HBU Multi-family Or SFR

[OtisMoon64]

Looking for some peer guidance regarding a unique assignment. I work as a freelance appraiser for a 30+ year appraisal firm. I have been assigned to a large 5000 sqft residence in a historic and prominent neighborhood composed of mainly Victorian 100+ year single family homes. The subject is currently used as a double with a unit on the first floor and one on the second both with separate entrances and no interior access to either unit. Was once a SFR and converted to a double at some point. The units are occupied by family members.The subject is in fair condition and needs full reno.

This is for a succession with a recent date of death. The client asks for as is value for the succession. It is zoned for SFR or two-family. Passes all HBU criteria minus maximally productive. My opinion is that maximally productive would be to remove a wall and join both entrances. As a SFR the value, including cost to cure, would be 200-300k higher than as a MFR. If sold as-is the typical buyer would be an owner or investor to renovate into a $2-3 million SFR. It wouldn't make sense for an investor to purchase as a rental.

My approach would to complete as a SFR due to the HBU even though "as-is" is a double. I have discussed this with my supervisor and have been instructed to complete it "as-is" as a multi-family. Since this is not my client and I'm only freelance, my hands are tied.

My question is am I wrong in wanting to complete as a SFR even though this it is currently used as a double? How would others approach this?

Thanks!

 

[BRCJR]

Deleted comments.

Amended: I see it is for a date of death. My posted comments were not with that in mind.

 

[OtisMoon64]

As is and as vacant.
What is the H&BU as vacant?
Is that what you have, currently.
Complete both scenarios and you will then find the answer as to how it should be solved/valued.

The subject is in the most desirable neighborhood in the city. Land and any available properties are scarce and would sell in days if not hours. If vacant, the buyer would improve with a massive multi million $ mansion. There's no investor that would purchase and improve with a multi-family... just wouldn't make financial sense. If it were my client, that's how I would advise. Why isn't he seeing this? Is it because it's a succession?

 

[George Hatch]

Your subject is not currently an SFR and should not be valued as such. You have a 2 unit that may or may not attract a buyer that would do the conversion.

Look for other such situations in the area, 100-yr old structures that were built as SFR and later converted to 2 or 3 units. Look to see what kinds of buyers bought them and what they did with them. These sales don't have to be real recent or even "most similar" similar in other properties attributes like location or size or whatnot. You're not necessarily looking for comps for your Sales Comparison; you're looking for the trend with properties like these to see which basis they're selling on (2-un vs conversion bait for SFR).

If you see a trend for these things being converted to SFRs and then flipped at a profit then your buyers are contractor/investor types and the acquisition prices they're paying reflect what they think they're going to be able to resell the remodeled/converted SFR minus the costs to get there as well as an additional profit margin that will often be equal to the hard costs. You don't necessarily need to be worried about the 'as completed' value so much because if that's who would buy the property then their aquisition price is what you would be comparing to the sales data of other 2-unit properties.

This type of valuation scenario would normally be considered a "complex appraisal" in regards to the scope of practice for licensing purposes, so you should not hesitate to get some direct input from your company's principals on this.

 

[Howard Klahr]

in a historic and prominent neighborhood

Is the subject property under any specific historic designation, restriction or other limitations? If so, what specifically are the "rules" for this district?

As a SFR the value, including cost to cure, would be 200-300k higher than as a MFR.

What are you basing this on? Are there MFRs similar to the subject that are renovated in the $2-3 million range? If so, it would seem that adjustments for variances between properties would fall within the 200-300k range you noted.

You are thinking in the right direction but more details about the subject property and both SFRs and MFRs are needed to actually make a determination, especially since the variance you noted in fairly tight.

 

[OtisMoon64]

Is the subject property under any specific historic designation, restriction or other limitations? If so, what specifically are the "rules" for this district?

No rules regarding use. Both SFR or as a double are legally permissible.

What are you basing this on? Are there MFRs similar to the subject that are renovated in the $2-3 million range? If so, it would seem that adjustments for variances between properties would fall within the 200-300k range you noted.

You are thinking in the right direction but more details about the subject property and both SFRs and MFRs are needed to actually make a determination, especially since the variance you noted in fairly tight.

Basing it on a quick look at sales. Since the neighborhood is so desirable, typical buyer would be an owner or investor to reno into a high end mansion. No similar properties are purchased for rentals in this exact neighborhood. Even smaller homes are being torn down and replaced with large SFR. One or two of that size were converted into condos but the subject's zoning doesn't allow for that.

and thanks everyone! all replies are very informative.

 

[Howard Klahr]

No similar properties are purchased for rentals in this exact neighborhood.

Then how do you know what MFR properties would be valued at to conclude to your variance range of$ 200-300k?

 

[Terrel L. Shields]

Estates need as is values, warts and all. Do not create imaginary scenarios or play "what if" with estates. The HBU could be SFR as if vacant. But conversion to same is not the requirement for "as is". Its current HBU is " as is". Subject to isn't an option.

 

[George Hatch]

Go back and read what I said. Just because you don't have any recent sales of 2-unit properties doesn't address the question of who the typical buyer would be for your property. Depending on the development patterns in play, the market area for a 2-unit property is *often* much larger geographically than the market area for an SFR that would be located in the same neighborhood.

Expand your search to go back in time in your immediate neighborhood and seek out other competing neighborhoods with similar characteristics and market appeal to see what's been happening there. As I say, you're not necessarily looking for comps for your Sales Comparison so much as you're looking for how the buyers for such properties are treating them.

This is exactly the type of scenario that could come back and bite you if you attempt to take any shortcuts. You've got 3 veteran CGs here telling you to slow down and do more research so that you'll be able to know what's going on in this situation rather than making assumptions based on a lack of recent comparable sales data.

 

[J Grant]

Looking for some peer guidance regarding a unique assignment. I work as a freelance appraiser for a 30+ year appraisal firm. I have been assigned to a large 5000 sqft residence in a historic and prominent neighborhood composed of mainly Victorian 100+ year single family homes. The subject is currently used as a double with a unit on the first floor and one on the second both with separate entrances and no interior access to either unit. Was once a SFR and converted to a double at some point. The units are occupied by family members.The subject is in fair condition and needs full reno.
This is for a succession with a recent date of death. The client asks for as is value for the succession. It is zoned for SFR or two-family. Passes all HBU criteria minus maximally productive. My opinion is that maximally productive would be to remove a wall and join both entrances. As a SFR the value, including cost to cure, would be 200-300k higher than as a MFR. If sold as-is the typical buyer would be an owner or investor to renovate into a $2-3 million SFR. It wouldn't make sense for an investor to purchase as a rental.
My approach would to complete as a SFR due to the HBU even though "as-is" is a double. I have discussed this with my supervisor and have been instructed to complete it "as-is" as a multi-family. Since this is not my client and I'm only freelance, my hands are tied.My question is am I wrong in wanting to complete as a SFR even though this it is currently used as a double? How would others approach this?
Thanks!

Questions: what does a 5000 sf SFR rent at in area, vs a duplex off 2 large units rent for? ( search back a few years. Is the subject a Victorian or other appealing structure? What year was it built? A SFR and structure built to be a duplex usually have different levels of appeals and floorplans- thus a SFR converted to 2 units can be quite different in design and appeal than a structure built to be rental prperty.

if the facade and most of original floor plan is preserved, it is a a good candidate to be retrofitted back to SFR at low cost.

From what you wrote, IMO it is more probable that you are reading this correctly, aka the typical buyer for subject is likely not looking for a duplex/rental but would buy the subject as a fix and flip SFR ( or renovate and live in. it. Unless the trend is to tear down and build new, in which the HBU could be demolish site as vacant)

But if your research shows the dwelling contributes value /likely buyer would restore or renovate it as a SFR, then HBU is as is. If all it takes to restore it back to A SFR is removing the division and opening up access betwen the units, that is a relatively low cost item and the bulk of the $ will be spent on the remainder of the renovation or restoration.

Appraise it as is, in fair condition as renovation bait, the cost to retrofit it back to SFR is a smaller part of overall cost. Dont' speculate that it is worth 200k-300k higher than as a MFR (unless you have support for that)