Legal two family, used as two family, was purchased as two family, separate utilities and entrances- client want appraisal as one family?

[Mark K]

You can have two legal units and the highest and best use be single family. If the probable buyer is a primary residence buyer and not a investor purchasing for income then the HBU is likely single family and not a two unit apartment.

Do you base your value on a HC that its one unit or do you include contractor bids and make it subject-to with a cost to cure for the physical modifications and legal expenses, permits, etc. to convert to SFR?

 

[Joe Flacco]

Do you base your value on a HC that its one unit or do you include contractor bids and make it subject-to with a cost to cure for the physical modifications and legal expenses, permits, etc. to convert to SFR?

How many units are there when you have a single family property with an ADU? There are two units. Just because there are two units does not mean it is a two unit apartment or income property. It is a highest and best use issue. Not if it is a legal two unit or not. Two legal units doesn't automatically mean it goes on a 1025 income property form.

 

[JTip]

The AMC would rather pay you 250 food stamps for a 1004 than pay you 400 food stamps for a 1025.

Not enough food stamps.

 

[Mark K]

How many units are there when you have a single family property with an ADU? There are two units. Just because there are two units does not mean it is a two unit apartment or income property. It is a highest and best use issue. Not if it is a legal two unit or not. Two legal units doesn't automatically mean it goes on a 1025 income property form.

I'm talking about the typical Duplex, not SFR w/ADU.

I understand that a duplex may have a HBU as something other than a two family residential property. However, if you appraise it as something other than what exists, do you include in your appraisal a C-2-C for modifications or building removal or do you use a HC and pretend that its something other what exists?

 

[Joe Flacco]

I'm talking about the typical Duplex, not SFR w/ADU.

I understand that a duplex may have a HBU as something other than a two family residential property. However, if you appraise it as something other than what exists, do you include in your appraisal a C-2-C for modifications or building removal or do you use a HC and pretend that its something other what exists?

We don't really have those but if those properties are typically purchased by investors for income then I would report it on a income property form.

 

[Joe Flacco]

Most of the legal two unit properties in my area are rowhouses with a legal second unit in the basement. 95% of the buyers are single family home buyers. I report it on a 1004.

 

[glenn walker]

A

How many units are there when you have a single family property with an ADU? There are two units. Just because there are two units does not mean it is a two unit apartment or income property. It is a highest and best use issue. Not if it is a legal two unit or not. Two legal units doesn't automatically mean it goes on a 1025 income property form.

Single family residence with an-ADU is not 2 units. It is usually substantially smaller hen the main house, its powered of the main houses utilities, does not have separate meters, and by most jurisdictions, is to only be used for familial purposes--not as a rental. In My City, when you permit a ADU the City makes you sign a "affidavit" that you will not be renting it out, if-you get caught renting it out and violate it they terminate the variance and tell you to shut it down.

I think a lot of appraisers get really reckless when they are doing a highest and best use analysis. I can't just magically wave a wand and call a 2 unit that has two different family's living in them ,separate meters, separate entrances, separate kitchens and zoned for units a single family home. Also most jurisdictions will not-even install separate metered-utilities unless , the property are Units.

Another fact is 90% of the time in residential the highest and best use is its existing and legally permitted use. Otherwise you would have every yahoo around carving homes into units. The real reason the lender is trying to get the appraiser to appraise the 2 units as a SFR is because, the interest rate is lower on a SFR and its easier to get through underwriting. I am not a rat and never turned anyone in to our State Board and believe me I have seen hundreds of sloppy things doing reviews. BIT if I was at banks review desk today and some appraiser delivered is a legal permitted duplex or 2 units,, separate living quarters, meters, mailing addresses and zoned for units, I would recommend legal forward it to State board. As far as H & B use analysis my analysis would conclude the appraiser had created, delivered and had committed "calculated deception by hoping we had been stupid enough to not catch it before we had funded and sold that bad-boy to Fannie or Freddie. In a post Closing review a GSE or HUD would push the loan back to the lender and then the lender would have to portfolio and service it. The order Person who was also trying to tell the appraiser to pretend its a house =their head would be on the chopping block.

 

[Joe Flacco]

A

Single family residence with an-ADU is not 2 units. It is usually substantially smaller hen the main house, its powered of the main houses utilities, does not have separate meters, and by most jurisdictions, is to only be used for familial purposes--not as a rental. In My City, when you permit a ADU the City makes you sign a "affidavit" that you will not be renting it out, if-you get caught renting it out and violate it they terminate the variance and tell you to shut it down.

I think a lot of appraisers get really reckless when they are doing a highest and best use analysis. I can't just magically wave a wand and call a 2 unit that has two different family's living in them ,separate meters, separate entrances, separate kitchens and zoned for units a single family home. Also most jurisdictions will not-even install separate metered-utilities unless , the property are Units.

Another fact is 90% of the time in residential the highest and best use is its existing and legally permitted use. Otherwise you would have every yahoo around carving homes into units. The real reason the lender is trying to get the appraiser to appraise the 2 units as a SFR is because, the interest rate is lower on a SFR and its easier to get through underwriting. I am not a rat and never turned anyone in to our State Board and believe me I have seen hundreds of sloppy things doing reviews. BIT if I was at banks review desk today and some appraiser delivered is a legal permitted duplex or 2 units,, separate living quarters, meters, mailing addresses and zoned for units, I would recommend legal forward it to State board. As far as H & B use analysis my analysis would conclude the appraiser had created, delivered and had committed "calculated deception by hoping we had been stupid enough to not catch it before we had funded and sold that bad-boy to Fannie or Freddie. In a post Closing review a GSE or HUD would push the loan back to the lender and then the lender would have to portfolio and service it. The order Person who was also trying to tell the appraiser to pretend its a house =their head would be on the chopping block.

I don't think you understand the highest and best use implications with two unit legal unit properties where the probable buyer is a primary residence buyer.

What exists is two legal units and what is legally permitted is two legal unit. When you see that the probable buyer is a primary residence buyer that means it is worth more to a primary residence buyer than a income property or 2-4 unit apartment buyer. The primary residence buyers are willing to pay more than what the income property buyer is willing to pay based on cap rate. Therefore, even though there are two legal units, the highest and best use of the two legal units is single family with ADU.

 

[glenn walker]

I don't think you understand the highest and best use implications with two unit legal unit properties where the probable buyer is a primary residence buyer.

What exists is two legal units and what is legally permitted is two legal unit. When you see that the probable buyer is a primary residence buyer that means it is worth more to a primary residence buyer than a income property or 2-4 unit apartment buyer. The primary residence buyers are willing to pay more than what the income property buyer is willing to pay based on cap rate. Therefore, even though there are two legal units, the highest and best use of the two legal units is single family with ADU.

A property must be appraised in terms of its highest and best use. The definition of highest and best use is as follows: The reasonable, probable and " legal use of vacant land or an improved property " which is physically possible, appropriately supported, financially feasible, and that results in the highest value.

The highest value is only one part of th analysis , when a lender makes a loan on a property, their collateral and security is based on what it is - NOT - on what the appraiser or owner want it to be. In this case as of the effective date of the appraisal , it's a legally permitted duplex, On commercial properties, often there is a future potential higher or better use, but most often its current use stays in effect until its financially feasible to develop either a new structure or convert the existing use. This is why you see SFR on commercially zoned lots or land and often the use never changes. Its like in Los Angeles, I get reviews where some Dunderhead appraiser, has a 1,500 Sq.Ft. home on a 3,000 Sq.Ft. lot. he thinks because its zoned commercial thats its H & B use. But the idiot has never built or developed anything and he didn't spend 10 minutes, thinking about the permit process or feasibility of a commercial building on it. With set backs, ADA approved on site parking, there is no room for a structure, so thats why we have all these 90 year old homes, with old rental houses on them.

 

[Joe Flacco]

A property must be appraised in terms of its highest and best use. The definition of highest and best use is as follows: The reasonable, probable and " legal use of vacant land or an improved property " which is physically possible, appropriately supported, financially feasible, and that results in the highest value.

The highest value is only one part of th analysis , when a lender makes a loan on a property, their collateral and security is based on what it is - NOT - on what the appraiser or owner want it to be. In this case as of the effective date of the appraisal , it's a legally permitted duplex, On commercial properties, often there is a future potential higher or better use, but most often its current use stays in effect until its financially feasible to develop either a new structure or convert the existing use. This is why you see SFR on commercially zoned lots or land and often the use never changes. Its like in Los Angeles, I get reviews where some Dunderhead appraiser, has a 1,500 Sq.Ft. home on a 3,000 Sq.Ft. lot. he thinks because its zoned commercial thats its H & B use. But the idiot has never built or developed anything and he didn't spend 10 minutes, thinking about the permit process or feasibility of a commercial building on it. With set backs, ADA approved on site parking, there is no room for a structure, so thats why we have all these 90 year old homes, with old rental houses on them.

Has nothing to do with what I or the owner wants it to be.

The OP has not provided any information to determine if the two unit property is a income property or not. If it is something like my market where these rowhouses are like two or three level homes with legal second unit in the basement in zoning that allows 1-4 units, then it is a single family property with ADU. They are marketed as single family properties with legal second unit in the basement, 95% are purchased by owner occupants, and it's rare when both units are rented at the same time which is what income property buyers do. Two legal units doesn't automatically make it a two unit income property.

Now if the properties you are talking about are typically purchased by investors purchasing the property for income, then yes you have a two unit income property.