Definate 3-Family, But

[Joe Milla]

The Subject offers 2-means of egress and functions as a 3-family. It even looks like it was built this way back in the early 1900's (no building permits prior to 1970 could be found), but the board of appeals denied a prior owner back in 1996 to make it a legal 3-family due to a lack of sufficient off-street parking. Per building department, only thing required to make it a legal 2-family is removal of 3rd floor units stove. Each unit is a 5-2-1. My problem is if I combine the 2nd and 3rd floor units as one it skews all data when comparing it to a typical 2-family. I've tried it as a typical 2-family and gave this area a lump sum adjustment. Don't like the way this looks either. I found a couple of comps. One says 2-family, but shows it having 3 units. Per Broker, listed like 2-family because its a legal 2-family, but offers 3 units (Huh). The other says 2-family with in-law in attic. Same response from this broker as the other (Huh). Any input on how you all might handle this situation would be greatly appreciated. Thanks Joe.

Oh, by the way I recieved the job late Thursday, saw it Friday and Client needs it tomorrow. what a great weekend I'm having.

 

[George Ellerman]

"definite"

 

[Mztk1]

Sounds like you have two perfect comps. Call it a two family with In-law suite and use those two comps you have. The attic is gross building area, so if that is how you do your multis then it is straight forward. If, however, your market lends inself to gross living area for multis, like mine does, don't count it as living area and adjust for it seperately as an amenity, not a unit. At least from your very brief description and based on my experience, that is what seems appropriate to me.

 

[Marcia Langley]

Joe,

The good news is you have comps with the same configuration and zoning problems. That means you have a "market" of like properties to draw on for your analysis.

It doesn't matter if the sales are all "called" something different by the listing agents as long as they are all the same and shown as an apple to apple comparison in your report.

Market sales show that there is a market for two-unit properties with an additional illegal unit. Your sales comparison should be fairly straightforward.

The income approach will be a little trickier because youl'll have to deal with the fact that part of the actual income of the comps is illegal which can't be counted as income for the subject.

Call for the removal of the stove, only count the rents for two units with an explanation of the additional income from the illegal units.

This can be presented in a logical fashion. The only thing the client may worry about is if they were hoping to use the illegal income in their calculations for the loan qualification.

But that's not the appraiser's concern. It is what it is.

Depending on your data, look at some legal properties that have similar bed and bath count that would exist if you were to combine the ilegal unit with one of the legal units. How do local rents compare to one 4 bed 2 bath unit versus two 2 bed 1 bath units? For example, does your market show $600 each for two 2 bed units and $1200 for one 4 bed unit?

Again, the good news is that you have comps with the exact same issues. It should be doable.

 

[Mztk1]

With all respect for Marcia, I wouldn't call for the removal of the stove. Chances are the other units have a stove in their attic and chances are the stoves are electric. If we found value for an illegal attic unit using the comps, then an illegal stove - which is personal property if electric anyway and debatably personal property if gas - isn't going to make it more illegal.

I'd simply view it like the agents sale, a two unit with upper unit having an in-law suite and I wouldn't count the inlaw suite in gross living area nor, as Marcia said, in the income approach. Then I would state what is in the attic in narrative fashion. If the lender wants the stove removed, they can condition it for that on their own.

 

[Kevin A. Spellman]

There is case law in MA for definition of a living unit, Boch vs Town of Edgartown. You can have as many kitchens you want in your home, but if the traffic pattern creates separation and the attic level is not open to the second level unit, then you have an illegal living unit. In the city of Lynn, a home-owner, mortgage company and the appraiser were sued for an illegal living unit on the third level. The tenant died in a fire on the third level, where there was one means of egress.

You mention parking as a factor to possess a legal third unit. Is it the unit or is it the number of bedrooms for the parking spaces? If there is a relationship between the parking and the bedrooms then I would forfeit a bedroom to create a legal third unit. The ZBA would review a special permit request after three years so the 1996 application would permit the current owner to move forward with a new application.

Which community is your subject in?

 

[Joe Milla]

Thankyou all for your suggestions. You called it Kevin. Its Lynn. The 3rd floor unit does offer 2 means of egress (typical front/back hallways like any other multi-family). The B.D. says 2 off-street per unit needed to make it a legal 3-family. The client wants quick closing, thus, doesn't want to wait for another process with the B.O.A. Most likely the new owner will give it another go, but in the mean time just want to close right away. Its not a value or safety issue. Its a legal-use issue. Its not like the "inspectional police" knock on doors to determine how many units are in these homes. In fact the B.D. has been out to the subject on two different occasions in the past 2 years for permits pulled (one for windows and one for the roof). They signed off on both of them without a making comment about the illegal 3rd floor unit (while all 3 units were being occupied).

 

[Webbed Feet]

Mr. Milla

I sure hope, if this has a "Fannie" intended use, that somebody reminded you that Fannie will not accept 3-4 family properties with illegal additional units.

Webbed.

P.S. I should have said 3-4 family properties.

 

[Mike Kennedy]

XI, 404.01: Zoning (01/31/06)
The appraiser is responsible for reporting the specific zoning classification for the subject property. The appraiser must include a general statement to describe what the zoning permits—“one-family,” “two-family,” etc.—when he or she indicates a specific zoning such as R-1, R-2, etc.

The appraiser also must include a specific statement indicating whether the improvements represent a legal use; a legal, but non-conforming (grandfathered) use; or an illegal use under the zoning regulations; or whether there is no local zoning.

We generally will not purchase or securitize a mortgage on a property if the improvements do not constitute a legally permissible use of the land.

We do make certain exceptions to this policy, as long as the property is appraised and underwritten in accordance with the special requirements we impose as a condition to agreeing to make the exception:

We will purchase or securitize a mortgage secured by a one-family or two-family property that includes an illegal additional unit or accessory apartment (which may be referred to as a mother-in-law, mother-daughter, or granny unit) as long as the illegal use conforms to the subject neighborhood and to the market.

The property must be appraised based upon its current use and the borrower must qualify for the mortgage without considering any rental income from the illegal unit.

The appraiser must report that the improvements represent an illegal use and demonstrate that the improvements are typical for the market through an analysis of at least three comparable properties that have the same illegal use.

The lender also must make sure that the existence of the illegal additional unit will not jeopardize any future hazard insurance claim that might need to be filed for the property. We will not purchase or securitize a mortgage secured by a three-family to four-family property that includes an illegal accessory apartment.
•

 

[Mike Kennedy]

XI, 404.02: Highest and Best Use (06/30/02)
The highest and best use of a site is the reasonable and probable use that supports the highest present value on the effective date of the appraisal. For improvements to represent the highest and best use of a site, they must be legally permitted, financially feasible, and physically possible, and must provide more profit than any other use of the site would generate. All of these criteria must be met if the improvements are to be considered as the highest and best use of a site.

A strict theoretical highest and best use analysis identifies the perfect improvements for a site—assuming that the site is vacant and available to be developed. The appraiser’s highest and best use analysis of the subject property should consider the property as it is improved. This treatment recognizes that the existing improvements should continue in use until it is financially feasible to remove the dwelling and build a new one, or to renovate the existing dwelling.

If the use of comparable sales demonstrates that the improvements are reasonably typical and compatible with market demand for the neighborhood, and the present improvements contribute to the value of the subject property so that its value is greater than the estimated vacant site value, the appraiser should consider the existing use as reasonable and report it as the highest and best use.

On the other hand, if the current improvements clearly do not represent the highest and best use of the site as an improved site, the appraiser must so indicate on the appraisal report. In such cases, we will not purchase or securitize a mortgage that is secured by the subject property.