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Owner Occupied and Zoning Question?

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stewart appraisal

Freshman Member
Joined
May 21, 2007
Professional Status
Certified Residential Appraiser
State
Illinois
Looking for help on this one. I am appraising a two unit property with a finished basement (where owner is living). The first floor and second floor units are being rented. I have marked the appraisal as "owner occupied" and "tenant". The lender involved wants me to take off the "tenant" box marking. This is a FHA loan and I spoke with another lender/client of mine not involved in the deal. This client said that FHA allows for appraisal to be marked only as "owner occupied" in this circumstance. Does anyone know of this is true?

Second Part. The Subject allows for 2 unit properties. I have marked as a legally permitted use because the owner is living in a finished basement apartment (below grade). I would consider it a legal non-conforming only if the 3 units were all above grade. Is my reasoning flawed?

Thanks for the help.
 

Ken B

Elite Member
Joined
Feb 18, 2004
Professional Status
Certified General Appraiser
State
Florida
1. You might want to direct this question to the FHA/VA forum.

2. The number of units are the number of units. Many apartment buildings have first floor units which are technically "below grade." You would not ignore those units in an appraisal of that apartment building.
 

Marcia Langley

Senior Member
Joined
Aug 26, 2005
Professional Status
Certified Residential Appraiser
State
Missouri
Ditto Kenneth. Your subject is a three unit property. Two above grade and one below grade.

Did you mean the zoning was restricted to two units? Then the third unit is likely illegal, but it does exist.

You can't falsely report elements of the subject in order to falsely report that it conforms to zoning.

I agree it is not necessary to mark both owner occupied and tenent occupied. On a 3-unit report that discusses rents, etc., the report will be clear even if you only mark owner occupied.

==========

If you try to falsify the number of units, you will get into a conflict between the "owner occupied" and "two units rented". It can't be both on a two-unit property. You'll just become mired into more falsifications.
 

The Warrior Monk

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Mar 30, 2005
Professional Status
Certified General Appraiser
State
New York
This is a FHA loan and I spoke with another lender/client of mine not involved in the deal. This client said that FHA allows for appraisal to be marked only as "owner occupied" in this circumstance. Does anyone know of this is true?

I have no idea what the requirements for FHA loans are. However, the property is occupied by both the owner and a tenant. That is a fact, and must be reported that way if it is relevant to the assignment. If FHA has some requirement that the form must be marked owner occupied, that is criteria for whether or not the property meets the certain requirements for a loan. That is not the appraiser's problem. I would suspect what they mean is that the owner must be one of the occupants of the property, otherwise they consider it an investment property.

Second Part. The Subject allows for 2 unit properties. I have marked as a legally permitted use because the owner is living in a finished basement apartment (below grade). I would consider it a legal non-conforming only if the 3 units were all above grade. Is my reasoning flawed?

It's a 3-unit property. I would check to see if all units are legal, especially the basement unit. Many areas have regulations regarding below-grade living area, and the unit may not only be illegal, but a safety and liability hazard.
 
Joined
Jan 13, 2002
Professional Status
Retired Appraiser
State
Florida
I would check both occupancy boxes and explain, then hold my ground and not change it for anybody. It is what it is, period.

It is currently 3 units, not 2. If the zoning allows for only 2, then it is currently an illegal use - or if the owner has a legal variance for that 3rd unit, it's legal non-conforming. Again, you must fully disclose what it is and that might take some extra time to find out about the zoning and possible variances.

Concern: If the 3rd unit in the basement is not legal and the local authorities decide to enforce their zoning by forcing the owner to move out of that illegal basement unit, it is no longer owner occupied. Are the upper 2 units under leases? This is a mess just waiting to happen.
 

JonGalt

Junior Member
Joined
Aug 4, 2005
Professional Status
Certified Residential Appraiser
State
Illinois
If it is in the City of Chicago be sure to read the zoning information on the property all the way through. As you are aware the Chicago zoning is readily available online. Sounds like legal non-conforming (grandfathered) or illegal. Is it typical for the neighborhood?
 

athome77

Member
Joined
Apr 1, 2008
Professional Status
Certified Residential Appraiser
State
Illinois
I am sure you already have it if you've verified zoning, but for those who do not, here is the interactive site for Chicago Zoning:

http://maps.cityofchicago.org/website/zoning/

All you do is input the address and you're in busines.

Also, when it comes to grandfathered use, be careful about that basement unit. Unless it predates the current ordinance, you may have a hard time making a case for a grandfathered use. Not an attorney and not offering legal advice, just relating prior experience.
 

DTB

Elite Member
Joined
Jun 11, 2004
Professional Status
Certified Residential Appraiser
State
Illinois
If it is in the City of Chicago be sure to read the zoning information on the property all the way through. As you are aware the Chicago zoning is readily available online. Sounds like legal non-conforming (grandfathered) or illegal. Is it typical for the neighborhood?

Most likely typical for 80+% of 2 units in the city, that is the wiggle clause in the zoning code.
 

Mike Boyd

Elite Member
Joined
Jan 18, 2002
Professional Status
Retired Appraiser
State
California
Ditto Kenneth. Your subject is a three unit property. Two above grade and one below grade.

Did you mean the zoning was restricted to two units? Then the third unit is likely illegal, but it does exist.

You can't falsely report elements of the subject in order to falsely report that it conforms to zoning.

I agree it is not necessary to mark both owner occupied and tenent occupied. On a 3-unit report that discusses rents, etc., the report will be clear even if you only mark owner occupied.

==========

If you try to falsify the number of units, you will get into a conflict between the "owner occupied" and "two units rented". It can't be both on a two-unit property. You'll just become mired into more falsifications.

I agree with Marcia.
 

DTB

Elite Member
Joined
Jun 11, 2004
Professional Status
Certified Residential Appraiser
State
Illinois
You have a 2 unit with a finished basement. Related living apt. in basement is NOT rentable, as you describe it. That does not preclude the owner or family member from living there.

Don't overthink this one. The related living unit may be required to be removed (kitchen anyway) if the owner gets busted renting it out, otherwise sauvecito. Bet your comps are all that way.
 
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