Non-permitted 2nd unit?

[DWiley]

I am appraising a property with a garage, which has been converted to a 2nd unit. The 2nd unit does not have permits, and the lender has instructed me to appraise the property as if the 2nd unit does not exist. I'm not sure how to approach H&BU or whether it's legal. Then there is that question about conformity. I would answer that it does not conform, due to the unpermitted 2nd unit.

It appears that the 2nd unit would conform to local building codes as far as I can determine, however there are no permits as I have mentioned.

What is the (specific) intended use? If for GSE, FHA, VA, such an approach would not be appropriate as it would require something that is not permitted by existing forms/policies.

 

[J Grant]

Doesn't matter... to the appraiser. The responsibility for requesting the correct appraisal service is the Client's. If they incorrectly tell you to appraise it as if the dwelling unit isn't there, then you can do that... for a fee. Of course, if you like the Client, you should spend some time chatting... educating them... that maybe what they are asking for isn't the best approach. Ultimately, it's their decision. Your decision is.... accept, decline, or withdraw.

USPAP is silent about forms. There is no prohibition against using the 1004 form for something like this... however, it's not a good idea. The built in statements and certifications on the 1004 would not really fit. In order to keep it correct, using the 1004 from would require a lot of extra commentary and it's highly likely that you'd miss something. Better off just using the GP form instead.

BTW, a fractional appraisal... that is an appraisal of a portion of a property... does not require the use of a hypothetical condition. It requires that the portions of the property being appraised be clearly identified and described. Sometimes though, it's simpler to just use an HC. If you are using an HC (or an EA) be sure to glance at SR 2-2(a)(xiii).

It is not a USPAP issue, it is a client issue.

An appraiser assigned to use a URAR form can not decide to use a GP form withut a client permission! Imo, 99% of the clients who gave the order out for a URAR form would not allow a GP form to be used and the 1% that allow it would later ask the apprsial be put on a URAR form because whoever was asked agreed out of ignorance.

 

[J Grant]

I have done appraisals that include non-permitted additions or conversions and as long as I disclosed it I am not liable for it. If something looks off in the workmanship, recommend or require an inspection, esp if it is electrical or another possible safety issue.

That said, the OP might want to decline the assignment because they do not sound competent for this particular assignment imo ( sorry)- they are thrown off by their client is asking for something that is not appropriate ( to appraise as if it does not exist.)- we need to know when to tell a client no. And they keep referring to this small cottage as a garage when it long ago gave up any resemblance or functionality of a garage ( even if it says garage on public records and was the original use, that would be disclosed of course)

 

[TerryRohrer]

BTW, a fractional appraisal... that is an appraisal of a portion of a property... does not require the use of a hypothetical condition. It requires that the portions of the property being appraised be clearly identified and described. Sometimes though, it's simpler to just use an HC. If you are using an HC (or an EA) be sure to glance at SR 2-2(a)(xiii).

In typical USPAP fashion, this is not abundantly clear (bold added):

FAQ 189: "Use of a hypothetical condition or extraordinary assumption is not necessary in the specific
case of appraising the land component of an improved property, although one or both may be
necessary in other specific cases. The same is true whenever appraising any other portion of the
subject. To avoid communicating a misleading appraisal report, the report should disclose the
existence of the improvements as part of the property, but the improvements do not have to be
included in the valuation."

 

[Terrel L. Shields]

What is the (specific) intended use? If for GSE, FHA, VA, such an approach would not be appropriate as it would require something that is not permitted by existing forms/policies.

As I read USPAP, you do need to know who and what rules apply. Which is why I don't agree with the below comment.

Doesn't matter... to the appraiser.

Yes, it does. The appraiser has an obligation to know what rules apply to the intended use and user. The fact the client is unwittingly ignorant of what rules apply is YOUR problem as much as theirs. If you know it is for secondary market, then their guidelines apply and you are supposed to know that. If for in house use, the IAG applies most likely and otherwise, only USPAP applies.

 

[J Grant]

As I read USPAP, you do need to know who and what rules apply. Which is why I don't agree with the below comment.

Yes, it does. The appraiser has an obligation to know what rules apply to the intended use and user. The fact the client has unwittingly ignorant of what rules apply is YOUR problem as much as theirs. If you know it is for secondary market, then their guidelines apply and you are supposed to know that. If for in house use, the IAG applies most likely and otherwise, only USPAP applies.

It is more than a binary issue -a client condition such as which form to use must be adhered to-, or decline the assignment.

 

[Sadie]

Comment: "The rear aDU ( or guest house) is converted from a former garage. Public records still lists it as a garage. The area zoning is legal for a guest house or ADU. The conversion was not done with a building permit. The consrtrcion looks adequate and functional. Inspection recomended since no building permits were pulled."

Most municipalities have a process to remedy situations like this. Pay a fine, have inspections and get permits.

 

[Sadie]

I don't have similar comps with non-permitted guest houses, so that's not a solution. I'd like to do is as just an outbuilding and give it no value, but I'm not sure that's the proper way to go. It doesn't have any permits, so technically it's illegal, and I'm thinking of doing that. It's either that or legal/nonconforming, but I'm not a home inspector or county inspector. What I think I should do is make it subject to inspection. That means the deal can't go through unless they get it inspected, otherwise I think I'll be liable.

What would you do if it were permitted? You would probably find comps. Find out what is necessary to make it legal and calculate that into your adjustment. You may have comps that have non permitted ADUs but you would have to go listing by listing to find them.

 

[J Grant]

Most municipalities have a process to remedy situations like this. Pay a fine, have inspections and get permits.

That is up to the owner and I have no issue with it.

We are given an AS IS property to appraise, and we can not tell an owner to pay a fine, have an inspection and get permits. Lenders will give loans on non permitted additions and conversoins, that is their risk to take. We just need to disclose it ( and find similar non-permitted area comps, not an easy task )

 

[Fernando]

That is up to the owner and I have no issue with it.

We are given an AS IS property to appraise, and we can not tell an owner to pay a fine, have an inspection and get permits. Lenders will give loans on non permitted additions and conversoins, that is their risk to take. We just need to disclose it ( and find similar non-permitted area comps, not an easy task )

20 years ago around here, unpermitted ADU could have been reported by snitches and city would request it to remove it.
Since Progressive politicians at local and state levels have pushed for more housing in CA, all ADUs are acceptable. Instead of removal, city could request to build according to their local codes.