Duplex Vs 2 House

[timd354]

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.

The problem is that the OP has not yet made the case that the property is a 1 unit with an ADU as opposed to a 2 unit property. Per post 1 in this thread, the subject property consists of two detached homes on a lot that is zoned to allow 2 units, the second home is rented, and the second home contributes $75k to the value of the property, and the property has two addresses. That is why I asked the OP what definition he was using to distinguish a 1 unit property with an ADU from a 2 unit property. Here is the Fannie definition:

Accessory Units

Fannie Mae will purchase a one-unit property with an accessory unit. An accessory unit is typically an additional living area independent of the primary dwelling unit, and includes a fully functioning kitchen and bathroom. Some examples may include a living area over a garage and basement units. Whether a property is defined as a one-unit property with an accessory unit or a two-unit property will be based on the characteristics of the property, which may include, but are not limited to, the existence of separate utilities, a unique postal address, and whether the unit is rented. The appraiser is required to provide a description of the accessory unit, and analyze any effect it has on the value or marketability of the subject property.

The property described certainly is not like the examples given in the above definition (a living area over a garage and basement units), that is for sure and the second home has a second address and is rented (per the OP). I do acknowledge that the above definition leaves room for interpretation and an argument could be made that the property in this case really is one with an accessory unit, however the property as described certainly seems to have more characteristics of a 2 unit property as opposed to one with an accessory unit.. In any case, whether or not the property is labeled as one with an accessory unit or a two unit property by the appraiser really has nothing to do with HBU in this situation since the labeling of the property does not affect what actually exists (its physical characteristics) or its permissible legal uses - either way, there are two detached homes on the property and one or both of the units can be rented or owner occupied since the zoning allows for two units. Unfortunately, this situation is not nearly as simple as you seem to think it is and the OP needs to include a detailed explanation in his appraisal of why this property is a one with accessory unit as opposed to a two unit property if he really thinks that it is and if he really thinks that matters to the HBU.

In any case, I gave the OP a direct cite to the Fannie Guidelines that he can show the lender that an appraisal of a two unit property can be reported on Fannie form 1004 under certain circumstance...the OP should refer the lender to that cite if he does not want to report the appraisal of form 1025

 

[timd354]

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.

It is not an in-law or nanny suite....the second unit consists of a second detached home with a separate address on a parcel in which the zoning allows for 2 units.

 

[timd354]

This is common in California especially high desert areas ( Apple Valley-Phelan-Victorville-Hesperia ) where if the property is located on one or more a acres the City or County allows a second dwelling unit which is often modular or a mobile home- Depending on the land use and zoning it can be either SFR with guest house or 2 on a lot rental - In your situation my guess is ( But-contact City-County on Zoning and land Use ) is you have a estate zoned parcel being a single family and a guest house and the City or County will not even allow income property - Of course we all know many do rent the back houses or modular but they also rent back lots to gardeners to park equipment etc but nobody confesses it and the City -County ignores it unless the properties start getting complaints or code violations. Once again Location Specific and H & B analyses-zoning and land use is the answer.

Per the OP, zoning allows for 2 units and it allows the property to be rented and it is actually rented

 

[J Grant]

Most appraisers here conclude, given the proper descriptions and what the OP provided as information, he has correctly identified the HBU as SFR with ADU. Just because zoning allows for 2 houses on a lot does not mean the HBU of subject is a 2 unit income property.

If the OP wanted to further support their HBU conclusion they might compare sale prices of small income units sale prices of with SFR with ADU on acreage like subject is. The subject is on 2.5 ares with a large house and smaller ADU while the small income sales he found are on small lots under a half acre. The two property types do not sound interchangeable as comps and would likel appeal to two different typically motivated buyers.

Just because fannie allows an income property to be reported on a 1004 does not make a case for reporting the subject on a 1025 form if it has a different HBU than that of a small income property. It all comes back to HBU. as it should.

The review appraiser in this case might be an idiot./ In addition, lenders can be wrong about what form to use. I have never had a problem politely explaining to a lender why their suggestion about an incorrect form can not be followed, they appreciate it as submitting an appraisal on the wrong form can create problems with UW .and for borrower..

 

[timd354]

Most appraisers here conclude, given the proper descriptions and what the OP provided as information, he has correctly identified the HBU as SFR with ADU. Just because zoning allows for 2 houses on a lot does not mean the HBU of subject is a 2 unit income property.

Give me a break, the property includes a second detached home, with a separate address that is rented and the property is zoned for two units, this is hardly a clear cut case of a one with accessory unit. Whether or not one chooses to rent one or both of the units or not rent the property at alland no matter what it is labeled, it is a property with 2 rentable living units with separate addresses. If someone want to call it one with an accessory unit, that is fine but really immaterial to the HBU as either way the property physically is the same and either way it be used in exactly the same manner (i.e., it can legally be rented or legally be owner occupied) - just because it is labeled a two unit property, does not mean it must be rented although it is rather curious that it is currently rented.

In any case, given Fannie's definition of Accessory unit versus 2 units, the OP needs to include a detailed explanation supporting his conclusion since the property as described has more characteristics of a two unit property versus one with an accessory unit per the Fannie definition.

 

[J Grant]

Give me a break, the property includes a second detached home, with a separate address that is rented and the property is zoned for two units, this is hardly a clear cut case of a one with accessory unit. Whether or not one chooses to rent one or both of the units or not rent the property at alland no matter what it is labeled, it is a property with 2 rentable living units with separate addresses. If someone want to call it one with an accessory unit, that is fine but really immaterial to the HBU as either way the property physically is the same and either way it be used in exactly the same manner (i.e., it can legally be rented or legally be owner occupied) - just because it is labeled a two unit property, does not mean it must be rented although it is rather curious that it is currently rented.

In any case, given Fannie's definition of Accessory unit versus 2 units, the OP needs to include a detailed explanation supporting his conclusion since the property as described has more characteristics of a two unit property versus one with an accessory unit per the Fannie definition.

You seem to be the only one taking such a stand off the formation provided. Occupancy does not determine HBU. A SFR or residential condo may be rented, but it remains a SFR or res condo HBU. If a subject is vacant, does that change the HBU?

Well, it's been debated here on the thread so not much more to say far as I can see at this point unless OP provided more or different information.

 

[timd354]

You seem to be the only one taking such a stand off the formation provided.

That really does not matter....I am the only one who provided support for my position by providing the actual Fannie Mae definition of accessory unit, which includes the factors to be considered to distinguish between whether a property is one unit property with an accessory unit or a two unit property and objectively (everyone's subject feelings aside) the property (as described) has more characteristics that indicate two units than indicate one with an accessory unit per the actual applicable definition - The second unit in this case is clearly not one of the examples of an accessory unit referenced in the definition (a living area over a garage and basement units); the unit is rented, and it has a unique (separate) postal address per the OP. Thus, there are 4 separate factors directly from the applicable Fannie definition that are indicative of a two unit property, while there is only 1 single characteristic of the subject property that is indicative of one with an accessory unit per the applicable definition (the lack of separate utilities).

 

[J Grant]

That really does not matter....I am the only one who provided support for my position by providing the actual Fannie Mae definition of accessory unit, which includes the factors to be considered to distinguish between whether a property is one unit property with an accessory unit or a two unit property and objectively (everyone's subject feelings aside) the property (as described) has more characteristics that indicate two units than indicate one with an accessory unit per the actual applicable definition - The second unit in this case is clearly not one of the examples of an accessory unit referenced in the definition (a living area over a garage and basement units); the unit is rented, and it has a unique (separate) postal address per the OP. Thus, there are 4 separate factors directly from the applicable Fannie definition that are indicative of a two unit property, while there is only 1 single characteristic of the subject property that is indicative of one with an accessory unit per the applicable definition (the lack of separate utilities).

BS, since one of the characteristics of an ADU with accessory unit is the main dwelling is larger than the less contributory value ADU . Objectively the subject sounds more like a SFR with ADU than a 2 unit income property, especially considering the large acreage of site . The subject ADU happens to be rented, are most ADU in area of similar large site properties rented , or used for owner personal use? What is the HBU per sales of SFR on acreage, with and without an ADU compared to sales of 2 unit income properties inn the area. A SFR large, nice house on a 2.5 acre lot with a smaller ADU in nearly any market would not be comparable to a 2 unit property on a small lot under half acre as substitutes for each other and appeal to different buyers. How do you justify comparing them as substitutes for each other, on what planet is a buyer for a 2.5 acre lot with nice home and a smaller ADU the same buyer looking to buy a two unit income property on a small lot?

 

[chad hampton]

It is not an in-law or nanny suite....the second unit consists of a second detached home with a separate address on a parcel in which the zoning allows for 2 units.

I didn't see the separate address. That is the only thing that would raise some questions to me. Sounds like it's specific to the CA market. In my market, it still sounds like a SFR with a detached unit. I actually just did one like this a few months ago here in NC. Slightly different situation - home had a detached garage about 100' from the main home that had living area above that was rented. I spent a lot of time on the phone with the bank both prior to and post inspection. I didn't see anything else I could possibly call it other than a single family with detached unit. It had separate meters and a separate street address. I disclosed what was there and let the bank work it out.

Thankfully this was for a direct bank and not an AMC. Would have been a nightmare discussing this with phone support.

 

[hastalavista]

It doesn't happen very often, but I'm going to partially disagree with Tim on this one.
"Partially" means while a two-unit property with the H&BU as a primary unit with secondary home could be reported on the 1025, I'd be inclined not to do it that way.

In addition to what Tim has excerpted from the FNMA guidelines, here is another (on two consecutive ppages; so I have two cuts):





From the description provided by the OP, the subject of the appraisal is a owner-occupied principle residence with a second unit.
The contributory value of the second unit is not significant to the total value of the property.
The market does not react to these configurations as income properties; they react to them as primary residences with second units.
The appropriate comparables for such a property are similar homes with and without second units. We would never think (or, at least I would never think) to compare a 2-unit income property with a one-unit house if the income property competes with investors and the one-unit house competes with owner-users. The same logic (per H&BU) is at play here: What is the H&BU of the subject property? Based on that, the likely buyer and the appropriate comparables are identified.

As I said (and I think I said it in my prior post), while the subject could be reported on the 1025, I'd be inclined not to do it. If I wasn't comfortable in doing so, I'd decline the assignment. If I did do it, I would emphasize in the report why I believe the subject is not best identified as a small residential income property, I'd say that the best way to report the appraisal is on the 1004 form as that is intended for one-unit properties or two-unit properties where the second unit's contributory value is relatively insignificant to the value of the whole, that investors do not purchase these properties for investment, and re-state the conclusion of the H&BU: This is an owner-user property with a second unit; second units in this market are sometimes rented and sometimes used by the owner's use; the significant value of the property is in its site and primary residence. The second unit's contributory value, is relatively insignificant. The best comparables are properties with and without second units. I would finish the statement by saying my client has requested the appraisal be completed on the 1025 form as the physical characteristics of the improvements (two units) are consistent with the 2-4 reporting format. I would then add that the only characteristic of the subject property that is consistent with the 1025 form is the fact that it has two units; other than that (H&BU, buyer type, income producing characteristics, etc.), the subject is most similar to a one-unit residence with a second unit that is more consistent with an accessory unit than a two-unit income property. My last comment would be that the best comparables are those properties that primarily match the significant elements of comparison (site, condition, and primary residence); with inclusion of similar one-unit properties with second units where possible. As a consequence, in the grid, comparables used include one-unit and two-unit properties.

With the above statement, I've provided my explanation of why I'm reporting a SFR + second unit on a two-unit income property form when I've concluded that the subject is not a two-unit income property, and the only similarity is a physical characteristic (which, by itself, does not change the nature of the property's H&BU, likely buyer, and likely use).

Easier to pass on it, I think. For sure, I'd let the client know up-front that is how I'd do it and if they had a problem with it, better to stop now than to go forward.
However, another appraiser might not have the same concerns and complete the report as requested. That's a business decision in my book.