Do I HAVE to use the 1025?

[CANative]

The subject is a small 2/1 cottage with a smaller additional unit, probably a converted garage. Zoning is R2 which is two family residential. The units are separately metered. This is a legal two unit property.

The owner lives in the smaller unit and his mother lives in the slightly larger unit.

GRM's for two attached units are 175 to 205. The higher GRM is for nicer, newer two units with garages in a somewhat better negibhorhood. The subject property could command rental rates of about $1350. By the income approach the value would be $268,000 +- ($1,350 x 195) But if you use similar size, older cottages with granny units, the value is more like $325,000+

I'm thinking H&BU is an owner occupied SFR with an accessory dwelling unit rather than a straight out investor type income property.

I hate using the 1025. Mostly because I don't use it very often and it's a pain in the neck getting all of the details right. Also, it doesn't work well when the comps are extremely limited and there are big differences in the chracteristics (such as using "real" duplexes against detached houses on the same lot.)

The client does not care which form I use and has said so. My fee for the 1025 is almost double what the 1004 with an accessory unit would be.

I'm wondering if I could be tagged by a reviewer if I used the 1004 and put a discussion of the income approach in an addendum. I have lots of data, I just don't care for the form.

 

[Tim Hicks (Texas)]

Well, I guess...maybe...I dunno. What does your mentor say? He will chime in here in a minute. Sounds like a single family with accessory unit to me, but you are the appraiser so you must decide.

 

[Smokey Bear]

You want some cheese with that whine?

 

[Ms. Janet]

i'm on the 1004 team...................

 

[Lee Lansford]

First you have to reach a well-reasoned conclusion as to whether or not the Subject is a SFR with an accessory unit or a 2-unit small residential income property.

Once you have that answer, the reporting form will be obvious.

 

[CANative]

Once you have that answer, the reporting form will be obvious.

I think I have the answer and the required form still isn't obvious.

If the owner wanted to sell and wasn't in a hurry, he would ask for a price similar to a small house with an accessory unit. The investor buyer wouldn't be making any income at that price and probably wouldn't buy it. But it's kind of a close call. I hope I'm not "filtering" information in an effort to avoid using a form.

The income approach is not necessary but it is pretty relevant and the income approach section on the 1004 is woefully inadequate. But I also don't want to grid out a bunch of rental comps on a form. I'm thinking I can just list addresses, MLS's and rental rates/sales prices to document my development of the GRM.

 

[Ms. Janet]

The income approach is not necessary

if the property is not typically bought and sold for its income producing capabilities...............i see no reason to put it on the 1025

 

[alex gilbert]

I'd have to say 1025 for this one. It sounds like two units. There's apparently no prohibition against renting out one or both units, it's zoned R-2 and the icing is separatley metered. Just because the primary buyer motivation isn't income doesn't make it a SFR. It might be a case where you develop all three approaches but give exclusive weight to the Sales Comparison.

This raises an excellent question. The 1004 is for SFRs and SFRs with accessory structures. The 1025 is for multi-unit (up to 4). Where do you draw the line bertween accessory structure and an additonal unit? Way back when at BofA the rule of thumb was if the 2nd unit contributed more than 10% to the overall value it was a duplex. I don't think I've seen that codified anywhwere. I have read that accessory structures are "incidental" to the use of the main dwelling but on the same lot but that's a bit vague. Anyone have a better definition? I did a quick search of the FNMA selling guide but didn't find anything.

 

[Ms. Janet]

the icing is separatley metered.

huh? icing for what? an accesory unit, garage apartment, granny flat..............they're separately metered................

my question is............if the buyer/seller motivation isn't income, just how reliable is the income approach?

 

[alex gilbert]

Separately metered to me means not an accessory structure but two units. Just because the income approach is not as applicable or reliable as the sales approach doesn’t make it the property an SFR or suitable for the 1004.