HBU Brain Game

[J Grant]

For appraisal analysis, HBU must be legal. In the market however, we find properties where portions of them are not "legal", aka areas built or converted without permits. And these non permitted portions can add to maximum profitability...a duplex with two illegal units for a total of four rented units, is more profitable than a legal duplex with only 2 units rented out.

HBU as vacant for these properties always has to be legal use. The HBU as improved imo could be interim, or existing, with explanation so client clearly understands that it is due to the portions of property that are "legal". The fact that an owner built two illegal units in back of his legal duplex, does not make the duplex "illegal". The original permitted duplex is legal, the two additional non permitted units are not. Therefore, existing use as a duplex is legal.

That is why I personally would describe on an appraisal this property as a duplex, and then in narrative, photo exhibits, sketch etc, disclose that it is a legal duplex with two additional non permitted units. By describing property this way HBU is in line with legality

 

[J Grant]

For appraisal analysis, HBU must be legal. In the market however, we find properties where portions of them are not "legal", aka areas built or converted without permits. And these non permitted portions can add to maximum profitability...a duplex with two illegal units for a total of four rented units, is more profitable than a duplex with only 2 units rented out.

The HBU as improved could be interim, or existing, with explanation so client understands that existing use references that part of the improvement which is "legal". The fact that an owner built two illegal units in back of his legal duplex, does not make the duplex "illegal". The existing duplex still is legal, so HBU as exists is for the duplex. Of course it must be disclosed that this legal duplex also has two illegal units on the lot. How the two illegal units are valued is addressed in valuation section.

That is why I personally would describe this property as a duplex, and then in narrative, photo exhibits, sketch etc, disclose that it is a duplex with an additional two units. By describing the property as duplex existing, and vacant HBU are the same and legal.

 

[23Degrees]

But the presence of those two additional units makes the use of the property a non permissible use. There is no way to proceed on that hypothetical duplex with two extra units and declare "yes" for HBU as improved without incorporation of an HC.

As vacant HBU is as a duplex. As improved the property can not pass the "legally permissible" test and in effect HBU as improved for an "as is" appraisal does not exist. It might pass the other three tests and in fact be maximally productive. It might pass fannie's caveat of being more valuable with the improvements than if it were vacant land. But it is not a legally permissible use as it stands and without passing that test it cannot be considered HBU.

 

[J Grant]

But the presence of those two additional units makes the use of the property a non permissible use.

Not quite. The original duplex still has "permissible use". The presence of the 2 additional units does not negate that

There is no way to proceed on that hypothetical duplex with two extra units and declare "yes" for HBU as improved without incorporation of an HC.

The duplex is not hypothetical. The legal duplex is existing HBU ( and one presumes HBU as vacant). The HBU of legal duplex does not change due to presence of the 2 extra units.... Why does one need an HC?

As vacant HBU is as a duplex.

Agree

As improved the property can not pass the "legally permissible" test and in effect HBU as improved for an "as is" appraisal does not exist.

You refer to the combined as the "property". There is one legal property, the duplex, and it passes legally permissible HBU test. The other 2 units do not. Theretofore, HBU is duplex.

It might pass the other three tests and in fact be maximally productive. It might pass fannie's caveat of being more valuable with the improvements than if it were vacant land. But it is not a legally permissible use as it stands and without passing that test it cannot be considered HBU.

I would not say as an appraiser the current 4 plex is HBU, therefore that eliminates the problem.
One can still reflect whatever market rent or sale price premium the 2 illegal units return as contributing to value, without stating the foruplex is HBU.

 

[Elliott]

Anybody know what happens when an illegal use is brought to the attention of the zoning compliance people? Do they get red tagged, with a deadline to come into compliance or then they get a black card?

 

[23Degrees]

Depends on where it is. JA around here has been known to require removal, retropermitting, alteration.

So for purposes of determining if property qualifies as HBU as improved one need only consider the portions of the property that are legally permissible. Is that what you are saying J? I understand you are disclosing and valuing the illegal units but you then remove them from consideration when qualifying the property for HBU as improved?

In this particular example I just don't see how it is possible to check yes for HBU as improved without using an hc in this example.

 

[Mike Kennedy]

I just don't see how it is possible to check yes for HBU as improved without using an hc in this example.

Correct.