One Unit Or Two Units?

[xiaodong lou]

Hi,

I'm appraising a single family house which has a main house (1,600 sf) and a detached cottage(800 sf, 2 bedrooms and one bathroom). I'm using URAR form and I'm just wondering how many units it has. The borrower intends to rent both houses.

Thanks.

 

[DB]

Unless your client has requested a rent schedule or an income statement, I wouldn't worry about the borrowers intentions after the sale.

If it were me doing it and the order requested nothing but a 1004, then I would look at the cottage as supplemental to the sale as an excess (or contributory) value. What is the rest of the NH like? Does it appear that the lot could be divided and the cottage and main house sold separately?Are rental units prominent in the area?

If so, then an income approach and a comparable rent schedule will need to be included. Or if the order states that this purchase is for investment, then you will need to complete the rent schedule and an OIS for small income producing properties.

If the units are currently rented and this is a refi, then the cottage will still be a contributory value, but the current rents will need to be figured into your rent schedule and your income approach.

Hope this helps a little.....

 

[xiaodong lou]

Thanks for your reply, Doug.

This is a refi from interim loan to perm loan. It's a brand new house and there's quite a few rental properties like this in the neighborhood. Rental schedule and operating statement are required along with URAR.

The question is if I state it's two units and break out it on rental schedule and operating statement, like unit 1 and unit 2. The lender will treat it as two units and the rate would be different. The loan officer quoted the rate for SFR and she doesn't want it to be treated as two units. Is it a grey area or is there a way to get around it?

Thanks.

 

[Nancy in Friday Harbor]

Are guest houses or "accessory dwelling units" common (or at least not atypical) in your market? Mother-in-law apartments? If so, you can go with a main house and guest house/ADU/MIL.

Oh, if it's to be non-owner occupied, the rate will be different anyway. Don't let the loan officer make her problem into your problem.....

Good luck!

Breezy and sunny in Friday Harbor!

Nancy

 

[DB]

If they couldn't be sold as 2 separate units (i.e. side by side, where the lot could be split) the I use 2 units in my report. If the cottage is located behind the main house and couldn't be sold without creating an easement, then I would treat it as 1 unit, with a a second, livable structure, treated as a contributory value to the sale. From the NH you describe, it sounds as if rentals, and secondary structures, are fairly common. Like Nancy said ... don't let someone make their problem, your problem. Charge away!!

 

[ginadirocco]

For what legal use is the property zoned? Would it be legal to rent the cottage? What is the subject's use code? It is not for you to decide whether it is a single or a 2 family. I'm down here in Massachusetts and I've run into this situation before. Two out of three times it was illegal to rent the accessory dwelling to anybody but family, thus the house was a LEGAL single family.

 

[jeff samolinski]

Can you say zoning?

 

[Lobo Fan]

I run into these a lot. I go with the zoning first. If it is R-1 then it is a house with a guest house. I usually give about half value to the GLA on the guest house, depending upon condition, since it most likely could not be rebuilt.

If it is zoned R-2 or more then it is like a duplex and I would prefer to put it on a 1025 with all the rental documents. That would solve your problem about mixing the rental data.

Almost always the house/guest house scenario appraises at a higher value than the two rental units.

You need to report what you see, even if instructed to do something else. You cannot make two structures into one just to please a loan officer that has over-commited.

 

[xiaodong lou]

Thanks for all the replys. Its zoning is SF3. There're single family houses and duplex in the NH. Typically investors rent two units to two families and this's allowed.

 

[Tawfik Ahdab]

Remember, highest and best use comes first.

The lender will treat it as two units and the rate would be different. The loan officer quoted the rate for SFR and she doesn't want it to be treated as two units. Is it a grey area or is there a way to get around it?

The rate does not dictate the highest and best use.

Do not in any way become an advocate for the lender.