Unpermitted ADU Question

[gorillakimchi]

If you're dealing with underwriters pushing for the ADU box to be checked despite lack of permits, it’s often best to include a disclaimer and detailed commentary to protect yourself while meeting client expectations."

Yup I agree with you

 

[J Grant]

"If the ADU is not allowed under current zoning, the property may still be eligible if:

• The lender confirms that the ADU’s existence won’t jeopardize future insurance claims.
• The appraisal includes appropriate commentary and analysis regarding market acceptance, contributory value, and health/safety concerns.
• The appraiser must note the lack of permits and assess how the market views the structure

The first on this list is a lender obligation. but I wonder how a lender can confirm that lack of a permit won't jeopardize future insurance claims? Maybe because the ADU is not part of main dwelling?

 

[J Grant]

It is a two unit with an unpermitted ADU and that is how you should report and describe it. What is so hard about reporting what actually exists?

Correct, in an AS IS appraisal, we appraise what exists - despite our personal feelings about it.

 

[J Grant]

If permits really “don’t matter,” I’m curious why people still spend all that time and money to build a legal ADU. Here’s an example I recently ran into. The subject is a duplex, but the owner built a rear unpermitted structure with a sleeping area, kitchen, and bathroom. It basically functions as a small unit, but it’s clearly not permitted. How would you handle this on the 1025 form? Would you classify it as two units, two units with an accessory unit, or three units? Also, underwriters often send revisions asking to include comps with similar unpermitted structures, but as you know, MLS listings almost never disclose that kind of information. How do you deal with that? I’d really appreciate some insight since I keep getting revisions about this topic and it’s really annoying..

Since your subject is a 2 unit, then the third unit in the back makes it a three unit. Whether or not a 3 unit is legal per zoning for your subject IDK, assuming it is, or the lender accepts a property with an illegal use, (which you would disclose ) Indeed, MLS often does not disclose permits, but in my area, we can do an online permit search with the local building division. If the third unit shows up on public records as sf or descprition it is usually permitted, and of course, one can contact a RE agent and ask.

Though we can not outright trust AI, its pretty good. Below is its answer when I asked will fannie finance a duplex with an ADU-


AI overview - No, a duplex cannot have an accessory dwelling unit (ADU) for Fannie Mae financing, because Fannie Mae does not permit ADUs on properties with two or more dwelling units. An ADU is only allowed on a primary single-family home (one-unit property), and the property must have only one owner.

• Fannie Mae definition: A property with an ADU is defined as a one-unit property with an accessory unit, not a multi-unit property.
• Ineligibility: Properties with 2 to 4 units, such as a duplex, are not eligible for an ADU under current Fannie Mae guidelines.
• Requirement: The property must be a single-family home with a single owner, and it can have only one ADU.

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[sputnam]

If permits really “don’t matter,” I’m curious why people still spend all that time and money to build a legal ADU. Here’s an example I recently ran into. The subject is a duplex, but the owner built a rear unpermitted structure with a sleeping area, kitchen, and bathroom. It basically functions as a small unit, but it’s clearly not permitted. How would you handle this on the 1025 form? Would you classify it as two units, two units with an accessory unit, or three units? Also, underwriters often send revisions asking to include comps with similar unpermitted structures, but as you know, MLS listings almost never disclose that kind of information. How do you deal with that? I’d really appreciate some insight since I keep getting revisions about this topic and it’s really annoying..

No one said that permits 'don't matter'. What they said was that code enforcement isn't the appraiser's job.

 

[timd354]

Since your subject is a 2 unit, then the third unit in the back makes it a three unit. Whether or not a 3 unit is legal per zoning for your subject IDK, assuming it is, or the lender accepts a property with an illegal use, (which you would disclose ) Indeed, MLS often does not disclose permits, but in my area, we can do an online permit search with the local building division. If the third unit shows up on public records as sf or descprition it is usually permitted, and of course, one can contact a RE agent and ask.

Though we can not outright trust AI, its pretty good. Below is its answer when I asked will fannie finance a duplex with an ADU-


AI overview - No, a duplex cannot have an accessory dwelling unit (ADU) for Fannie Mae financing, because Fannie Mae does not permit ADUs on properties with two or more dwelling units. An ADU is only allowed on a primary single-family home (one-unit property), and the property must have only one owner.

• Fannie Mae definition: A property with an ADU is defined as a one-unit property with an accessory unit, not a multi-unit property.
• Ineligibility: Properties with 2 to 4 units, such as a duplex, are not eligible for an ADU under current Fannie Mae guidelines.
• Requirement: The property must be a single-family home with a single owner, and it can have only one ADU.

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Keep in mind that Freddie and Fannie have different requirements and the appraiser does not usually know where the loan is going. While Fannie will not allow 2-4 unit properties with an ADU, Freddie will allow 2-3 unit properties with an ADU, as long as the ADU is legal (see below). However keep in mind that the GSE's do not consider an ADU (or any other type of addition or modification) to be illegal just because it was constructed without permits. To them, illegal means that it would not be legal under the applicable zoning.