FHA And Accessory Dwelling Unit (adu)

[Wayne Henry]

Good day colleagues, I have a FHA assignment which involves 2 buildings on one lot. Based on the definitions of a Accessory Dwelling unit (ADU) the property does conform to this definition:

Fannie Mae 4000.1 guidance -

(E) Identifying an Accessory Dwelling Unit
(1) Definition
An Accessory Dwelling Unit (ADU) refers to a habitable living unit added to,
created within, or detached from a primary one-unit Single Family dwelling,
which together constitute a single interest in real estate. It is a separate additional
living unit, including kitchen, sleeping, and bathroom facilities.


I do not believe it should be classified as a 2 unit. For one that will not be its highest and best use in this specific suburban market area- it is not zoned for multifamily use, secondly it does not have separate meters and separate addresses, that is the criteria I use.

My question is, do you go only by the property on the tax record, which in this case is a one story with no basement home or do you combine both homes into one layout for purposes of the 1004. I completed a county wide search and cannot find any homes with a ADU so I believe I will conclude no extra value given to the ADU which will probably ruffle some feathers. I plan on valuating the property based on the home on the tax record. Would you give contributory value to the ADU? Any input regarding this matter would be helpful. Not looking for critics on the different methods. I am just looking for assistance or how you would tackle this assignment.

 

[J Grant]

why would you combine both homes into one unit...do you feel that you are competent for this assignment ? If tax records only show one house and there is no record of second I presume smaller house (ADU) was it permitted? It could have been built without permits, but grandfathered in etc. In any case the market would probably recognize some contributory value, which you could show if you lack other comps with ADU's by perhaps finding a comp with an outbuilding such as a highly finished workshop.

 

[Mr Rex]

Value via tax records? No, tax records are often wrong. Value the Real Estate and Improvements as they exist.
Combine Living area? No
Give value to the ADU? Yes, based on market data, hard to believe there is no value in an additional structure.

 

[Wayne Henry]

Value via tax records? No, tax records are often wrong. Value the Real Estate and Improvements as they exist.
Combine Living area? No
Give value to the ADU? Yes, based on market data, hard to believe there is no value in an additional structure.

I am working on the permits now, it appears after further research they converted the 2 car garage into a full additional dwelling with full kitchen, 2 bathrooms and 3 bedrooms. I am in the process of pulling the permits. I can not find any other home with a ADU that sold only a listing. I do believe it should have contributory value but I would have to prove it via paired sales and if I conclude there is no market addition for it then there is none.

 

[J Grant]

3 bedrooms and 2 baths from a converted garage? Either the garage was huge or the bedrooms are tiny ?

 

[hastalavista]

I am working on the permits now, it appears after further research they converted the 2 car garage into a full additional dwelling with full kitchen, 2 bathrooms and 3 bedrooms. I am in the process of pulling the permits. I can not find any other home with a ADU that sold only a listing. I do believe it should have contributory value but I would have to prove it via paired sales and if I conclude there is no market addition for it then there is none.

Wayne-

Don't let the lack of easily-identifiable data trump your common sense and intuition.
While it certainly possible that a permitted accessory unit, 3br/2bath, has no contributory value in the market, IMO, the lack of similar comparables from within the market by itself doesn't support that conclusion.

Question #1: The subject converted its garage (presumably with permits); does it have a substitute for the garage? In other words, did they build another enclosed parking structure or carport, or is it now a house + ADU with no garage or on-site parking?

Question #2: Assuming it has an alternative on-site parking amenity, does it sound reasonable to you that the house with parking is worth the same as the house with parking and an ADU?

Question #3: Assuming it does not have an alternative on-site parking, how much do houses with no garages sell for and what would the subject be worth with no parking? Do you think the market will pay more for the subject, no parking and with an ADU, then it would for a house with no parking (period)?

If the subject has alternative parking on-site, It is more reasonable than not that it will sell for more with the ADU unit than without. So giving it "no value" is problematical without fully vetting the dynamic.
If the subject has no on-site parking alternative, it is more reasonable than not that it will sell for more with the ADU unit than those other homes that have similar, non on-site parking and without an ADU unit. The contributory value of the ADU may or may not be more than the contributory value of the absent garage amenity.

In other words, it is more reasonable than not, no matter how you dissect it, that the ADU has contributory value.

Paired/recent sales is not the only method of evaluating contributory value.
You can go back in time to find similar or near-similar configurations, analyze the impact on value "in the past", and then consider how best to apply that analysis to the current (is it a lump sum? Is it a % of the sale price? Is it a % of the replacement cost?).
You've searched your entire county. What about the neighboring counties? If I had such a problem in one of the counties I serve (Alameda, for example), I would consider looking for similar situations in two of the neighboring counties. I may not use those sales as "comparables" but I would use those sales for purposes of analysis; analyzing the impact as best I could "off the grid" and then applying my conclusion to the grid.
What about surveying market participants (brokers)? They may not tell you how much it is worth, but they can certainly provide an informed opinion if they think it would add value (and not just be value-neutral).
And, obviously I'd calculate the Replacement Cost-new, for the amenity and the apply physical depreciation to it so I can get to the depreciated cost of the improvement. What's missing from that equation is that only physical depreciation (and not other forms of depreciation) are considered. But it is a method you can use to come to one value indication; you can use that as part of the mix with your other techniques and then reconcile your final adjustment.

What I would never recommend is to just conclude that since there are no sales to put in the grid to extract an adjustment, then therefore no adjustment is warranted or no further analysis can be completed to evaluate the issue. That wouldn't be credible in my book.
What is credible is if the report goes through the various steps, demonstrates how it attempted to analyze the situation, can summarize that the data is weak and therefore the indications have a high degree of uncertainty to them, and then make a conclusion based on that (i.e., the data is not sufficiently adequate to conclude specific contributory-value adjustment to apply); but then state that common sense argues, after all other differences are accounted for, a house with an ADU would bring a higher price than that same house without the ADU, and use that as your rationale to conclude to a higher price-point within the adjusted range. So, if the adjusted range is $650k to $690k, and you otherwise would come in at $660k, come in higher and reference your consideration of the contributory value of the ADU that, while there is insufficient data to analyze it quantitatively, there is strong logic that it should be considered qualitatively, and you have done so in the final point-value.

Of course, you could conclude that all things being the same, the ADU does not contribute any additional value and no one would pay more for it. That's fine if that is what you conclude. But I would say that before you can come to that conclusion, you have to go through the steps (and summarize/demonstrate them) in the report so that the intended users will understand how you got there (and hopefully agree with you).

Good luck!

 

[J Grant]

A simpler method than Denis's very well thought out suggestion, is find for comps houses that sold with out buildings, detached garages, or workshops (some garages are converted to workshops) to get some idea of contributory value. If nothing else, if you took out the bedrooms and kitchen/bath you'd have an outbuilding able to retrofit to a garage and that typically has value.

Ask some area RE agents their opinion. Surveying RE agents/market participants is a recognized method of support, though clients like to see hard data of a closed sale .

 

[Mike Garrett RAA]

Does it create income? If so, .....it's most likely not an accessory unit by definition.

 

[timd354]

I am working on the permits now, it appears after further research they converted the 2 car garage into a full additional dwelling with full kitchen, 2 bathrooms and 3 bedrooms. I am in the process of pulling the permits. I can not find any other home with a ADU that sold only a listing. I do believe it should have contributory value but I would have to prove it via paired sales a but if I conclude there is no market addition for it then there is none. This type of thinking has the potential to get you into very big trouble as it is simply dead wrong. There are many ways to extract contributory value from the market besides paired sales and any appraiser who thinks that unless a paired sale can be found, then a particular attribute of the subject property has no value is skating on very thin ice on a very hot day.

Wayne, I am going to say this as gently as I can....you really should pair up with someone who has more experience and knowledge of how to appraise these types of properties in your market as your questions and comments in this thread show that you do not not have the requisite skill and experience to appraise these types of properties competently. Knowing when to walk away from an assignment or when to pair up with someone with more skill and experience is something that all appraisers need to do in certain situations before they end up in front of the state board.

 

[Wayne Henry]

Wayne, I am going to say this as gently as I can....you really should pair up with someone who has more experience and knowledge of how to appraise these types of properties in your market as your questions and comments in this thread show that you do not not have the requisite skill and experience to appraise these types of properties competently. Knowing when to walk away from an assignment or when to pair up with someone with more skill and experience is something that all appraisers need to do in certain situations before they end up in front of the state board.

I would expect nothing less from you Timed354, you have been trolling me for years. As I stated when I posted. "Not looking for critics on the different methods". I just wanted opinions from my colleagues, I was not looking for a lecture. There's nothing wrong with getting other opinions. No one knows everything, I certainly do not, which was why I already did the proper diligence needed to make sure I had all of the information I needed. Posting on this forum was one of many outlets in my data gathering. I have all the information I need from consulting with the FHA resource center. You really need to stop with the lecturing and do more helping. If your not going to help then keep you comments to your self my fellow Maryland competition. Please quit Trolling me, honestly, you have never offered any input that was helpful.