SFR, ADU, Jr ADU

[ZZGAMAZZ]

Assignment is conventional re-fi of SFR with ADU and Jr ADU [occupancy certs provided], in mixed-use neighborhood.

My questions pertain to the 1007 rental analysis:

---Would rents obtained from 3-unit residential income-producing properties typically be acceptable--totally unsure how to demonstrate market acceptance in the absence of tangible market activity???

---If [IF] I am correct that the improvements require one of three units to be owner-occupied, would the existing rental income from one of the three units be excluded from the 1007 because the "legally-permissible" HBU test of the rental income potential isn't met? [That is to say, the real property improvements meet all four tests but the current "use" might not. Or...does the market trump the legally-permissible standard?]

 

[Surf Cat]

Assignment is conventional re-fi of SFR with ADU and Jr ADU [occupancy certs provided], in mixed-use neighborhood.

My questions pertain to the 1007 rental analysis:

---Would rents obtained from 3-unit residential income-producing properties typically be acceptable--totally unsure how to demonstrate market acceptance in the absence of tangible market activity???

Alls you can do is provide an opinion of market rent based on the rental activity of "similar" properties in the market area in the absence of ADUs available. Location, square footage, and bedroom count. Studios, pool houses, granny flats, whatever is the most similar to your subject ADUs.

Yes, you explain in the report that you expanded the parameters of time and distance to alternative, competitive neighborhoods to try to find data for ADU'S in those areas.

Look on Zillow and Craigslist as they have rentals. No, they are not closed however, they'll give you an idea of what the market is asking for in regards to size and bedroom count for your market area.

Thus, you may not have a single Adu in your 1007. But hopefully, equal bedroom count and bracketed GLA to provide an "opinion" based on your extensive research of what the Adu should rent for. You state that you have occupancy certs. The rents too? Use that as evidence of what the market will bear and your opinion.

No one is going to magically find something that you haven't already dug and scoured for. Be forewarned.... the borrower is not going to like your opinion. So let them provide proof to the lender as to what the Adu should rent for. I guarantee you they'll submit far superior rentals which are not even remotely close to the ADU.

I wouldn't worry about it too much. You're not getting paid the amount needed to do a deep dive on the analysis that's required for this. There's no ADUs available, here's what's here, here's my opinion, boom done.

I don't quite understand your second question. I wouldn't omit what's there....

 

[ZZGAMAZZ]

Alls you can do is provide an opinion of market rent based on the rental activity of "similar" properties in the market area in the absence of ADUs available. Location, square footage, and bedroom count. Studios, pool houses, granny flats, whatever is the most similar to your subject ADUs.

Yes, you explain in the report that you expanded the parameters of time and distance to alternative, competitive neighborhoods to try to find data for ADU'S in those areas.

Look on Zillow and Craigslist as they have rentals. No, they are not closed however, they'll give you an idea of what the market is asking for in regards to size and bedroom count for your market area.

Thus, you may not have a single Adu in your 1007. But hopefully, equal bedroom count and bracketed GLA to provide an "opinion" based on your extensive research of what the Adu should rent for. You state that you have occupancy certs. The rents too? Use that as evidence of what the market will bear and your opinion.

No one is going to magically find something that you haven't already dug and scoured for. Be forewarned.... the borrower is not going to like your opinion. So let them provide proof to the lender as to what the Adu should rent for. I guarantee you they'll submit far superior rentals which are not even remotely close to the ADU.

I wouldn't worry about it too much. You're not getting paid the amount needed to do a deep dive on the analysis that's required for this. There's no ADUs available, here's what's here, here's my opinion, boom done.

I don't quite understand your second question. I wouldn't omit what's there....

Very insightful advice. Thank you. GM

 

[Fernando]

Alls you can do is provide an opinion of market rent based on the rental activity of "similar" properties in the market area in the absence of ADUs available. Location, square footage, and bedroom count. Studios, pool houses, granny flats, whatever is the most similar to your subject ADUs.

Yes, you explain in the report that you expanded the parameters of time and distance to alternative, competitive neighborhoods to try to find data for ADU'S in those areas.

Look on Zillow and Craigslist as they have rentals. No, they are not closed however, they'll give you an idea of what the market is asking for in regards to size and bedroom count for your market area.

Thus, you may not have a single Adu in your 1007. But hopefully, equal bedroom count and bracketed GLA to provide an "opinion" based on your extensive research of what the Adu should rent for. You state that you have occupancy certs. The rents too? Use that as evidence of what the market will bear and your opinion.

No one is going to magically find something that you haven't already dug and scoured for. Be forewarned.... the borrower is not going to like your opinion. So let them provide proof to the lender as to what the Adu should rent for. I guarantee you they'll submit far superior rentals which are not even remotely close to the ADU.

I recently did a 1007 and client wasn't happy with the value. Ugh.
Gave me their sales comps to consider.
No choice but to use them and explain whether they're good or not good comps.

I wouldn't worry about it too much. You're not getting paid the amount needed to do a deep dive on the analysis that's required for this. There's no ADUs available, here's what's here, here's my opinion, boom done.

I don't quite understand your second question. I wouldn't omit what's there....

 

[Tom D]

I don't understand your question also.
Are you doing 2 1007s, one for each rental. Rentals are rentals. You use what you have on hand reguqrdless of different styles. If you feel something different then adjust seperately for a specific difference. 1 bedrooms are 1 bedrooms whether in a triplex, an adu, or the top of a garage.

You need bedroom count and condition to be the nail to hang on always, not where they are located if you don't have match models.

 

[Surf Cat]

I recently did a 1007 and client wasn't happy with the value. Ugh.
Gave me their sales comps to consider.
No choice but to use them and explain whether they're good or not good comps.

You mean rental comps, yes? I disagree, you do have a choice as it's your opinion. If the rentals are not relevant and competitive to the subject rental, they don't get used with an explanation as to why. End of story.

If the client give you rentals and they were relevant..... you didn't do your due diligence in finding them. It happens though, rushing and such.

 

[ZZGAMAZZ]

I don't understand your question also.
Are you doing 2 1007s, one for each rental. Rentals are rentals. You use what you have on hand reguqrdless of different styles. If you feel something different then adjust seperately for a specific difference. 1 bedrooms are 1 bedrooms whether in a triplex, an adu, or the top of a garage.

You need bedroom count and condition to be the nail to hang on always, not where they are located if you don't have match models.

I've completed numerous 1007s and 1025s but never relied upon different legal comparable types... although I'm molre oK with market reaction of rents than sales. My as a potential buyer... would probably view a 3 unit res income property identical to a SFR with 2 legal ADUs, but I dont know if lending terms are different. Maybe overthinkibg but next I will interview City building for list of properties with a finale Jr ADU to cross ref against sales. Whew... another urban cookie cutter...

 

[sputnam]

Appraisers don't, and aren't expected to, create the market. The data you find is what you have to work with. You can certainly expand your search parameters in distance and time and, you may have to. The challenge then is how to use your 'bad' data to determine market reaction and how to explain it in your appraisal report. Once you have done that, you have done your job. It's none of your business whether your Client makes the loan or not. That's the Intended Use of most appraisals... to provide information so that the Client can make a decision.

 

[J Grant]

Appraisers don't, and aren't expected to, create the market. The data you find is what you have to work with. You can certainly expand your search parameters in distance and time and, you may have to. The challenge then is how to use your 'bad' data to determine market reaction and how to explain it in your appraisal report. Once you have done that, you have done your job. It's none of your business whether your Client makes the loan or not. That's the Intended Use of most appraisals... to provide information so that the Client can make a decision.

Correct. When there is scant data of the same type of property to an appraiser, then a buyer or a renter would also face scant choices - so what options would they exercise to get that kind of rental income /utility as a buyer or place to live if a renter.

The mistake many appraisers make is not explaining - they will use a SFR plus ADU as a comp for a duplex but not explain why they used it - " Comp 3 is a SFR plus ADU, used because no other similar location and size duplexes found within the past 3 years. A SFR with a rentable ADU in the immediate area returning similar rent is a reasonable choice for a buyer" - or whatever, say something, don't just stick the comp in there without a narrative.

 

[ZZGAMAZZ]

Correct. When there is scant data of the same type of property to an appraiser, then a buyer or a renter would also face scant choices - so what options would they exercise to get that kind of rental income /utility as a buyer or place to live if a renter.

The mistake many appraisers make is not explaining - they will use a SFR plus ADU as a comp for a duplex but not explain why they used it - " Comp 3 is a SFR plus ADU, used because no other similar location and size duplexes found within the past 3 years. A SFR with a rentable ADU in the immediate area returning similar rent is a reasonable choice for a buyer" - or whatever, say something, don't just stick the comp in there without a narrative.

that "a buyer or renter would also face scant choices" is about the most meaningful comment I ever heard because it describes IMO the interface between appraisal industry standards and the reality of the open market. Maybe I'm just trippin today, but thanks!!!!!