Am I Right, Wrong Or Somewhere In The Middle?

[Steve Wyrick]

Did a field inspection today and here is what I found. Appraisal is for refi, "as is" only.

1,046 sf home, 3:1.5, built 1956, single car attached garage, condition Average for area an age. Location a small rural city of approximately 5,000 located in somewhat remote area, larger cities of 25,000 to 50,000, 45 to 60 miles away, no other urban areas. Largest metropolitan area 500,000 + 75 miles. You folks from Texas and the midwest recognize this type of area.

A detached 400 sq.ft. garage at rear of lot has been converted to guest house - mother-in law house, within the past year or so with kitchen living room, bathroom and three rooms used as bedrooms but lacked built in closets. Accessed from alley. Construction fair to average, wood frame, T1-11 siding, comp roof, slab foundation, wall furnace and evap cooler. No carpets in 2 bedrooms, just concrete.

Unit is occupied and I seriously doubt that (1) owner is ever going to ask for permit final unless someone makes an issue, I suspect that lack of closets in bedrooms will prevent final issuance, (2) city and school has already collected the permit fees about $2,000, so until they are called by the owner they are not going to make an issue of issuing the final.

County assessor's records show house and attached garage, and 400 sf other building.

Checked at local city offices zoning is R2 - residential multiplem, 2 units permited on parcel. Checked with building permit department, this where it gets interesting. Permit was paid and issued 1/2001, but it has not been finalized. Permitting process requires that upon final inspection all building codes in affect at that time must be adhered to, not what was in affect at time the permit was pulled. In other words at the next City Council meeting they could require that all plumbling and electrical be gold plated and even though permit was issued before, that standard now becomes the standard for finalization of the permit.

Question, Do I value this permitted but not finalized improvement? It is my opinion that until the final permit is issued this improvement is considered to be Conforming (zoning) non permitted use (permit has not been finaled) and thus has no additional value to the property.

To confound the issue more is that checking with the only two realtors in this small city, there have been no sales of a similar property in several years if ever and county records do not track guest houses on single property.

The lender is not aware of the situation, waiting for his check before I tell him.

I have 7 reasonable sales within past 9 mo., within 10% of GLA size of main residence, within 7 years age +/- of subject in similar location in the city, 3 are within 6 blocks of subject. Indicate a nice reasonably tight value range before any adjustments for minor differences.

What do you think is my opinion that until the final is issued guest house is illegal and has no value in the appraisal, correct? Or, because it is there and just because it does not have permit final it has a value in the appraisal? (Kind of like being semi-pregnant.)

Obviously, I will disclose this structure and the situation in the appraisal report and indicate that in my opinion (right now at least) that there is no value attributed in the appraisal for this guest house.


(Excuse and typo's I have not installed spellchecker on the computer for the forum yet.)

 

[Richard Whitt Jr.]

(Excuse and typo's I have not installed spellchecker on the computer for the forum yet.)
I did'nt know the forum had a spellchecker.

How bout you call the lender, and give them an option on which way to do the appraisal. House and building subject to permit being issued, or "AS Is".

Richard

 

[Jo Ann Meyer Stratton]

You have described my two counties-except it is 125 to 200 miles to the nearest metropolitan area, 75 miles to the next town and there are no building permits, restrictive zoning, code, etc, etc. The building has a contribution to value--maybe similar to what an additional garage or large storage building or hay barn or etc would have from another property. It will never have a contribution to value similar to it's costs to construct even if they complete with all sorts of bells and whistles. In situations like this I find other sales with an "excess" building of some type with any type of use. I have compared guest quarters to detached garages, barns, swimming pools, a single wide mobile home used as a workshop, hay barns, tack room, sheds, a detached building under construction, etc at times in my area. An additional structure over and above the main house, regardless of use. Because it does at least provide a storage area if nothing else, so it does have some value.

 

[KD247]

Here are a few possibilities:

1) The market demands a discount for homes with converted garages. The garage is comparable to other garages after deducting the cost to re-convert it.

2) The market is neutral on converted garages. There are buyers who will buy the property with a converted garage, but they won't pay a premium for it.

3) The market will pay a premium for the converted garage. (If the premium is less than the cost to construct it, the difference is attributed to functional obsolescence).


The lack of other properties with converted garages indicates that the market will probably not pay a premium for the conversion. If the neighborhood is one where everyone uses their garage (few cars parked in driveways or streets) than it is likely that the typical buyer would demand a discount on the property to pay for re-converting the garage. But the discount may be insignificant relative to the home's value.

In many instances the market is neutral on converted garages. The cost to re-convert a garage is usually insignificant (e.g. exchange the appliances for the labor to re-convert it).

In my area, the ramifications of a converted garage are usually insignificant, with the cost of construction, any premium realized, and the cost to re-convert all typically being only about 1-2% of a property's value. With values rising (possibly stabilizing as we speak) at about 20-30% per year, it would be misleading to imply that any local appraisal is accurate to within 2%.

Regarding the possible legal use as an additional unit, I would want to have the Client instruct me. You will need to make some assumptions regarding the possibility of having the permits finalized and the value of the income stream. It would sure be a lot easier if the Client would just instruct you to consider the converted garage as similar to a conventional garage!

 

[Joe Gomberg]

No zoning in my area (deed restrictions), but people build quarters all the time. Why cant the property be appraised with quarters and use comps that have either finished or unfinished quarters (adjusting for finish naturally), or even large storage buildings, etc that was mentioned earlier in the thread. You stated the house had an attached garage as well, so it sounds like a very typical home in my neck of the world... situation might change if the property is rented.