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A Single Fam But The Town Recognizes It As A 2 Fam. HBU

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Valueseeker

Junior Member
Joined
May 19, 2016
Professional Status
Certified Residential Appraiser
State
Massachusetts
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The city (building, planning, assessors) see this property as a two family. This property however is set up as a single family. It can be converted rather easy.
  • legally permitted - Check
  • Physically possible - Check
  • Economically feasible - check
  • most profitable - check
The order was for an FHA 1004 so do you proceed on a 1004 since the current arrangement is single family and just check NO on HBU? I dont come across appraisals when (if) i have to check 'NO' here so i'm just looking for some suggestions. I know ive ask a couple HBU questions. I'm still trying to understand this side of it.

Thanks guys
 

J Grant

Elite Member
Joined
Dec 9, 2003
Professional Status
Certified Residential Appraiser
State
Florida
Do two family properties sell for more than one family homes? Unless the 2 property homes sell for more than single family homes, reason switch the property to a 2 family....

AKA, why is a two family more profitable than a 1 family, if one family sells for same as higher? It's about how the market and typically motivated buyers value the property...many people pay far more for a single family home than for small income properties, and they are not intrested in rental income, they are interested in a nice place to live.

Of course if 2 family properties selll for a large $ amount more, than subject could be converted back to a 2 family for HBU. Or HBU can be interim use, leave subject as is, with potential to convert to a two family at a future time.
 

Meandering

Elite Member
Joined
Feb 26, 2006
Professional Status
Real Estate Agent or Broker
State
Pennsylvania
At interim H&B, as is, until resale as 2 family exceeds costs to convert to two habitable units.

Example,
Resale as a single unit, 100k
Resale as a two unit, 125k
Costs to divide = 35k
H&B is the interim use as SFR.

If costs to divide are less than 25k, then resale as a two unit,
(2 unit resale 125k minus SFR resale 100k, 25k hangs in the balance)

then H&B is to divide into two units.

Hence your estimated costs are critical to the analysis.
Plumbing, kitchens, entranceways, parking, septic size, divided utilities, blah, blah, blah, must be less than the difference between the two potential uses, in order to opine a H&B different than what is.

.
 

Valueseeker

Junior Member
Joined
May 19, 2016
Professional Status
Certified Residential Appraiser
State
Massachusetts
Thanks,

Just a highlevel view... it looks like they sell for the same, but I would think that the income would make it more profitable to go with 2fam.
 

Meandering

Elite Member
Joined
Feb 26, 2006
Professional Status
Real Estate Agent or Broker
State
Pennsylvania
Thanks,

Just a highlevel view... it looks like they sell for the same, but I would think that the income would make it more profitable to go with 2fam.

Nope.

If it did, 2 units would sell for more.

Many people don't want to be landlords, or have neighbors that close when they can afford to buy the home they are going to own and live in.

In an investor area, if rents are increasing, you may see lots of absent landlord sales that are higher than the SFR sales.

Just depends on the market and market conditions.

/
 

Valueseeker

Junior Member
Joined
May 19, 2016
Professional Status
Certified Residential Appraiser
State
Massachusetts
to add a kitchen and dividing the units would exceed the resale. Ok thank you guys. I always want to consider the potential income. I wasnt thinking future sales price. just curious... how are you labeling interim use on the 1004?
At interim H&B, as is, until resale as 2 family exceeds costs to convert to two habitable units.

Example,
Resale as a single unit, 100k
Resale as a two unit, 125k
Costs to divide = 35k
H&B is the interim use as SFR.

If costs to divide are less than 25k, then resale as a two unit,
(2 unit resale 125k minus SFR resale 100k, 25k hangs in the balance)

then H&B is to divide into two units.

Hence your estimated costs are critical to the analysis.
Plumbing, kitchens, entranceways, parking, septic size, divided utilities, blah, blah, blah, must be less than the difference between the two potential uses, in order to opine a H&B different than what is.

.
 

J Grant

Elite Member
Joined
Dec 9, 2003
Professional Status
Certified Residential Appraiser
State
Florida
Thanks,

Just a highlevel view... it looks like they sell for the same, but I would think that the income would make it more profitable to go with 2fam.

BUT, if typically motivated buyer in area is not interested in income from running a 2 family property, the income is not the driving force of the buyer choice for what property they buy. Imo, since this is already set up as a SFR and 2 families don't sell for more, comment about the possibility to convert to 2 family but present HBU is SF....imo.

If you check other/interim use, explain why. But Imo this property is HBU as presently improved (from what you posted)
 

Meandering

Elite Member
Joined
Feb 26, 2006
Professional Status
Real Estate Agent or Broker
State
Pennsylvania
how are you labeling interim use on the 1004?


STANDARD 2

(x) when an opinion of highest and best use was developed by the appraiser, summarize the


support and rationale for that opinion;

H&B is not a check box issue. All your considerations get summarized in the addenda. That's were you notify the intended user that the interim use is the H&B until market conditions for 2 units improves above costs to change the current use.

Meanwhile on the URAR your check box is YES, because as of the day, that was the H&B.

.


.
 

hastalavista

Elite Member
Joined
May 16, 2005
Professional Status
Certified General Appraiser
State
California
View attachment 31779
The order was for an FHA 1004 so do you proceed on a 1004 since the current arrangement is single family and just check NO on HBU? I dont come across appraisals when (if) i have to check 'NO' here so i'm just looking for some suggestions. I know ive ask a couple HBU questions. I'm still trying to understand this side of it.

Thanks guys

This is a concept which many appraisers have a difficult time wrapping their heads around. Unless one is an appraiser savant from the start, I think most of us have had to work our way through this conceptually; once we do, it becomes an "ah ha!" moment.

I've been trying to think of a simple example that best conveys the concept and have yet to hit on it. But let me try this one:

Imagine you have an oil painting of a landscape scene. It is done nicely and looks good. You take it to get it appraised, and the art appraiser tells you that believe it or not, underneath the landscape scene, there is a Dutch Master work. You ask the art appraiser, "Fantastic, how much is it worth?"
The appraiser answers, "Well, if you keep it as it is with the landscape scene, it is worth about $500. But, if you have it restored, it is worth about $5,000. Restoration costs about $1,000."
Most of us would do a quick calculation and conclude that our painting, as-is, is worth $4,000. Most of us would also conclude that the painting isn't that of a landscape scene, it is a Dutch Master that has a landscape scene painted over it.​

This is a similar concept as to what is going on with your property. Your property may be currently functioning as a SFR, but its H&BU has determined that it should be a duplex. At its H&BU, it is worth more than what it is currently functioning as. The test is not just what the duplex is worth but is dependent on what the costs would be to strip away the SFR overlay and reveal the duplex (the same issue with our imaginary painting). If the value of the (duplex) less (costs to return it to a functioning duplex) is greater than the value as a SFR, then the value is that of a duplex less those costs.
In appraising, the logical consequence of this dynamic applied to your subject is this:
H&BU as vacant: Build a duplex now or hold for future duplex development.
H&BU as-improved: Retain the existing improvement and it to return the functionality as a duplex.
What is the value as-is? The value as-is is that of a duplex less the market reaction* to the costs and scope of the project to achieve the functional duplex. But, the value isn't based on a SFR-that-should-be-a-duplex. The value is as a duplex that has costs associated with it to get it to a functional and market-accepted condition.

* I say "market reaction" because market reaction can be more (or less) than the costs. But costs are a very significant component which many times drives how the market will react. Low costs, simple alterations may have an impact at the cost or less. A high cost with a complicated schedule to achieve the alteration would probably have a higher market reaction and exceed the costs by some factor. Market conditions also play into this equation. A market that is going significantly up in value would most likely minimize any additional value impact. A market that is going down may increase the negative impact on value. You get the picture (pun intended!).

Good luck!
 

Valueseeker

Junior Member
Joined
May 19, 2016
Professional Status
Certified Residential Appraiser
State
Massachusetts
Thank you Denis, Marion & J Grant. Reflecting on this, I'm being partial that a 2 family will bring in more income.

The way I was looking at it @Denis DeSaix, is say you have your painting, and its currently worth 500 but if you spent 1000 to restore it, it would still be worth 500. Yes your -500 in the hole but people would pay you to view it monthly and that income (income approach) would make it worth more. I guess since sales prove otherwise, Its just me being biased on 2 families always being more profitable over time.
 
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