Appraising In An Airbnb World

[The Warrior Monk]

i work out of a home office. my neighbor does part time auto-body and motorcycle painting in his garage. across the street is a small salon in the basement. two houses down the owner runs a property preservation and lawn mowing service out of his garage. few houses over is a medical transcriptionist that works out of a home office. a block over the owner does part time small engine and lawn mower repair out of his garage. there are a couple in home daycares within 2 or 3 blocks. the high school music teacher lives nearby and gives private lessons for a fee out of her house.

how does the current use of a single family residential property located in a single family residential neighborhood purchased by owner occupants, have any affect on what the property will bring in an open and competitive market?

It can. For example, in a subdivision that abuts a major roadway, zoning may be such that it allow mixed use for owner-occupied residence with a professional office use that is open to the public (commonly dentist, doctor, counseling, etc.). While a particular home might not have an office, the property may be purchased with consideration of that potential future use and have a different price level than the homes off of the main street. And the opposite can happen also; markets may no longer need the mixed use any longer, and it may be converted back.

It simply boils down to highest and best use, which would include the legal use of the property.

 

[Overimprovement]

Technically, that is true. However, just because someone use a property a certain way doesn't mean that the use is legal.



I actually can't have solar panels on the south-facing side of my home, due to covenants and restrictions.



Maybe because this issue is noted in the zone code? This actually is an issue in the main area where I work, and is specifically addressed in the code. I work in a market with secondary homes, and it got out of control with daily rentals, weekend rentals, rentals where there are a few dozen people staying overnight and cars parked up and down the street, etc. So the codes where modified to address the chaos, and they are strict in enforcing it.



The standard is "necessary" to the valuation of the property.

I have said repeatedly assuming zoning and local ordinances are being followed. Most areas in the country still have no prohibition against the rental of ones home.

In a real way, this is no different than simply renting a home for 12 months to some family. When I appraise such homes, I mention the tenant but unless a fair percentage of area homes are rentals, I will not typically develop an income approach.

 

[Overimprovement]

The issue for the lender is not merely value.. As I said above, "It is worth what it is worth." But the lender is concerned about conforming to the loan program and some loan programs do not allow commercial uses. Thus, if a default, the lender may have money clawed back if they discover it was used as a commercial enterprise. We somehow pretend Uber is not a taxicab and we pretend AIR (matress) Bed N Breakfast is not a hostelry. What next?

If I were valuing a normal car, I would absolutely ignore the fact it may be used as an uber car. Great point actually!

What difference could that possibly make to its value? A cab is clearly a cab, inside and out. Design and function are two different things!

There are many similarities between this and what we are talking about.

 

[Terrel L. Shields]

Go ahead - it's your license at stake, not mine

 

[Tim The Enchanter]

How come I have never looked at staying at an AirBnb instead of a motel?
I could save some money, and the experience is not likely to be worse than say, Days Inn or Super 8.
Next time.

 

[J Grant]

The reason an owner doing UBER driving does not make their car a taxi, nor using Airbnb to book guests does not make the property into a hotel/bnb is that the income comes from a person using the company APP, and they can use it on any property...(or vehicle) If they stop driving UBER tomorrow they still own a passenger car and if they stop doing airbnb tomorrow they still own a house or condo.

Likewise a buyer can buy any car and use it for UBER, so why would they pay more for one already being used for UBER? Same for a property.

The difference is a car is not fixed location, a house or condo is. Thus, if the RE is located in a high demand rental area, that would influence prices and demand ( baked into sale prices)

If an appraiser feels heavy short term rental use changes a property from residential to income producing residential, (or commercial talk with the lender/client. Otherwise, analyzing owner occupant vs rental motivation of buyers is part of SOW/ analysis.

I would expect an appraiser working in a high demand short term rental area has been dealing with it for years in one form or another...Airbnb just replaces newspaper /agents/ other advertising/ways to procure renters .

 

[George Hatch]

MV attempts to depict the reactions of the typical buyer and seller for the property given its attributes. Just because I used a house to run a bordello doesn't mean that its only comps are bordellos and its only buyers are bordello operators.

 

[The Warrior Monk]

In a real way, this is no different than simply renting a home for 12 months to some family. When I appraise such homes, I mention the tenant but unless a fair percentage of area homes are rentals, I will not typically develop an income approach.

It actually is.

I'm assuming legal use. In my market area, a home property that can legally be rented to transient, very-short-term tenants is either located in one of the few areas with "Resort" related zoning, is preexisting to zoning, or has some type of special use permit or variance. These type of properties would not be valued the same as a single-family residence, unless that was in fact the HBU of the property. If the property is being used as an Airbnb without permits/certificates of occupany, it's simply an illegal use of the property, and the property would not be valued under an illegal use (barring some assignment-specific hypothetical conditions).

 

[J Grant]

David, is Air bnb actually ruled "illegal" by the courts in whatever market area you work in?

What are you using as your standard of what is "legal"? Areas are zoned residential, and they have houses and condos in them. Now the advent of airnbnb throws a challenge down-do owners of houses and condos in residential areas have the right to rent out a room or entire house via the airbnb program ?

There have been court cases on it ; some cities or towns have declared it illegal while others , due to owners who want the program and "won" declared legal, other areas a grey area around it.

 

[The Warrior Monk]

David, is Air bnb actually ruled "illegal" by the courts in whatever market area you work in?

What are you using as your standard of what is "legal"? Areas are zoned residential, and they have houses and condos in them. Now the advent of airnbnb throws a challenge down-do owners of houses and condos in residential areas have the right to rent out a room or entire house via the airbnb program ?

There have been court cases on it ; some cities or towns have declared it illegal while others , due to owners who want the program and "won" declared legal, other areas a grey area around it.

Permits are needed to rent to unrelated parties; it's that simple. No permits = Not a legal use.