ADU Comparable

[Xavier Hargrove]

Hello Everyone,

Hope you all are doing well during this slow time. I have been supplementing some down time with courses and construction work. I get some orders hear and there and trying to network to broaden my work load. I was able to get in an order from an AMC this past week. It was a request for 1004 for refinance purposes. When I did the inspection I noticed an ADU on the property. This is pretty typical for the area. The ADU construction was not yet complete. I asked the client how they wanted me to proceed in valuation. They asked if I could note the ADU in the report but not include it in the valuation because construction is not yet complete. They also asked me to provide at least one comparable with an ADU. My issue is why can't I value the ADU subject to its completion? Relatively speak wouldn't that produce the highest value? Zoning does allow for an ADU.

 

[J Grant]

Hello Everyone,

Hope you all are doing well during this slow time. I have been supplementing some down time with courses and construction work. I get some orders hear and there and trying to network to broaden my work load. I was able to get in an order from an AMC this past week. It was a request for 1004 for refinance purposes. When I did the inspection I noticed an ADU on the property. This is pretty typical for the area. The ADU construction was not yet complete. I asked the client how they wanted me to proceed in valuation. They asked if I could note the ADU in the report but not include it in the valuation because construction is not yet complete. They also asked me to provide at least one comparable with an ADU. My issue is why can't I value the ADU subject to its completion? Relatively speak wouldn't that produce the highest value? Zoning does allow for an ADU.

The AMC is instructing you how to do the appraisal wrt value ( exclude the part buit ADU), and the client is not supposed to instruct the appraiser in a manner that can influence value. (unless a hypothetical condition is added but we are not allowed to add an HC to the URAR )

You say the ADU is partially complete --how far along is the construction? 50% ? 80%? I suspect the client does not want it made subject to completion because the owners may not have the funds to complete it ( getting the $ to finish the construction could why they are refinancing)

The choices are make it subject to completion, or appraise it " as is", and adjust for whatever contributory value the market indicates for a partially built ADU. Not including the ADU in the valuation could be misleading. And doing it that way makes no sense wrt the client asking for a comp with an ADU.

I know it's slow but some dog assignments or fishy clients are just not worth it- imho.

 

[Fernando]

I hate it when I find out the subject property has an ADU because my appraisal fee was based on not having an ADU. Did client try to pull a fast one on me?
If I knew I would charge higher because of the additional work needed from my many years of experience with ADUs.

 

[Terrel L. Shields]

OK - is this secondary market or in house. You can exclude the ADU and state that it is a partial estate (excludes ADU) if it isn't for secondary market. Just mention and opine upon its potential contribution "as is" on the property.

IF FHA or Fannie Mae, I would want to talk to the underwriters before proceeding. What do they want and expect.

 

[Xavier Hargrove]

The AMC is instructing you how to do the appraisal wrt value, and the client is NOT supposed to instruct because of that influence ( see cert # on the URAR form )

You say the ADU is partially complete --how far along is the construction from completion? 50% ?80%? I suspect the client does not want it made subject to completion because the owners may not have the funds to complete it ( and could be a reason they are refinancing to get those funds )

The choices are make it subject to completion, Or appraise it " as is", adjusting for whatever contributory value the market indicates for a partially built ADU. Not including the ADU in the valuation could be misleading. And doing it that way makes no sense wrt the client asking for a comp with an ADU.

I know its slow but some dog assignments or fishy clients are just not worth it- imho.

It is about 50-70 percent complete. I may have said that wrong. The ADU was already on the property built, they are remodeling the ADU. The bottom floor is the one that is going through renovations in which they gutted the whole space. It has been roughed in, drywall and finish work done. No floors, cabinets, appliances or trim has been done.

 

[alebrewer]

The AMC is instructing you how to do the appraisal wrt value ( exclude the part buit ADU), and the client is not supposed to instruct the appraiser in a manner that can influence value. (unless a hypothetical condition is added but we are not allowed to add an HC to the URAR )

It sounded to me like the AMC (or client) was ASKING if the appraiser could do that - not instructing them to do so...

 

[alebrewer]

As the client 'asked' you if you could provide credible results under the request to disregard any value attributable to the AMC, your choices are: (1) proceed under the scenario Terrel suggested, or (2) research the market to determine if incomplete ADU's have contributory value. If not, you should be able to comply with the request. If so, you wouldn't be able to.

 

[Xavier Hargrove]

OK - is this secondary market or in house. You can exclude the ADU and state that it is a partial estate (excludes ADU) if it isn't for secondary market. Just mention and opine upon its potential contribution "as is" on the property.

IF FHA or Fannie Mae, I would want to talk to the underwriters before proceeding. What do they want and expect.

This I think is in house. It is not FHA. The client asked the construction status of the ADU, health and safety concerns and once I told them asked to exclude it from the valuation but acknowledge it in the prescence in the report

 

[J Grant]

It sounded to me like the AMC (or client) was ASKING if the appraiser could do that - not instructing them to do so...

Asking /instructing either way the client conveyed the idea not to value the part built ADU to the appraiser - which the appraiser is free to push back against of course.

 

[J Grant]

It is about 50-70 percent complete. I may have said that wrong. The ADU was already on the property built, they are remodeling the ADU. The bottom floor is the one that is going through renovations in which they gutted the whole space. It has been roughed in, drywall and finish work done. No floors, cabinets, appliances or trim has been done.

The ADU might have some value being 50-70% complete ( which is it, sounds more like 70%), so unless you conclude the market does not value it all, excluding the partial construction at client request can be misleading.