Duplex Vs 2 House

[hastalavista]

I see an alternative of this scenario in San Francisco.
A vacant building that is reported as a 2-unit property; and it may have been used as a duplex in the past. However, the H&BU has changed; the likely buyers of these properties are owner-users; they will maximize the primary unit (which may include remodeling and a reconfiguration of the space) and minimize the 2nd unit. Many times, they will not rent the 2nd unit because once they do, it falls under rent control and you might have a tenant for life.
The best comparables for these properties are similar conversions (SFR + small unit) or SFRs without a second unit. Investors do not purchase these properties (unless as a flip to sell to an owner-user); owner-users do.

The 1004 form is designed for primary residences.
The 1025 form is designed for properties that are or compete with residential income-producing properties.
Trying to put one property in the other form becomes cumbersome; While it can be done, I'd be inclined not to do it.

 

[timd354]

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):
View attachment 34527

View attachment 34528

Yes, I had already cited that guideline and suggested that the OP send it to the lender. It is very possible that part of the problem here may be that the appraisal did not include an adequate, detailed explanation of why the appraiser has labeled the property as 1 with an accessory unit as opposed to a two unit property considering that the property has many attributes that are indicative of two units. Many issues with reviewers are due to a lack of an adequate explanation, but since I have not seen the report I cannot say for sure whether that is the issue in this case.

 

[hastalavista]

Yes, I had already cited that guideline and suggested that the OP send it to the lender.

I missed that; sorry!

 

[timd354]

I missed that; sorry!

No problem...In your case I know that it was an honest oversight

 

[PushinValue]

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):
View attachment 34527

View attachment 34528


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.

Too late to pass. They ordered it on a 1004 and I completed it on a 104. After the lender spoke directly with the county and received info there is a cap at 1200’ and cannot exceed 50% of the size of the main home on the lot, they have seen the light and the investor has accepted it on the originally completed 1004 form as a SFR w adu...