Duplex Vs 2 House

[Terrel L. Shields]

To me a duplex is a mirror image or joined dwelling with shared wall for two living quarters. If they are not attached in my opinion they are not a duplex. And I don't recall our assessors ever labeling a dwelling with ADU as a duplex. And that regardless zoning, rental, or anything else.

 

[timd354]

To me a duplex is a mirror image or joined dwelling with shared wall for two living quarters. If they are not attached in my opinion they are not a duplex. And I don't recall our assessors ever labeling a dwelling with ADU as a duplex. And that regardless zoning, rental, or anything else.

I try to avoid the use of the term Duplex when I can in my professional communications, because it means a different thing in different areas. In many/most locales, it means what you described, in other locales market participants call virtually any property with two living units a duplex, in a few places any apartment unit with two separate floors connected by an interior staircase is called a duplex no matter if they are in a two unit building or a high rise building with hundreds of units. I have also seen buildings that are either detached, semi-detached, or attached structures that have 1 apartment on the first floor and a second, separate apartment on the second floor called a duplex.

 

[Deleted member 142783]

Could you tell me what the difference is between 1 unit property with an accessory unit that can legally be rented (as is the case here) and a two unit property (which would allow owner occupancy in one or both of the units)? Did you explain that difference in your appraisal report?

Whether or not you call the property a 2 unit property or an one unit property with an accessory unit, there are clearly two living units here, each of which can be rented or each of which could be owner occupied under the applicable zoning. What is the definition that you are using to distinguish between a 2 unit and 1 unit with accessory unit and what is the source of your definition? I don't see how labeling the property a two unit property as opposed 1 with an accessory unit and reporting the results of your appraisals on Fannie Mae form 1025 changes the HBU of the property, which apparently from your write-up is a property with two separate living units that are both legally rentable and are both legal to operate as owner-occupied units no matter which way you label the property.

I am asking these questions because I have yet to see a definition of accessory unit versus 2 unit that would definitively classify the property that you described as either 1 unit with an accessory unit or a two unit property and I don't think the labeling of this property one way one another has anything whatsoever to do with HBU in this situation as either way the property could be used as an o/o property or a rental or combination o/o and rental

I see your point. My only concern is not to be misleading... The report states in bold letters “residential income property”.

Would you complete a 1 unit property on a 1025 form if the lender requested you to do so? Assuming your SFR could legally be rented?

 

[timd354]

I see your point. My only concern is not to be misleading... The report states in bold letters “residential income property”.

Would you complete a 1 unit property on a 1025 form if the lender requested you to do so? Assuming your SFR could legally be rented?

I would not report the appraisal of a 1 unit property on a 1025, but your subject property is not a 1 unit property, it is a two unit property - you can argue either way whether it is one with an accessory unit or a true 2 unit property, but in any case that property clearly has two individual living units in two detached structures and the applicable zoning allows for two living units. Thus, I would have no problem whatsoever reporting the appraisal of such a property on FNMA form 1025 and I don't think that doing it that way would be misleading at all. Whether or not you do it is strictly a busibess decision.

One thing that may help you out is the Fannie guidelines - look carefully at section B4-1.2-01 of the Fannie Mae Selling Guide and you will find this little nugget that most lenders and others do not realize:


Uniform Residential Appraisal Report (Form 1004) For appraisals of one-unit properties and units in PUDs (including those that have an illegal second unit or accessory apartment) based on interior and exterior property inspections. Form 1004 also may be used for two-unit properties, if each of the units is occupied by one of the co-borrowers as his or her principal residence or if the value of the legal second unit is relatively insignificant in relation to the total value of the property (as might be the case for a basement unit or a unit over a garage). In addition, appraisals for units in condo projects that consist solely of detached dwellings may be documented on Form 1004, if the appraiser includes an adequate description of the project and information about the homeowners’ association fees and the quality of the project maintenance. Appraisals reported on Form 1004 must be completed in accordance with the UAD Specification.

You may want to point out the above language to the lender and maybe they will then realize that they can accept your report on a 1004 (it depends on occupancy of the borrower since the second unit in your case does not have an insignificant value at $70,000)

 

[J Grant]

I see your point. My only concern is not to be misleading... The report states in bold letters “residential income property”.

Would you complete a 1 unit property on a 1025 form if the lender requested you to do so? Assuming your SFR could legally be rented?

It all comes back to your identified HBU of the subject. The configuration of your subject, a large house with smaller second house on property is more in character with a SFR with an ADU then a 2 -unit income property. Since zoning is a component of HBU, what is the subject zoning- SFR or mixed use or no zoning... next question of is maximal productive...others have asked that here in various ways, aka suggestions to appraise it as each and see what yields higher value..., which comps sell for higher prices in area, 2 unit income properties, or large houses with a guest house on site? Even though 2 unit properties generate income, (as can a SFR if rented) we often find SFR selling for more $ (higher prices) than 2 unit properties so it depends- which are selling for more $ in your subject area.

Answering these questions helps you decide HBU. .

After You decide the HBU of subject, that determines the appropriate form. If the subject HBU is SFR with ADU, why would you put it on a 1025 form, just because lender asked you to? Is the lender the appraiser, or are you the appraiser?

 

[Deleted member 142783]

I would not report the appraisal of a 1 unit property on a 1025, but your subject property is not a 1 unit property, it is a two unit property - you can argue either way whether it is one with an accessory unit or a true 2 unit property, but in any case that property clearly has two individual living units in two detached structures and the applicable zoning allows for two living units. Thus, I would have no problem whatsoever reporting the appraisal of such a property on FNMA form 1025 and I don't think that doing it that way would be misleading at all. Whether or not you do it is strictly a busibess decision.

One thing that may help you out is the Fannie guidelines - look carefully at section B4-1.2-01 of the Fannie Mae Selling Guide and you will find this little nugget that most lenders and others do not realize:


Uniform Residential Appraisal Report (Form 1004) For appraisals of one-unit properties and units in PUDs (including those that have an illegal second unit or accessory apartment) based on interior and exterior property inspections. Form 1004 also may be used for two-unit properties, if each of the units is occupied by one of the co-borrowers as his or her principal residence or if the value of the legal second unit is relatively insignificant in relation to the total value of the property (as might be the case for a basement unit or a unit over a garage). In addition, appraisals for units in condo projects that consist solely of detached dwellings may be documented on Form 1004, if the appraiser includes an adequate description of the project and information about the homeowners’ association fees and the quality of the project maintenance. Appraisals reported on Form 1004 must be completed in accordance with the UAD Specification.

You may want to point out the above language to the lender and maybe they will then realize that they can accept your report on a 1004 (it depends on occupancy of the borrower since the second unit in your case does not have an insignificant value at $70,000)

Thank you for the insight and info. The key part in the FNMA selling guide is “may also be used”, it does not say “must be used”. To me, this indicates a SFR with ADU can be completed on a 1025... I guess that is open to interpretation though...

Although I guess I disagree with your interpretation of “insignificant value in relation to the rest of the propert”. 10% of the total value does seem insignificant. But hey, I could see how many people would say that is significant.... what % of total value would you consider “significant”, 1,2,3,4,5,6,7,8,9%? Where do you reasonably draw the line?

Thanks for your time!

 

[Deleted member 142783]

It all comes back to your identified HBU of the subject. The configuration of your subject, a large house with smaller second house on property is more in character with a SFR with an ADU then a 2 -unit income property. Since zoning is a component of HBU, what is the subject zoning- SFR or mixed use or no zoning... next question of is maximal productive...others have asked that here in various ways, aka suggestions to appraise it as each and see what yields higher value..., which comps sell for higher prices in area, 2 unit income properties, or large houses with a guest house on site? Even though 2 unit properties generate income, (as can a SFR if rented) we often find SFR selling for more $ (higher prices) than 2 unit properties so it depends- which are selling for more $ in your subject area.

Answering these questions helps you decide HBU. .

After You decide the HBU of subject, that determines the appropriate form. If the subject HBU is SFR with ADU, why would you put it on a 1025 form, just because lender asked you to? Is the lender the appraiser, or are you the appraiser?

If the lender asks for something that does not impact assignment results, is it wrong to comply? I could provide this thread showing most appraisers would use the 1004, although at least one person would use the 1025... HBU would still be SFR with adu. There are technically 2 units. HBU would still be SFR w adu...

 

[J Grant]

If the lender asks for something that does not impact assignment results, is it wrong to comply? I could provide this thread showing most appraisers would use the 1004, although at least one person would use the 1025... HBU would still be SFR with adu. There are technically 2 units. HBU would still be SFR w adu...

The the one person TMD .. is extrapolating reason to use of 1025 form for a house with an ADU, because the Fannie selling guide says an appraiser may put 2 unit properties on a 1004 FORM. Does that make any sense?? The better question is why would you do it...even if you "can" do it, why would you do it when the HBU ( SFR) clashes with a small income property form intended for 2 -4 unit properties whose HBU one assumes is small income use.

Each form asks for HBU of the subject. If HBU of subject is not small income property, why are you putting it on the small income form?

Two separate homes on a lot can be a small income ( duplex) property, if HBU is such. In that case, it would make sense to put it on a 1025 form. But you are saying the HBU of subject is a SFR with ADU ( and property characteristics support that )

Did you research to find out if the subject as a SFR with ADU is selling for more than 2 unit income properties in the area? That would be part of supporting your determination of HBU of subject.


Your lender , or at least the person you are talking may also be an idiot about asking you to put it on a 1025 form. Sometimes they simply don't know, they are not appraisers. Every time this has happened, I politely point it out and they are grateful, because a lender submitting a property on a wrong from can cause problems for them ( and the borrower) .

As you noted from above in your answer, most appraisers would use the 1004 form, and peer
practice is one of the standards in USPAP .

The lender is asking for something that does impact assignment results, (correct form for property type and HBU) so that answers the question about compliance.

 

[chad hampton]

Seems like a single family home with accessory unit. Classic in-law/nanny suite, etc. Doesn't even seem like much of a case can be made for a duplex. 1 set of utilities and I've never seen a duplex that wasn't attached. But again, that's my market.

 

[J Grant]

conventional purchase
2.5 acres (cannot be split)
3000’ main home
1000’ 1 bd 1 bath home
Zoning allows two homes
2 addresses
1 set of utilities
Can be and is rented
Land value 250-300
Most value is in the land plus main home (650-750k total value)
Second home contributes roughly 75k

The property is clearly not an investment property due to minuscule ROI. I can’t imagine even 1% possibility an investor buys this property due to being located in a high value semi rural part of town.

I thought this was a simple HBU analysis.... SFR w adu due to a significant portion of the value being in the main home and land. 5 comps, 3 SFR and 2 main homes with ADUs (main homes roughly 2500-3000’ with second homes of 800-1200’.

Lender comes back and says “investor wants this on 2-4 unit 1025. I state simply, this is a single family w ADU. Any “duplex” or investment property in this market are on lots under 1/2 acre. Review appraiser disagrees because “second home can be rented and a second residence is permissible”.

Do I need to elaborate further? What points am I missing ?

I tried to explain over half my comps are sfrs (because that is what is most similar to). My estimate is 90% owner occupied within the market for similar properties due to price point...

Help me see what I am missing (if I am missing something in my analysis).

Back to this...did lender originally order this on a 1004 form? When you say zoning allows 2 homes, is it SFR zoning with second dwelling allowed on lot, or mixed use or other zoning? In any case Denis imo answered this well in his post # 5.

A income property can be 2 detached structures/houses , however HBU for it should be small income property. Sounds like you correctly identified HBU for subject as a SFR with ADU.

"Lender comes back and says “investor wants this on 2-4 unit 1025. I state simply, this is a single family w ADU. Any “duplex” or investment property in this market are on lots under 1/2 acre. Review appraiser disagrees because “second home can be rented and a second residence is permissible”.

Your subject is a larger house with ADU on 2.5 acres and small income 2 units are on lots under 1/2 acre. An income 2 unit property on a small lot is not comparable in physical characteristics to subject and therefore a poor substitute comp, it is doubtful a typically motivated buyer for for subject large house with ADU on 2.5 acres would buy a 2 unit on a small lot or vice versa.

The review appraiser is an IDIOT. It happens. Your HBU analysis of subject sounds correct, what is so hard for you about pointing this out to the lender and sticking to your position? They will appreciate it if you explain it correctly.