ADU adjustments - contributory value and/or rental income

[Fernando]

Hello,

My search for ADU in the forums resulted in zero threads. If someone knows a thread that exists and discusses the methodologies to determine the adjustment for an ADU, please share.

There are more ADUs in my market than cities and counties know about due to the limited housing inventory and increasing mortgage rates. My subject does NOT have an ADU, but 3 possible comps and 1 listing do have ADUs. The city defines and ADU has either a finished basement with a full kitchen with or without exterior egress OR a detached building with living, kitchen and bedroom at a minimum.

Thoughts on how to determine ADU value?

Thanks!

What are you complaining about? Many markets have few ADUs to use as comps.
You're in good position to use comps having ADUs when your subject has ADUs and choose comps with no ADUs when subject has no ADUs.
You don't know how lucky you are.

 

[ZZGAMAZZ]

Thanks for the response. Please let me clarift: I won't use all possible comps with ADUs, I just need one with GLA greater than my subject. I have two comps with lower GLA than subject without ADUs.

The marketing area is small and few comps for subject. Any comp that brackets upper end of GLA (+25%) have the ADUs. Including 2-story & multi-levels results in many GLA greater than +25% where GLA $/sqft isn't accurate. I considered paired sales analysis, but wanted to see if there are other methodologies/approaches I wasn't aware of and should consider.

You obviously need to ensure that the comps with bigger GLA's that have ADU's aren't incorrectly combining the two areas into one.

 

[Deleted member 157170]

Interesting. I have seen a few quotes come across for a 1004 + 1007 on a SFR with ADU. Does anyone know how you would complete a 1007 for an ADU when there is literally no rental data available for them on the local MLS? What do lenders do for these if no one can figure it out?

 

[ZZGAMAZZ]

Interesting. I have seen a few quotes come across for a 1004 + 1007 on a SFR with ADU. Does anyone know how you would complete a 1007 for an ADU when there is literally no rental data available for them on the local MLS? What do lenders do for these if no one can figure it out?

Would a typical rental tenant care whether the unit is an ADU, or a duplex, or a SFR, or a condo, etc., etc.? If not, any entity would potentially serve as a rental comp, with appropriate adjustments if neccessary (in my uneducated opinion).

 

[Terrel L. Shields]

Does anyone know how you would complete a 1007 for an ADU when there is literally no rental data available for them on the local MLS? What do lenders do for these if no one can figure it out?

They should rent similar to any apartment of similar size - and most rentals in my area are based on #bed #bath and being in reasonable condition.

ADUs are becoming more popular and knowing a good property managing broker helps get insights in what renters want. I pick the brain of a local broker who rarely lists anything but she manages more property in town than anyone else. Ditto the builder/Realtor team - often a man wife situation - that builds/rehabs and leases property.

If I have plenty of sales - then my method is simple. I extract the ADU contribution from sales. Do that for several ADUs and the contributory value per SF should "fall out" - having said that - I am assuming the ADU sale is higher with the ADU than without, and they are roughly equal in quality and condition. The ADU should inflate the unit price of the home with an ADU.

Sale 1 - non ADU. $400,000 3,200 SF land value $60,000
Sale 2 ADU $500,000 3,200 SF plus 1,000 SF ADU and Land Value of $80,000

 

[Terrel L. Shields]

erally no rental data available for them on the local MLS?

I don't get much rental data from the MLS. It's sparse and better do an on line search than that-

 

[keaw1]

Why are you choosing and using so many comps with an ADU , when your subject does not have an ADU?

What about choosing comps that do not have an ADU ? They would be more similar to the subject and not require the adjustment.
Sometimes we have to use a comp or two with an ADU for a non ADU subject but this sounds excessive.

Compare on grid some sales of houses that have an ADU with similar houses that do not have an ADU - them the paired sales per post 2 to extract the adjustment

I go on here once and a while. Every time I do you are telling somebody what to do how to do it and why they are wrong. YOU REALLY NEED TO GET A LIFE!!!!

 

[J Grant]

I go on here once and a while. Every time I do you are telling somebody what to do how to do it and why they are wrong. YOU REALLY NEED TO GET A LIFE!!!!

This entire thread is posters telling the OP who posted a question what to do and how to do it that is called giving advice to a poster. And sometimes one of us tells a poster they are wrong. Idk why you picked on my post out of all them, but you went out of your way to do it Since you only come on here once (in a while, please block me from your feed .

 

[Tom D]

it depends on your lender's tolerance level. i take the easy way out and state that although there may be larger GLA dwellings in the area, none have sold recently. there were no larger GLA dwellings to bracket the subject's GLA. now if some of your comps are close in GLA then i would go with the no larger GLA sales comment. i have also used listings to bracket. maybe you could go farther distance. i have reasonable lenders who go with my comment. try it once to see what happens instead of a sale that really isn't a comp.

 

[ZZGAMAZZ]

it depends on your lender's tolerance level. i take the easy way out and state that although there may be larger GLA dwellings in the area, none have sold recently. there were no larger GLA dwellings to bracket the subject's GLA. now if some of your comps are close in GLA then i would go with the no larger GLA sales comment. i have also used listings to bracket. maybe you could go farther distance. i have reasonable lenders who go with my comment. try it once to see what happens instead of a sale that really isn't a comp.

Do peers ever increase the GLA "variance threshold" so larger GLA's simply aren't adjusted downward, as a way to address the absence of comps that bracket this factor, explaining the rationale in the SCA narrative?