Full Duplex Vs. Half Duplex

[rodneycottrell]

I have a lender pushing me to use half duplex comps in an appraisal of a full duplex property due to the fact that my closest full duplex comps were 5 to 10 miles away.

I have basically refused because I feel like the comps that were used, regardless of their distance from the subject property, are good indicators of market value for this type of property.

Now they want a letter explaining whole duplex units 'vs' 1/2 side units for value.

I don't typically have trouble explaining appraisal guidelines and techniques but I'm stuck on this one.

Any guidance would be appreciated.

Thank you!

 

[hal380]

Hello Rodney;

Why do you not want to use 1/2 duplexes as comps?

I assume that one buyer is buying both sides of the subject duplex. If this is the case he is buying 2 half duplexes. There may be one closing, but there will probably be two titles, and (if he is smart) two mortgages.

I understand that the buyer may live in one side and rent the other. But as an investor he could have just as easily bought a half duplex at one location and another half at another location. I agree owning both halves together gives him better control and administration of his rental units.

Your basic question is does 1/2 + 1/2 = 1 or does 1/2 + 1/2 = 1+. Take a look at market and see if there is an answer to that question. What did the more distant whole duplexes sell for vs other 1/2 duplexes from that same proximity. That will show you that there is no difference or that there is and you will be able to quantify it and defend it.

I hope this helps.

Hal

 

[DTB]

Why do you not want to use 1/2 duplexes as comps?

Would a full duplex buyer consider 2 separate 1/2 duplexes as an alternative competetive property? I don't think they would.

By changing the end user (live-in owner versus investor) the values can change drastically.

This akin to 2-4 unit owners telling me their estimate of value based on what condos in the area go for. Nice try.

 

[hal380]

Hello Mike

I understand what you are saying and mostly agree. Intuitively I believe owner occupied and renting out the other side would motivate the buyer to pay a higher price for both halves in one building. But we can't use intuition.

I guess I did not make myself clear, I would use separate 1/2 duplexes from the immediate market area of the subject, and adjust them up or down by some factor derived from an analysis of whole buildings vs 1/2 buildings sales from an another market. Hopefully that market is similar to the subject market to allow the comparison. If I found a premium/discount of 15%, (or whatever) for a whole building sale vs 1/2 building sale, I would apply that percentage to my 1/2 building sales in my subject market.

Even if the whole building market area is superior or even inferior to my subject market, I would have to assume that the spread would be similar when applied to my market.

Regards

Hal

 

[DTB]

Hal,

I follow your discount/premium analysis, however are you suggesting taking 1/2 duplex X 2 +/- your discount/premium?

I would use this to diffuse to the UW request but not to grid out or value the full duplex.

My experience is that the full is less value than 2 halves combined separately. Otherwise there is no incentive for an owner occupy to rent out the other side if the cost of the other side is equal to the first side.

50 k for half; 90 k for both now there is a profit incentive to rent out side 2, which will help the owner's overall nut.

50K for half; 110 for both. How would this help, financially? For taking on the extra risk and debt the buyer gets the priviledge of subsidizing unit 2. It does not matter what the rental rates are, the principle remains the same.

The highest value, not everywhere, will be 2 separate units sold to owner occupants. Selling on emotion versus economic factors.

 

[Tim Hicks (Texas)]

How about a half duplex is a single family unit and a full duplex is a two family unit? This would not be like/kind properties.

If you have an old house that is now a commercial property, you can not appraise it as a house just because it looks like a house. I know, analogies never work on clients.

 

[Otis Key]

Rodney - let me guess!

Client = MB of lower life form
Appraisal = Lower than sale price
Borrower = Owner occupant purchaser which then qualified for owner occupied IR until the buyer "moves in" and finds it's too small to occupy, but rate is fixed and loan closed so I guess buyer will have to stay where s/he currently lives.

Sound somewhat familiar?

Get the "client" :blink: to provide you in writing what s/he wants and a reason. "Because I said so" doesn't count! Explain that you'll need it for your files should the state come in to audit you! :lol: :lol: :lol:

 

[hal380]

Hi Mike;

I understand what you are saying and again I agree with you. I have appraised many 1/2 duplexes but not both sides for single owner. What you say about the value of a whole house being less than the sum of the 2 halves makes good sense to me. I just don't know of any other way to make and support the adjustment.

If Rodney has "whole house" sales in the same town, I would still try to figure out the discount to be applied and then use that factor for his sale.

I would avoid using the "whole house" comps from that other location, unless there is a supportable location adjustment that can be applied.

As another thought, maybe Rodney could study the current owner's original purchase and compare it to 1/2 duplex sales at the time he purchased it, (if he bought both halves at the same time).

Regards

Hal

 

[Pamela Crowley (Florida)]

What is the property LEGALLY?????

 

[Bill_FL]

OK, are these two units technically two single family, seperate parcel numbers etc? Or is it one property?