Live/work Appraisal

[Hannah Weekly]

I have a client that has a property under contract, the property is a stand alone Commercial building and the city zoning allows for living space upstairs, a true live/work property. How do I go about getting this appraised. The bank keeps ordering a residential appraisal since it will be a residential loan, but the appraisers keep saying no, they won't do it because the highest and best use is Commercial.

Has anyone actually appraised these properties and had them close with conventional financing?

 

[Meandering]

Mixed use buildings generally require the residential portion to be 51%??

of the total gross building area, AND the zoning allows for residential use as a permitted use, or, allows for mixed use as a permitted use.

If your building is more residential, it can be done as residential with an accessory use of commercial space.

However, if the residential portion is half or less of the building and/or is zoned commercial, it's commercial unless there is a grandfather clause and/or a transferable zoning exception for the residential use.

Hope this answers your question.

.

 

[Michigan CG]

The "bank" keeps ordering residential appraisals because they are a lot cheaper and the loan rate is cheaper for a residential property. It most likely can not get a residential loan.

 

[nstanbru]

I've done a few and they have always been commercial reports, not residential. It's the underlying zoning you need to look at. The properties I have appraised all had commercial zoning, which, among other uses, permitted live/work buildings.

 

[Terrel L. Shields]

Has anyone actually appraised these properties and had them close with conventional financing?

What does it actually look like? I bet this is something for a commercial loan, period. Browbeating a newbie appraiser or someone who is lax in keeping up with the regulations and what the state does to folks doing it "wrong" can land them into hot water period. They should take a hint after the first appraiser turns it down. AND, I suspect you want a Certified General, or a very experienced CR, and if over the de minimus ($250K) probably the former. A CR license may not cover it regardless the loan nature.

FANNIE MAE

Mixed-Use Properties
Fannie Mae purchases or securitizes mortgages that are secured by properties that have a business use in addition to their residential use, such as a property with space set aside for a day care facility, a beauty or barber shop, or a doctor’s office.

The following special eligibility criteria must be met:

• The property must be a one-unit dwelling that the borrower occupies as a principal residence.
  
  
• The borrower must be both the owner and the operator of the business.
  
  
• The property must be primarily residential in nature.
  
  
• The dwelling may not be modified in a manner that has an adverse impact on its marketability as a residential property.
  

See B4-1.4-07, Mixed-Use Property Appraisal Requirements, for appraisal considerations for mixed-use properties.​

FHA
FHA insured loans for single-family homes are intended for the buyer to purchase property that is primarily used as a living space. Limited business use of such properties is permitted, but the FHA has strict rules governing how much of the property may be dedicated for business purposes such as a storefront, office space or storage facility.

According to FHA requirements, appraisers must evaluate a property on a square footage basis for homes that have a portion of that footage dedicated to business use, and the FHA rules on homes, condos or multi-unit properties is that no more than 25% of the square footage can be dedicated for business or non-residential use.

 

[Hannah Weekly]

Thank you, Terrel.

Here is a picture of the building... It was built in 1911 and was originally a grocery downstairs and an apartment upstairs, which it still is.

The building is less than $100,000 and is in a Historic Neighborhood. The buyer will be homesteading it. The business will be an art studio, that will not be a retail shop.

This is the Commercial zoning:

Commercial Community/General-Springfield (CCG-S) District.

(b) Permitted accessory uses and structures.

In addition to the requirements of Section 656.403, the following are also permitted accessory uses and

structures:

(1) Interior apartments in conjunction with any other permitted use if such apartments are limited to the

second story of the building or to under 50 percent of the building ground floor area.

 

[JTip]

I wouldn't touch it with a 10' pole.

 

[timd354]

I have a client that has a property under contract, the property is a stand alone Commercial building and the city zoning allows for living space upstairs, a true live/work property. How do I go about getting this appraised. The bank keeps ordering a residential appraisal since it will be a residential loan, but the appraisers keep saying no, they won't do it because the highest and best use is Commercial.

Has anyone actually appraised these properties and had them close with conventional financing?

Thank you, Terrel.

Here is a picture of the building... It was built in 1911 and was originally a grocery downstairs and an apartment upstairs, which it still is.

The building is less than $100,000 and is in a Historic Neighborhood. The buyer will be homesteading it. The business will be an art studio, that will not be a retail shop.

This is the Commercial zoning:

Commercial Community/General-Springfield (CCG-S) District.

(b) Permitted accessory uses and structures.

In addition to the requirements of Section 656.403, the following are also permitted accessory uses and

structures:

(1) Interior apartments in conjunction with any other permitted use if such apartments are limited to the

second story of the building or to under 50 percent of the building ground floor area.

Hi Hannah,

I don't know your market, but based on your description of the property, the applicable zoning and the historical use of the property (which is mixed use for the past 100+ years0 and the photo, it looks like a classic mixed use property to me with 50% of the building (the second floor) being used for residential purposes and 50% of the building (the first floor) being commercial in nature. Based on all of these factors, it would appear that the highest and best use of the property could well be its existing mixed use. Some appraisers seem to think that a property that is at all commercial in nature cannot also be residential in nature, but that is not how the real world works and if that was true, then there would be no such thing as a mixed use property. The real problem is that many appraisers do not have the requisite skill or experience required to appraise such properties and you may be running into the problem that the lender is unable to find an appraiser that is competent to do this type of appraisal. Additionally, without knowing the market, I would guess that this may be a very difficult property to find comps for and that may be scaring a lot of appraisers off.

I don't have an easy solution for you, but would suggest that you talk some local small, banks and credit unions and explain the situation to them in the hopes that you will be able to find a lender and appraiser who knows how to handle these types of properties.

 

[timd354]

Thank you, Terrel.

Here is a picture of the building... It was built in 1911 and was originally a grocery downstairs and an apartment upstairs, which it still is.

The building is less than $100,000 and is in a Historic Neighborhood. The buyer will be homesteading it. The business will be an art studio, that will not be a retail shop.

This is the Commercial zoning:

Commercial Community/General-Springfield (CCG-S) District.

(b) Permitted accessory uses and structures.

In addition to the requirements of Section 656.403, the following are also permitted accessory uses and

structures:

(1) Interior apartments in conjunction with any other permitted use if such apartments are limited to the

second story of the building or to under 50 percent of the building ground floor area.

By the way, there is hope to get a GSE loan on mixed use properties....I know for a fact that the GSE's had no problems with loans on some of these mixed use properties, all of which are 3 story townhomes with ground floor commercial/retail usage:

 

[timd354]

Mixed use buildings generally require the residential portion to be 51%??

Although I do recall a 51% requirement in Fannie's guidelines some years back, that requirement is no longer included in Fannie's Selling Guide