Unpermitted ADU (1004 & 1007 question)

[gorillakimchi]

Hi, Everyone,

I’m currently working on a 1004 with a 1007 and need advice on handling this situation:

The subject property is a 1004 that is tenant occupied. In the rear, there is a detached garage that has been expanded and converted into an unpermitted ADU with two separate entrances. One unit is tenant occupied, while the other is vacant.

My questions are:

1. When appraising the property, how should I determine its value? Should I disclose the lack of permits and avoid making an adjustment for the ADU?
2. For the 1007, should I include the ADU or exclude it due to the permit issue?

This situation is giving me a headache, and I’d appreciate any guidance.

Thank you!

 

[gorillakimchi]

The owner thinks unpermitted ADU (2 units) should be included in 1007 since he is renting out 1 for $1,200 and the other will be rented out soon.

Main dwelling market rent is around $3,000. I'm still not sure how to reconcile the value