unit with whatever adjustment is necessary to return it to its 2-unit configuration. From what you describe, that modification would seem to be a kitchen upstairs and an alternation to ensure the two units are separate.
Let me put it to you this way: As a house, in its as-is configuration, the property is worth $100k. As a duplex, configured as such, the property is worth $175k. If it costs $30k in costs (all of them, which includes more than just the cost to install the kitchen, etc.) to install the kitchen and separate the single unit into two units, then the as-is value of the property (a 2-unit property needing the required alternation) is $145k.

Your ability to qualify for the loan is based on the terms/conditions for an owner-occupied 2-unit property as well as the lender's willingness to loan on the property as-is or require that the property be converted first (which would mean the value is $175k).

You see?
The appraisal values the property, as-is. That tells the lender what exists and what it is worth.
The lender determines what loan program fits what exists and how it wants to loan on what exists.

Critical to the above scenario is that the original appraiser valued the property correctly. If it is worth more, as-is, as a 2-unit property vs. a one-unit property, it should have been valued that way to begin with.

What I would recommend is that you go to your lender and discuss what the options are to get the property qualified for the loan based on what the appraisal has determined.

Good luck!
Thank you for your reply. Im not really pushing for value coz i do have lots of equity. the existing loan is Freddie Mac. I spent money on the appraisal but that lender just said flat out that they cant issue an approval coz the appraiser made a comment that highest and best use will be 2 units. :( and of course they just relied on what he said
 

hastalavista

Elite Member
Joined
May 16, 2005
Professional Status
Certified General Appraiser
State
California
Thank you for your reply. Im not really pushing for value coz i do have lots of equity. the existing loan is Freddie Mac. I spent money on the appraisal but that lender just said flat out that they cant issue an approval coz the appraiser made a comment that highest and best use will be 2 units. :( and of course they just relied on what he said
Will they not consider the loan as a 2-unit property (again, always assuming the appraisal's conclusion is correct)?
 

glenn walker

Elite Member
Joined
Oct 11, 2006
Professional Status
Certified Residential Appraiser
State
California
California -- You have two meters and you mention no kitchen upstairs ??? No offense but many people especially for 2 units ( 1995-2008 ) were told by their agent or loan officer to pull the kitchen appliances out and claim it was a single family house ? Because a buyer could get way better financing - And unfortunately the biggest nightmare was agents and investors buying 5-6 units were tearing out walls and making these properties 4-units because 1 to 4 can get FHA-Fannie Mae-VA financing.

This is a really simple answer BUT it may not be what you want to hear. If you are located in an- Incorporated City go to the planning department and pull the permit file and see if this was originally 2-units ? If someone told you that by removing the kitchen or it's appliances you would purchase it as a single family house they gave poor information and they are long gone.
 

liliput

Freshman Member
Joined
Dec 15, 2017
Professional Status
General Public
State
California
California -- You have two meters and you mention no kitchen upstairs ??? No offense but many people especially for 2 units ( 1995-2008 ) were told by their agent or loan officer to pull the kitchen appliances out and claim it was a single family house ? Because a buyer could get way better financing - And unfortunately the biggest nightmare was agents and investors buying 5-6 units were tearing out walls and making these properties 4-units because 1 to 4 can get FHA-Fannie Mae-VA financing.

This is a really simple answer BUT it may not be what you want to hear. If you are located in an- Incorporated City go to the planning department and pull the permit file and see if this was originally 2-units ? If someone told you that by removing the kitchen or it's appliances you would purchase it as a single family house they gave poor information and they are long gone.


Yes there was 2 meters but when i bought it , it was already single family.. Per title
Use Code: Duplex (2 Units, Any Combination) Zoning: PSR1
 
D

Deleted member 130081

Guest
PSR1 zoning resembles a code that often refers to single family (SR often means single family residential). You would need to research your local code to figure out exactly what PSR1 means and what that allows, but if you find out single family is allowed, then your property is a conforming use as-is. If you were to discover that your zoning does not allow a two family use, that could explain why the property was converted from a duplex to single family AND, would mean the appraiser was in error with the highest and best use determination. I would start right there. If it turns out that zoning allows both uses (single family or two family), then the appraiser may be correct in their highest and best use determination. All said, each lender is different and will have different criteria on property they will lend on. You should be able to find a lender willing to lend on the property with a conforming use, though maybe not the lender you are working with currently.
 
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