Garage Conversion not permitted

[FMV]

Hey AF-

Completed a conventional URAR where the borrower converted the 2-car garage and added an additional bed and full bath. Per the borrower, they did not obtain permits from the city for it.

per the Lender:

1.According to Central Appraisal District website subject has 4 bedrooms, 2 bathrooms, living area 2,352 sf and attached 1 car garage. The Appraisal reflects, 5 bedrooms, 3 bathrooms, 2,550 sf, no garage. Address whether or not if the garage has been legally converted to living area and if the additional bedroom/bathroom are legally permitted and if they are, provide permit # and what the permit was approved for, and/or attached copy of permit (s) to the report. If there are no permits, the lender will not accept the appraisal as written, as such no contributory value can be given. Revise to 4 bed 2 bath, 2,352 sf with an estimated cost to return the garage back to its intended use and provide that cost on the grid as a separate line item across-the-board adjustment. NOTE: Google street view image dated 11/2017 shows on the rear side of the dwelling a 1 car garage. It is located where the building sketch identifies Full bath and bedroom. 2. Revise adjustments on grid if no permits.

Have been down this road many times.. but where I am scratching my head on this is the statement they request:
If there are no permits, the lender will not accept the appraisal as written, as such no contributory value can be given. Revise to 4 bed 2 bath, 2,352 sf with an estimated cost to return the garage back to its intended use and provide that cost on the grid as a separate line item across-the-board adjustment.

Does anyone have any thoughts or comments on how to address this?
I have requested for the lender to clarify the second part.. as I have noted in the report that we are "over improved". Just seems like a weird request.

 

[FMV]

Disregard that nonsense they talk about with the Google street view.. so stupid to have to comment on that!!

 

[Terrel L. Shields]

as such no contributory value can be given.

Tell them if they want to appraise it for you they at least need to sign the report. I would simply tell them it is what it is.

To describe it as something that it isn't and isn't going to be, then make them clarify that they want a hypothetical that the dwelling is converted back and then subject it to that condition. Fight fire with fire- make them work for it.

 

[FMV]

Hey Terrel,

My thoughts EXACTLY! I have asked for the reviewer to call me to clarify this crazy request as I have had these types of requests, but not to return it back to what is reported on the appraisal district data that is reflected online. Almost feel it would be considered a New Assignment, maybe??

 

[FMV]

Tell them if they want to appraise it for you they at least need to sign the report. I would simply tell them it is what it is.

To describe it as something that it isn't and isn't going to be, then make them clarify that they want a hypothetical that the dwelling is converted back and then subject it to that condition. Fight fire with fire- make them work for it.

So "Subject To" the following repairs or alterations on the basis of a hypothetical condition that the repairs or alterations have been completed.. but what about the additional request for the estimated cost??

 

[George Hatch]

If the space isn't permitted as GLA and (just as importantly) cannot be permitted after the fact, then you should't call it GLA.

You can value that area as an additional feature, though; and use adjustment factors that are similar to what you're using for the GLA. That is, if that's how you think the market participants are treating it. Other questions arise: will the local jurisdiction require conversion back to garage use? Will they require the property owner to provide a new space to take it's place? These are questions to be asked/answered, not assumptions for an appraiser to make.

 

[alebrewer]

From Fannie's Selling Guide:

"Additions without Permits
If the appraiser identifies an addition(s) that does not have the required permit, the appraiser must comment on the quality and appearance of the work and its impact, if any, on the market value of the subject property."

From FHA 4000.1:
"iii. Additions and Converted Space
The Appraiser must treat room additions and garage conversions as part of the GLA of the dwelling, provided that the addition or conversion space:

• is accessible from the interior of the main dwelling in a functional manner;
• has a permanent and sufficient heat source; and
• was built in keeping with the design, appeal, and quality of construction of the main dwelling.

Room additions and garage conversions that do not meet the criteria listed above are to be addressed as a separate line item in the Sales Comparison Approach (SCA) Grid, not in the GLA. The Appraiser must address the impact of inferior quality garage conversions and room additions on marketability as well as Contributory Value, if any.

The Appraiser must analyze and report differences in functional utility when selecting comparable properties of similar total GLA that do not include converted living space. If the Appraiser chooses to include converted living spaces as GLA, the Appraiser must include an explanation detailing the composition of the GLA reported for the comparable sales, functional utility of the subject and comparable properties, and market reaction.

Alternatively, the Appraiser may consider and analyze converted living spaces on a separate line within the SCA Grid, including the functional utility line to demonstrate market reaction."




In neither of those documents is the appraiser required to research permits. In addition, in neither of those documents is the appraiser instructed to disregard any potential contributory value of the unpermitted addition/conversion. On the contrary - in both documents, the appraiser is to address and analyze the market's reaction to said unpermitted areas, and consider those reactions in his/her opinions and conclusions.

 

[J Grant]

fannie does accept non permitted additions to lend on and also a value for them. if lender has their own proprietary guideline for in house loan program that is another matter, but if it is a fannie or freddie bound loan they will accept it, might want to inform client...

 

[Elliott]

So it is absurd to appraise it as a 4-2, since it exists as a 5-3. What I do in the revision comments is to recite what is being asked, why it deviates from what actually exists, and while you can appreciate the lender says they won't accept the report, the only way the required condition could be met would be to make the appraisal subject to restoring the garage to its original use. So the decision is theirs, do they want the report to be made 'subject to removing the two bedrooms and bath from the garage?

The purpose of wording the revision to make it virtually an impossibility is to clearly put the responsibility for the report on the AMC and lender. They won't go along with it because they know when the report hits the UW fan, someone will throw a fit because it won't fit in a FNMA square hole.

 

[Cob]

Can't the borrower request a variance from the city????