Corner Case SFR or Duplex Appraisal Question

[nford]

Hi all,

Not sure if this is enough information to give an accurate answer but here goes a whirl. I'm in the process of buying a SFR for my partner and I. We are currently under contract at a property where one of the rooms was walled off and a kitchen/bathroom was added with separate entrance. Prior county records indicated that this was still classified as a Single Family residence. The prior owner also was on an FHA mortgage as a SFR. Since the owner bought the property, the city has changed zoning requirements and allows for duplex's in the properties plot.

Fast forward to my appraisal, the lender came back and told me the appraiser wants to use a 1025 form instead of 1004 with ADU. If no work has been done on the property since it was appraised as an SFR with ADU, can zoning changes allow an appraiser to value as a duplex? All of the other houses in the neighborhood are strictly SFR, with one other property (same model + similar addon) a SFR with ADU.

 

[Terrel L. Shields]

duplex's in the properties plot.

I think of it more as an ADU. Accessory Dwelling Unit - not a 'duplex'. The issue to investigate is if it is legal to rent it out or if the city code treats it as an ADU then some restrict that to non-rental property (family member occupied- "granny flat" "mother-in-law" etc.

I would suggest to the lender that the appraiser needs to explain why he is treating it as a duplex instead of a SFR with ADU.

 

[glenn walker]

Hi all,

Not sure if this is enough information to give an accurate answer but here goes a whirl. I'm in the process of buying a SFR for my partner and I. We are currently under contract at a property where one of the rooms was walled off and a kitchen/bathroom was added with separate entrance. Prior county records indicated that this was still classified as a Single Family residence. The prior owner also was on an FHA mortgage as a SFR. Since the owner bought the property, the city has changed zoning requirements and allows for duplex's in the properties plot.

Fast forward to my appraisal, the lender came back and told me the appraiser wants to use a 1025 form instead of 1004 with ADU. If no work has been done on the property since it was appraised as an SFR with ADU, can zoning changes allow an appraiser to value as a duplex? All of the other houses in the neighborhood are strictly SFR, with one other property (same model + similar addon) a SFR with ADU.

In my area Unless it had separate Utility Meters in my area it would be considered a SFR with an attached ADU no matter what the zoning was. Also was this a do it yourself conversion by owner ? Personally I would go to my local City-County Building Department. Also do duplexes up there sell for more or less than a SFR ? Where it gets nasty is in a future resale ?

 

[nford]

In my area Unless it had separate Utility Meters in my area it would be considered a SFR with an attached ADU no matter what the zoning was. Also was this a do it yourself conversion by owner ? Personally I would go to my local City-County Building Department. Also do duplexes up there sell for more or less than a SFR ? Where it gets nasty is in a future resale ?

So thats where its tricky. Its got one address, separate electricity meters but shared utilities on everything else. In my area of the country, ADUs are allowed to be rented out legally without the property owner needing to be on sight. The adu was grandfathered before permits were available. In my area, duplex's do sell for more, however I'm unable to find a comp close to my neighborhood. Most of the houses within a 5 mile radius are SFR.

 

[glenn walker]

So thats where its tricky. Its got one address, separate electricity meters but shared utilities on everything else. In my area of the country, ADUs are allowed to be rented out legally without the property owner needing to be on sight. The adu was grandfathered before permits were available. In my area, duplex's do sell for more, however I'm unable to find a comp close to my neighborhood. Most of the houses within a 5 mile radius are SFR.

Next question are there similar sized homes with separate ADU'S ?- if not your value may be way lower than what you think --I assume your Main Home is now smaller than adjacent neighbors homes who didnt carve there homes up into two separate areas .

 

[nford]

Next question are there similar sized homes with separate ADU'S ?- if not your value may be way lower than what you think --I assume your Main Home is now smaller than adjacent neighbors homes who didnt carve there homes up into two separate areas .

Good point, there's only one similar home with adu nearby and that sold in 2018.

 

[redfish]

The appraiser should be requested to provide the highest and best use analysis used to determine that the subject property meets the 4 tests as a duplex rather than a SFR with ADU.

 

[George Hatch]

This is a geek issue that nobody outside our business can be expected to know, but there's a distinction to be made between the valuation and comparison of these properties (the mental part of the appraisal process) vs the reporting formats used to convey and communicate those analyses.

As a practical matter and assuming the partitioned unit is legally permissible at the local level, the market participants (like you) will consider this as a larger home + smaller rental unit. There may actually be some overlap between SFR+ADU combos vs SFR+apt combos but in terms of the utility of the structural improvements a 3bd house+studio ADU has the same/similar economic attributes as a 3bd house+ studio apartment.

Meaning, the comparison the market participants are making may not come down to an either/or choice, but possibly be a "both" choice. If you had a choice between 2 properties of otherwise similar physical and economic attributes, would it make any difference to you what each were labeled? Usually not, unless it affects the available financing options.

 

[nford]

This is a geek issue that nobody outside our business can be expected to know, but there's a distinction to be made between the valuation and comparison of these properties (the mental part of the appraisal process) vs the reporting formats used to convey and communicate those analyses.

As a practical matter and assuming the partitioned unit is legally permissible at the local level, the market participants (like you) will consider this as a larger home + smaller rental unit. There may actually be some overlap between SFR+ADU combos vs SFR+apt combos but in terms of the utility of the structural improvements a 3bd house+studio ADU has the same/similar economic attributes as a 3bd house+ studio apartment.

Meaning, the comparison the market participants are making may not come down to an either/or choice, but possibly be a "both" choice. If you had a choice between 2 properties of otherwise similar physical and economic attributes, would it make any difference to you what each were labeled? Usually not, unless it affects the available financing options.

Lol this exactly. My cousin does business appraisals and said something similar lol. The only reason I care is because this is the difference between me putting 5% and 15% down with a conventional loan. If we do a 1025, my lender wont honor my rate lock if i need to go FHA.

 

[CGinMN]

If I was in your position I would push back. It sounds like an ADU to me.

More info:

What is required for accessory dwelling units (ADUs)?

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