How do you support the value of an ADU in an area where there are no ADU transactions?

[ZZGAMAZZ]

Wouldn't an extreme lack of ADU's in the market indicate a fail for acceptability of that feature? Going to distant markets or significantly back in time to find an ADU really doesn't support the market reaction to such a feature in the subject market in my opinion. And if you do find an ADU in a different market, is it the same quality, size, zoning conforming, etc.? Usually not.
How do you account for the many variables that arise with the comp. I will usually go back 2 years, and if I find nothing, the best supportable value in my opinion is a big goose egg.

or.....one might consider the sparse population of ADU's as a favorable supply-demand factor. I'd start by reviewing all failed MLS transactions to determine market acceptance....and then of course oone must distinguish between an ADU and a guest unit, a distinction that also can affect garage requirements, which consequently affects neighborhood conformity, as well as legal conformity. (Often seems that NOTHING is straightforward in the morass of real property nuances...)

 

[Carnivore]

I assume a 1004 If it is Make sure the ADU actually qualifies as an ADU. Below is FNMA Guidance

Accessory Dwelling Units (ADUs) | Fannie Mae

ADUs can add value to a borrower’s home, provide additional space for extended family, or allow a borrower to earn rental income, all while helping address the country’s affordable housing shortage. Selling Guide loan products can be used to purchase homes with ADUs, renovate an existing ADU or...

singlefamily.fanniemae.com

This Second Link will actually give minimum requirements in the Selling Guide

B2-3-04, Special Property Eligibility Considerations (10/08/2025)

This topic contains information on Fannie Mae’s unique property eligibility requirements, including

selling-guide.fanniemae.com

 

[Zoe]

I assume a 1004 If it is Make sure the ADU actually qualifies as an ADU. Below is FNMA Guidance

Accessory Dwelling Units (ADUs) | Fannie Mae

ADUs can add value to a borrower’s home, provide additional space for extended family, or allow a borrower to earn rental income, all while helping address the country’s affordable housing shortage. Selling Guide loan products can be used to purchase homes with ADUs, renovate an existing ADU or...

singlefamily.fanniemae.com

This Second Link will actually give minimum requirements in the Selling Guide

B2-3-04, Special Property Eligibility Considerations (10/08/2025)

This topic contains information on Fannie Mae’s unique property eligibility requirements, including

selling-guide.fanniemae.com

Yeah, zoning can come into play on ADU. Kinda like legal or illegal. LOL

We have many in downtown Memphis where owner rented them to world war 2 vets when they returned home. Many rented part of their house to the returning vets.

Many possible uses that are possibly legal. Home office, Airbnb, rental residence, small business, man or woman cave, the list goes on.

That's why I say go with depreciated cost unless the lease terms override you leaning on depreciated cost.

His or her wife probably won't give a crap anyway. LOL

Depreciated cost would fly with most lenders. Lender would want lease terms on MV opinion. USPAP would require lease terms.

H&B use analysis could change my MV opinion.

It is what it is "as improved". H&B use analysis takes into consideration "as improved" and "as if vacant" on MV opinion.

 

[Yuanyin]

Yeah, zoning can come into play on ADU. Kinda like legal or illegal. LOL

We have many in downtown Memphis where owner rented them to world war 2 vets when they returned home. Many rented part of their house to the returning vets.

Many possible uses that are possibly legal. Home office, Airbnb, rental residence, small business, man or woman cave, the list goes on.

That's why I say go with depreciated cost unless the lease terms override you leaning on depreciated cost.

His or her wife probably won't give a crap anyway. LOL

Depreciated cost would fly with most lenders. Lender would want lease terms on MV opinion. USPAP would require lease terms.

H&B use analysis could change my MV opinion.

It is what it is "as improved". H&B use analysis takes into consideration "as improved" and "as if vacant" on MV opinion.

"His or her wife probably won't give a crap anyway. LOL" LOL no she's worse than any reviewer. She always wants "proof". She's an investor...

For this one I adjusted the additional square footage of the ADU, as well as bed, bath count based on the same adjustment I would apply to the SFR in this area. About $80psf above grade area, 10,000 per bathroom and 15,000 per bedroom. So a $61,000 adjustment for the 450 sq ft 1 bed, 1 bath ADU. Which isn't far from the depreciated value of the cost to build. The income approach wasn't applied b/c the ADU isn't an investment property for everyone.

I think in this situation adjusting the square footage/bed/bath this way makes as much sense as any.

The depreciated cost matched up on this one. Probably a coincidence. A new ADU with no depreciation would not get the same return, otherwise, I'd see builders building them with the new construction. I've seen that, but it's quite rare.

I've also done appraisals in the Stapleton neighborhood where the builders were building ADU's above the garage at a cost of $100k. 5 years later paired sales was showing the market was paying $50k for the 5 year old ADU. Definitely didn't match cost depreciation or income analysis.

ADU's are really difficult to value. It's like solar. The buyer just has to want it.