'As is' with accessory unit

[Mike Kennedy]

:new_smile-l:

It can be contributory value and GLA obviously. Perhaps it is accessed via the 2nd unit. Most unrecognized units may not even have the necessary egress to be a unit, let alone the stove. It's a case by case basis. Say an attic had once been part of the 2nd unit, but had a kitchen added to add another rentable "unit." Literally, the removal of the stove makes this not even close to a living unit. It's a question of function and the market reaction to such. If it's a 3 floor flat style multifamily and it's always been an unrecognized 3 unit property, than it may not be feasible. Again, how can it be a 3 unit property if it's illegal to do so? It comes down to what the town/city will do about it, and how the market reacts to it.

There's probably thousands of these things, most often found in a basement of say a 3 family or 4 family property. Once you remove the stove from the unrecognized basement unit, provided that it can be accessed via the interior of unit 1, then it logically becomes part of the first unit. There may be further market reaction to the potential cost of removing cabinetry. Of course, in reality, there is a contribution of the illegal unit because the new owner will likely put the stove back in and illegally rent it himself. If the market is happy with that, and "everyone does it" how can the appraiser force it not to happen? Why would he? We're not the permit police, we're not an assessor. We are valuing the property based on the market. The market obviously reacts to the "unit" and it's our job to understand that, and discuss the facts as they are in the appraisal report.

Subject: USPAP AO-28 / Due Diligence is Required
5. A real property appraiser accepted an assignment to appraise a three-unit residential property. The intended use of the appraisal was for mortgage financing. The client requested that the appraiser not verify the legal status (e.g., compliance with zoning, building codes, use permits) of the three units with municipal officials.
The appraiser withdrew from the assignment because she concluded that the client’s assignment condition limited the scope of work to such a degree that assignment results are not credible in the context of the intended use. The use of an extraordinary assumption about the legal use of the property would not produce credible assignment results in the context of the mortgage financing use.


The above “Case Study” was Issued as an Opinion that the ASB clearly considers municipal verification STANDARD and REQUIRED APPRAISAL PRACTICE (in markets where building & zoning ordinances exist) on Mortgage Financing Appraisal Assignments.

p.s. please define "unrecognized unit"? Thanks in advance.

 

[AnonApprsr]

The town doesn't recognize it. It's pretty simple. How do you know zoning doesn't allow for the unit to be built with proper permits? It may in some cases. Again, the only person who can make a legal determination of a unit would be a building inspector/department. Unless zoning says that no 3 unit properties are allowed, and you know that the unit was built after that zoning, how can you say it's illegal with out making an EA? You can't force the building department to make a determination, and even implying that you'd specifically ask about the property may be breaking confidentiality.

 

[HF Mudd]

Does the subject have an open violation for the illegal unit? Per NYC DOB:

A DOB violation is a notice that a property is not in compliance with some provision of the NYC Buildings Code, and includes an order from the Commissioner of DOB to correct the violating condition. The violation is entered against the property in the Department's Buildings Information System (BIS), and must be corrected before a new or amended Certificate of Occupancy (CO) can be obtained. Although there is no fine or penalty attached to the violation notice itself, it can be used as the basis for a Criminal Court summons and prosecution (NYC Admin. Code section 26-248(d)) which may result in the imposition of a fine and/or imprisonment.

A DOB violation will ordinarily impair the sale or refinancing of a property since it will appear against the property on a title search. In order to remove the violation from the property's record, the condition must be corrected and proof of that correction must be provided to the issuing office before the violation is removed from the property's record. Check

"Resolving Department of Buildings Violations" (85 kb) for information pertaining to particular DOB violations.

NYC Department of Buildings also has a guide on illegal conversions:

http://home2.nyc.gov/html/dob/downloads/pdf/dob_Illegal.pdf

 

[AnonApprsr]

If the Building Department has already noted it as an illegal unit, than that makes your job easy.

 

[hastalavista]

and even implying that you'd specifically ask about the property may be breaking confidentiality.

That situation would be rare in all cases and almost non-existent in mortgage-finance cases.

Here's the bottom line:
A. The OP said the subject is configured as a 3-unit property when all the research shows it is a 2-unit property.
B. The client suggests making a cost-to-cure can solve the situation.
C. The OP asks for opinions. And, asks if the sketch should be re-drawn so that the 3rd unit no longer shows up as a 3rd unit (kudos to the OP for also saying this doesn't make any sense; he or she is right!).
D. The cost-to-cure adjustment does not change the as-is configuration of the property. And, it may not recognize what the actual market reaction to the as-is configuration is.
E. We don't have to be the permit police to state:
Per all my research, the subject is indicated to be a 2-unit property. However, as-is, it is a 3-unit property. Based on my research, the 3rd unit is not permitted.
F. Now, its up to the client to decide: Do they want to (a) loan on the property as-is (b) have documentation that the 3rd unit is legally permitted, or (c) have the property be returned to a 2-unit configuration? This is not an appraiser decision- it is a lending decision.
G. What the client cannot do (IMNSHO) is to tell the appraiser,
Make a cost-to-cure adjustment and count it as a 2-unit property.
Because the above does not result in an as-is appraisal.
E. Now, certainly there are cases as you describe where the modification may not be significant or change the configuration of the improvement so that it can no longer function as its as-reported configuration. I'll make it easy: A duplex with a garage and the garage has been finished, has a small kitchenette, and has a bath installed so that it is rented out. This problem is relatively easy to fix: rip out the kitchen and the garage area is no longer a non-permitted unit but a finished area with a bath. But until the bath is ripped out, it is what it is; a garage that has been converted to a living unit. Making the adjustment to rip-out the kitchen does not change the configuration.

I'm harping on this because the cost-to-cure solution for the as-is appraisal requirement is a mistake I used to make when I first started appraising. When I realized my mistake, I stopped. When others ask about this situation, I point out that it is a mistake to substitute cost-to-cure to make an appraisal report the subject as something it is not.

If any disagree, that's their professional decision to make.
Many lenders have guidelines that they will not lend on properties if there are non-permitted uses or non-permitted alterations to the improvement.
If I'm a lender and I receive an appraisal that tells me the subject is a 2-unit property and has appraised it as so, I lend on it, and then I find out latter it isn't so and wasn't at the time of the appraisal, I'm going to explore every recourse I can to have the appraiser purchase my loan from me. I'm going to especially do it in this case because the appraiser knew what the situation was and appraised the subject as-is when it wasn't.

:new_smile-l:

 

[Mile High Trout]

You guys are so knowledgeable about these things, thanks for the good advice. As usual, Mike runs the factual approach based on USPAP, which is most informative. Well, everyone was very informative, thank you.

My comments ran on the assumption that it was clearly a converted situation with doors, rooms, closets, etc. You know, a situation where the renter might not recognize the improper alterations.

Lesson learned, you can't assume on every issue. The most perplexing topic for me seems to be the subject valuation relationship to the market reaction. (first post withdrawn)

That assignment sounds like more trouble than it's worth, regardless of the fee the appraiser were to charge.

 

[23Degrees]

I'm harping on this because the cost-to-cure solution for the as-is appraisal requirement is a mistake I used to make when I first started appraising. When I realized my mistake, I stopped. When others ask about this situation, I point out that it is a mistake to substitute cost-to-cure to make an appraisal report the subject as something it is not.

And a mistake many of us might still be making if not for this forum. At least we were in good company prior to changing our dodo head ways. This is another topic that needs a good shouting from the rooftops as lenders continue to ask appraisers to "cost to cure" their problems away resulting in many caving into accepting responsibility for situations that are way over their heads and way outside of a reasonable scope for most appraisal assignments.

 

[james stephens]

I'm harping on this because the cost-to-cure solution for the as-is appraisal requirement is a mistake I used to make when I first started appraising. When I realized my mistake, I stopped. When others ask about this situation, I point out that it is a mistake to substitute cost-to-cure to make an appraisal report the subject as something it is not. :new_smile-l:

Denis,
I think I understand where you are coming from, and you've helped me realize a mistake I've probably been making. When I do an "as-is" appraisal and including a "cost to cure" I explain exactly what the Subject property is like, unaltered, in the first part of the report. If necessary, in the SCA and CA I plug-in a "cost to cure" and come up with an "as-is" value. I'm thinking that what I should be adding to the report is a statement that a hypothetical condition was employed in the SCA for the purpose of providing an "as-is" value. Wouldn't that suffice? Just as a basic guideline without taking into consideration whatever legal ramifications may exist, if any. In the OP's situation I would call the use of the Subject property"Illegal" in an as-is appraisal.

EDIT: As far as the issue of the garage configuration after ripping out the kitchenette. In this situation, my cost to cure would probably include removal of the bathroom as well and whatever alterations necessary to revert the area back into a functioning garage.

 

[Webbed Feet]

Hi all.. always wondered how other appraisers handle this.

I have a two family being illegally used as a 3. Client requested an 'as is' appraisal with a cost to cure to remove the illegal kitchen/unit.

My question is this.. in the sketch, description, etc.. do you show the 3 units? I know that makes sense, since it is 'as is', and that is what's there right now, but it seems misleading. For example, in the sale comparison, the subject will have a room count for 3 units, but we are appraising as a 2 family. What say you appraisers?

Did you finally comprehend that most likely due to the intended use that what you've been requested to do is something you should not be doing? I read a completely confused real estate appraiser.

So.... what IS the intended use anyway? IF any GSE guidelines are involved for this what are they?

By the way, as you think you should, or are, appraising "as is" then you've got comps that are legally only two units with illegal third units... right?

 

[Webbed Feet]

<......snip.....> I'm going to especially do it in this case because the appraiser knew what the situation was and appraised the subject as-is when it wasn't.

:new_smile-l:

Brother DeSaix, pardon the intrusion.. But would not that be "as if when it wasn't." ? Especially, if the stunt is pulled of using two unit comps with a cost to cure hokus pokus instead of two units + 1 illegal unit comps for a true "as is" analyses?

Maybe I read too fast...