ADU adjustment. Is this right?

[gorillakimchi]

Good afternoon!

Recently, I've been seeing more ADUs with flipped houses and wondering about their appraisal value.

A few years ago, 400-500 sq ft ADUs with 1 bed/1 bath were common in CA, and a general contractor mentioned it cost around 80-100K to build.

Recently, I saw a 1000 sq ft, 3 bed/2 bath brand new ADU and the property owner told me that he spent around 300K. The main dwelling is only around 1000 sq ft. Should we still call it an accessory dwelling unit? Lol.

By the way, ADUs are getting bigger and better, so I don't think it's appropriate to compare them with the 400 sq ft ADUs built a few years ago.

When my assignment includes an ADU, I first search for properties with ADUs and check the details. Most of the ADUs I find have 1 bed/1 bath, so I don't know how to adjust for a 3 bed/2 bath ADU.

3 bed/2 bath ADUs over 1000 sq ft might become common in a few years, but they are not typical right now. I know I need to assign more value to a 3 bed/2 bath ADU, but I'm not sure how to proceed.

Can you please advise if you have any suggestions? I can upload photos if you'd like to see that humongous ADU. Lol.

Thank you!

 

[Fernando]

For years ADUs were a pain to do because of lack of good comps.
I always research to see if an area has sufficient comps to do an adequate appraisal.
If difficult, I charge high premium fee. If no good comps, I would pass because I need less headaches in my life.

 

[Tom D]

either you have comps or you don't. if there aren't the larger adu comps that means that nobody would do it to make a profit. almost feels like another house being built on the grounds. you could adjust some minimal $ number to some extra items, but it's like how big do you have to have your pool be, before it's not cost affective. and what you can't $ justify in your work file you say so, but you can take it into account in the reconciliation discussion.
like said above. don't take any appraisal where there is a 'what the hay is that'. one good mistake and the sate will also find a lot of smaller ones to burn your bank account. then you become the walking dead.

 

[gorillakimchi]

either you have comps or you don't. if there aren't the larger adu comps that means that nobody would do it to make a profit. almost feels like another house being built on the grounds. you could adjust some minimal $ number to some extra items, but it's like how big do you have to have your pool be, before it's not cost affective. and what you can't $ justify in your work file you say so, but you can take it into account in the reconciliation discussion.
like said above. don't take any appraisal where there is a 'what the hay is that'. one good mistake and the sate will also find a lot of smaller ones to burn your bank account. then you become the walking dead.

Take it in the reconciliation discussion... that's a good advice but honestly it sounds not easy for me. Need to think more lol. ADUs can generate incomes for a property owner & the amount will be vary depending on its size. Ex) 1/1 bath ADU rents around $2000 but 3/2 ADU can be around $3500~ $4000. I agree with you that a pool size is a preference & not really cost effective but bigger ADU can actually bring more money to owners. Thus. I'd like to know what is the good way to give more values for a bigger ADU.

 

[Dublin ohio]

California has completely blurred the lines as to what most have considered an ADU. They are starting to more resemble detached multi family properties. If it walk, talks and looks like.....................

 

[gorillakimchi]

For years ADUs were a pain to do because of lack of good comps.
I always research to see if an area has sufficient comps to do an adequate appraisal.
If difficult, I charge high premium fee. If no good comps, I would pass because I need less headaches in my life.

Wish I could pass a bad apple but newbies have no much choice these days..

 

[Fernando]

If you can't find large ADUs, I would use a comp consisting of two detached homes on same lot about same size. I would get creative in using what I can get to have a convincing report.

 

[Terrel L. Shields]

I think some of the regulators require an ADU to be smaller than the main house. Might check who this goes to.

 

[Tom D]

you seem to have some good info about their rentals. if you can develope a grm from those rentals, then you can use that grm to capitalize the monthly income difference for the adus. most appraisers don't come across your assignment of a larger adu. the difference in those adu comps income would give a $ difference. you need to explain how you got there as it might not be common to that underwriter. it's called capitalizing the difference in the income that would be earned. you didn't get paid enough for this one, but is can be a source for that derived adjustment, if they actually get more rent. i do believe we have an income approach block in the report.

 

[Terrel L. Shields]

FHA -- An ADU is usually subordinate in size, location and appearance to the primary Dwelling Unit and may or may not have separately metered utilities or separate means of ingress or egress

FNMA--The ADU must
⚬ be subordinate in size to the primary dwelling.
⚬ have the following separate features from the primary dwelling:
▪ means of ingress/egress,
▪ kitchen,
▪ sleeping area,
▪ bathing area, and
▪ bathroom facilities