SFR Illegally Converted To Duplex

[Webbed Feet]

http://www.appraisalinstitute.org/assets/1/29/common-errors-issues_4-14-15.pdf

<...snip....>
If the subject dwelling was designed as a SFR and zoning allows only SFR use, and all that distinguishes this subject from its neighbors it that inside it has a wall down the middle and a second kitchen, both of which can be removed, the analysis is a low cost to cure brings it back to market accepted interior floorplans of similar homes (resolves the funct obs issue..)

The original poster made a blanket statement, without reference to the assignment the original poster was facing, that all real estate has to be appraised to its current highest and best use. Hence my response that the statement that all real estate must be appraised to its current actual highest and best use is false. Your attempt at a missive using AI common errors to link H&BU to Market Value to attempt to further support that only a current H&BU of real estate can be considered for valuation is also false. For any legitimate intended use request, relative to some other use, an appraiser certainly can entertain the valuation of a hypothetical H&BU to opine the "Market Value," per the hypothetical condition, with a properly drafted scope of work.

Next, the original poster said the assignment was a ".... conventional 1004 assignment...." While attempting to look past the assignment being described as a reporting form, I believe not once in the thread has any of the client's secondary assignment conditions been disclosed. All we have is the property owner is willing to put in a door between what is clearly two separate units. What we don't have is any information as to what any jurisdictional authority has to say about it OR what the market place reaction would be. You propose a "low cost to cure" with none of this information available to you.

The likelihood that most conventional lending clients, and this lending client, will wet their pants at seeing a Fannie form with the form indicating a property is NOT at its H&BU is very high, and so is it very high they will not accept anything other than the "As Is" checkbox in the reconciliation section being used.

1. It is established in the thread zoning does not allow two units to be on the property and that clearly, as of the effective date, two units are certainly on the property. This supported by the fact a separate laundry facility to accommodate two units was also created.
2. I wonder if the original poster has bothered to check personally with the jurisdictional authority for:
   1. Variances or other zoning exceptions allowing the current use.
      
   2. Permits as that seems like an awful lot of changes in structure and one would assume if zoning exists then a permitting structure probably does.
   3. Possible pre-zoning grandfathering status.
   4. Specifically what the J.A. says must be done to revert back to a single unit to be legally a single unit improvement.
   5. If the current configuration, due to being changed, resulted in violations of local fire codes hence leaving the lender in a position of possibly mortgaging a property that, due to an illegal conversion not to local codes, has invalidated the hazard insurance.
   6. Some of the above may be contrary to a client's secondary requirements and need special scope consideration or be best pursued by the client prior to proceeding with the assignment.

Given we don't know most of the above information, I feel to be discussing "low cost to cure" and proceeding with the assignment to be entirely premature.

 

[JRS at OBX]

This happens in my area frequently. We have lots of flood zones so many houses are elevated on pilings, even those that aren't in a flood zone. People will enclose the ground level. Often these areas are rec rooms, garage, storage and regularly efficiency apartments. We have a serious lack of long term rentals so these little places can rent for $800/month.

I can usually find a few comps with a similar unit. You still have to address the "legally permissible" issue.

 

[Tom D]

The word real estate attorneys in my area would use the word is this a possible conversion with out permits ! ** The use of the word illegal means someone broke the law ** Are we talking Texas ? LOL : )

i like your wording for appraiser safety. in this big city if they catch you doing major rehabing without a permit that put a big sign on your widow to stop. if they continue to find you doing that work de police arrest you. sounds 'illegal' to me. but then again this city is full of non 'permit' major house projects.

 

[Proactive]

in this big city if they catch you doing major rehabing without a permit that put a big sign on your widow to stop.

I hope I never do something so egregious that they put a sign on my widow.

Happy New Year.

 

[J Grant]

Webbed Feet, regarding the below from your post:

"The likelihood that most conventional lending clients, and this lending client, will wet their pants at seeing a Fannie form with the form indicating a property is NOT at its H&BU is very high, and so is it very high they will not accept anything other than the "As Is" checkbox in the reconciliation section being used."

One of the tests of HBU is LEGAL USE. Per the OP, the only legal use in zoning is for single family residential. Therefore the subject can not be appraised "as a duplex", and meet standard of HBU. Putting a wall down the middle of a single family home does not "make it into a duplex" (for appraisal purposes). It's a single family home with a wall down the middle. The separate entrance is not germane, many single family homes have two or more entry points with a rear or side door common in addition to the front door.

There is a relatively low cost to cure to retrofit subject back to single family configuration. The value in use to resident homeowner may be to run it as a duplex rental and collect more rent, which does not "make it into a duplex" for appraisal market value purpose. Market value is not always the same as value in use.
Of course appraiser would photo and disclose what is present so it is not misleading. Which does not change the fact that it is a single family house. It was built as a SF house, zoning only allows that, exterior it is just like the other single family houses around it. The only thing that differentiates it is the owner put a wall down the middle and a second kitchen in. Clients are not idiots and understand sectioning off a part of a house with drywall when described and photographed.

The OP is a cert gen and I assume they checked it is not duplex use grandfathered in etc.

Whether client accepts the property "as is", with funct obs present due to the wall, or will require it be "subject to" removal or wall or opening up part of the dividing wall is a lending decision. Appraiser can appraise it either way.

 

[Webbed Feet]

Webbed Feet, regarding the below from your post:

"The likelihood that most conventional lending clients, and this lending client, will wet their pants at seeing a Fannie form with the form indicating a property is NOT at its H&BU is very high, and so is it very high they will not accept anything other than the "As Is" checkbox in the reconciliation section being used."

One of the tests of HBU is LEGAL USE. Per the OP, the only legal use in zoning is for single family residential. Therefore the subject can not be appraised "as a duplex", and meet standard of HBU. Putting a wall down the middle of a single family home does not "make it into a duplex" (for appraisal purposes). It's a single family home with a wall down the middle. The separate entrance is not germane, many single family homes have two or more entry points with a rear or side door common in addition to the front door.

There is a relatively low cost to cure to retrofit subject back to single family configuration. The value in use to resident homeowner may be to run it as a duplex rental and collect more rent, which does not "make it into a duplex" for appraisal market value purpose. Market value is not always the same as value in use.
Of course appraiser would photo and disclose what is present so it is not misleading. Which does not change the fact that it is a single family house. It was built as a SF house, zoning only allows that, exterior it is just like the other single family houses around it. The only thing that differentiates it is the owner put a wall down the middle and a second kitchen in. Clients are not idiots and understand sectioning off a part of a house with drywall when described and photographed.

The OP is a cert gen and I assume they checked it is not duplex use grandfathered in etc.

Whether client accepts the property "as is", with funct obs present due to the wall, or will require it be "subject to" removal or wall or opening up part of the dividing wall is a lending decision. Appraiser can appraise it either way.

This is nothing but a rehash of your prior posts. I read them, I don't agree.

You know, many years ago at a continuing education class break time, I listened to another appraiser describe a property that had commercially zoned land, large enough to be subdivided, that had a detached SFR house on the property. Most all of the rest of the same zoned land around it had been developed with commercial improvements. He said that because nobody had yet applied for building permits to build a commercial improvement or had applied to subdivide the property with the jurisdictional authority, that it would be illegal, as of the valuation effective date, to have anything other than one SFR improved lot. Therefore, as of the effective date, the H&BU was one single family residential improved lot because a commercial use could not pass the test of legally permissible. Voila! He could appraise it as a SFR property at its H&BU for refinancing.

I never agreed with him either. Next you'll be telling us that a multifamily zoned property, with an original two unit configuration, that has had its dividing walls and second kitchen torn out is still a multifamily improved property with a "low cost to cure" as well and just a functional problem. But, at least you'll be consistent!

Oh, and the "cure" isn't up to the lender if you are claiming legalities as the defense for your viewpoints.

 

[J Grant]

I disagree with him too ! (so we are on the same page on your first example from a class). However the two have nothing to do with each other....that appraiser was not correct , the lot is zoned commercial and sub-dividable, its HBU is not SFR just because a house is on it.

On the second, it is consistent that HBU of a legally zoned use property does not magically change because someone added, or removed a wall within the interior..