Multi-Family or Single Family?

[maugust]

So, Washington DC can be an odd place. It's a very urban area with laws that prevent you from tearing down and rebuilding in order to preserve the historical aspect of the capital. As a result, a lot of the commercial/condominiums and multi-family buildings are created by converting residential homes. It's a relatively common practice and it's typically simple to gain permission to change the zoning on property in DC for whatever use you want to make of a building.

Last week I inspected a property that, while zoned and classified as a single family detached residence, is currently split into two separately metered rental units, as though it were a multi-family property. One of the bedrooms upstairs was converted into a kitchen, and another bedroom is used as a Living Room, making the previous 3-BR upstairs into a 1 bedroom unit. The two units are separately metered and have separate unit numbers on the house and entrances. Slam dunk converted 2-unit multi family house. Except it is zoned for single family and DC is only aware of one kitchen.

Due to the strange nature of the property, there are two ways that I can see proceeding. I either appraise this property as a multi-family unit (as it is currently being used), or as a single family unit (as it is currently zoned).

If I appraised the property as a multi-family, it would have to be subject to a legal conversion. In a way, this seems like it should be the best way to value this property. I'm pretty sure, though, that the lender is going to hope I can fit the property into the single family box, since that is how the report was originally ordered.

If I appraised the property as a single family, I'd have to ignore the separate metering and conversion. Value wise, this would actually be less challenging since it is less complicated to value a single family home. But since the property has two tenants, and required rent schedule, that part would be messy. Currently the property has two separate units with two separate tenants. If I did a rent schedule for this home as a single family unit, I would be providing the market rent for the entire home as one unit. This would not necessarily be reflective of how this property is currently being rented and the income it is actually generating.

I'd appreciate thoughts or opinions on my special snowflake of a property.

 

[Elliott]

...currently split into two separately metered rental units...

I vote multi-fam. I once did a oceanfront duplex that had two meters and the owner seriously considered spending $2000 to take out one of the meters so he could call it a single fam and get it financed. Its like reversing a call in football, the video evidence has to conclusive prove its not multi-fam, and the two meters sink it.

 

[Mike Kennedy]

Does the market data confirm HABU ( *must be legally permissible ON the Effective Date of Appraisal) is as a 2Fam, or 1Fam?

 

[maugust]

Upon further research, both uses are legally permissible. The zoning code for the house allows both multi-family and single-family use. The zoning description, however, currently calls this home single family because the house only has one certificate of occupancy.

 

[Mike Kennedy]

"one certificate of occupancy" for a SFR or a 2FR?

If the market indicates HABU as of the EDA is as a SFR - HC conversion back to legally permissible use IF the answer to the above is SFR. Depending on assignment conditions - this likely requires a change in the SOW from "as-is" to conditional valuation - change in the SOW should be discussed (in writing) with the client prior to completing the assignment.

IF the HABU is market-indicated as a 2FR and the existing CO is for SFR, HC valuation based on obtaining proper C.O. for legal 2FR (as if the C. of O. existed on the Effective Date). (also see change in SOW recommendation above).

 

[J Grant]

I think you need to call your client and discuss what you found at inspection before going any further.

 

[Mike Kennedy]

I think you need to call your client and discuss what you found at inspection before going any further.

Avoid "he said/she said" - communicate in writing - always and retain all communication in work file.

 

[Joe Flacco]

maugust,

Most of my assignments are in DC. What is the zoning code? I believe you are likely confused with the zoning code and use code. The zoning code allows for a number of uses and use codes. If you are referring to the use code such as "012 - Residential Single Family Detached" or "011 - residential single family row" does not mean it is zoned single family.

 

[maugust]

maugust,

Most of my assignments are in DC. What is the zoning code? I believe you are likely confused with the zoning code and use code. The zoning code allows for a number of uses and use codes. If you are referring to the use code such as "012 - Residential Single Family Detached" or "011 - residential single family row" does not mean it is zoned single family.

013 - Residential Single Family Semi Detached

At first I did take this to mean that it was zoned for single family only, but upon talking to DC, I was told that was not the case. The code can be used for multiple uses. But if the property were to be used as a multi-family home, it would require a certificate of occupancy for both units.

At this point I've updated the client, and I think the owner and the lender are attempting to figure out what the next step is.

 

[Dan Umstead]

What is the HBU? Call the client and explain your analysis. If they want to proceed, after your HBU analysis, appraise it at it's HBU, although it may not be eligible for FNMA.