Illegal 4-plex

[John Hassler]

Larry

I think you are on the right track. Go with H&BU which appears to be a duplex, based on what you have stated. Provide an explaination and estimation of cost to cure the illegal use just like you would if it were a SF with the garage illegally conveted to living area.

 

[Pamela Crowley (Florida)]

"As Is" is illegal so it's not at it's Highest & Best Use. No way I would do it as a 4 unit.

I would do it as a duplex, explain that the garages are currently illegally used as rented studio apartments and if the City/County catches up with this, those units will be required to be converted back to garages. Therefore, discount for the cost to cure for that conversion.

As far as the LOs instructions, if that is what the LO insists upon, I would decline the assignment as it would be a USPAP violation to go along with it.

just my $.02

 

[Dale Smalley]

We get these all the time in So FLA .we call them single family Holliday Inns. So common that it is easy to find comps of similar.
How many electrical meters do you have? For reviewing illegal units simply call the power company and ask how many accounts are at that address. If it has two then it is a duplex with cost to cure items. The rest doesn't add any value. So you can or should state that the extra units are there but given no value.

I don't know any lender that understands H&B use and I would stay away from that uness it is a long term paying consulting job.

 

[John Hassler]

Dale

I don't know about your area but electrical meters are definately not a way to acertain the number of units in my area. There is an appraiser in town who built himself a a 15' x 15' detached office and has a separate electric meter for tax purposes. I also know of older units with only one meter (utilities are incl in rent). To my knowledge the elect company will install as many meters as you wish to pay for. Like I said, maybe it's different where you live.

 

[KD247]

Sometimes my first thoughts are so different than the crowd's that I wonder if I've been working by myself too long!

"Do I require that the garage be converted back to its intended use or just ignore the conversion and give it no value?"

Is your assignment to form an opinion of value, or is it to physically change the subject property so that it is easier to appraise (joking)? Appraisers frequently speak of "giving value" to something, but all we can really do is either make a hypothetical assumption and treat the property as if it were different than it really is, or we can include the amenity in our opinion of value.

In this type of situation, I would compare the property to other duplexes, with the converted garage treated as a separate amenity. You may decide that the market pays a premium for properties with converted garages, or the market might be neutral on the matter, or the market might demand a discount to pay for future re-conversion back to a garage. Any of these positions could be reasonable, based on the market's reaction, which is bound to be different even in different parts of Reno. Hopefully, there are a couple of sales with similar conversions. If not, you're going to have to get creative.

In terms of estimating value, the actions of the market could be more important than what the planners say. I've seen garage conversions that the market will pay a huge premium for, even though they're illegal and not built to code. It would be misleading to state that a conversion like that has no value, if the market clearly recognizes it. On the other hand, if the market demands a discount for properties with converted garages, it would be misleading if the conversion were just ignored.

After all that, as a convenience to the lender, I would probably point out that the conversion is separately adjusted in the Sales Comparison Analysis and I would provide a rough estimate of the cost to re-converting the garage. Then if the lender decides that they don't want to lend on the portion of value attributable to the conversion, it will be obvious what contribution it makes to the total value.

 

[Farm Gal]

Baa- Baa Koert Sheep,
I think we wear the same wool~ h34r:
over our wolfish hides anyway :twisted:

I initially said that: check the market.. however on additional information it might be appropriate to just roll over and do it as a 'hypothetical with a cost to cure'...

but I'd still want to check very carefully into what the market thinks FIRST :twisted:

 

[KD247]

Lee Ann,

You're right, but the best outcome for these jobs is having the Client instruct us to completely ignore the troublesome amenity. One simple statement regarding the assumption, and poof, it's gone!

But here's the more important question: If 99% of all homeowners have refinanced at below 6% in the last few years, and if sales drop to almost zero as interest rates rise, how long of a vacation can I take before I'll be missed? Maybe four or five years? (Don't tell my wife; I'll still pretend to be busy!)

Koert

 

[Tim The Enchanter]

My take is the lender won't want to lend on unpermitted things that the city could force them to remove, i.e. the illegal garage conversion. Even if the city does not bother normally, and the market might find it of value. Some areas have numerous such conversions. The city is more interested in things like security bars with no releases for fire hazard. Maybe cuz there's a housing shortage, especailly in the low end.

So, I typically tell it like it is, and provide an estimated cost to cure, returning to use as a garage. Maybe install a garage door if needed.
Then adjust comps down accordingly, unless a comp has similar illegal conversion.

Illegal room additions? No value. "although it appears to be built in a workmanlike manner, conforming to the original structure."

 

[Blue1]

If you do the assignment with a re-conversion back to garages, don't forget to add in a cost to cure.....and...drop the income from those units for the Income Approach.

 

[Kevin A. Spellman]

I refuse to complete an appraisal for an illegal three family, a bank client. Another appraiser performed the appraisal on this illegal three family. The appraiser valued this property as a three family. The owner knew the unit was illegal and so did the city.

The city required three times for the owner to stop using the property as a three family. The owner was required to remove the third unit by the city. This was public data in the city hall. The appraiser failed to release this data. A fire occurred the occupant (tenant) died in the illegal unit. The owner, the city, the bank and the appraiser are involved in a civil suite. Think about liability with the presence of an illegal unit.