Two house one property appraisal
Member since 2022 · 10 posts · 4 votes
How is aprasal done with two houses on one property. First house is the original and is a 2/1. Second house is a two story garage that was converted into living quarters and just recently remodeled 2/1. The houses are divided by a yard with a fence in the middle. Both are being used as rentals. There are no similar comps for this specific property type. How would a appraisal be done for this property?
If there are no comparables you will get a VERY low appraisal. Highest and best use is probably single family if there are no duplexes or house and a garage conversion within two miles with same square footage, lot size, condition. If the second unit is not permitted and you want a conventional loan or FHA or VA they might condition to tear it down.
Probably if no permits you need to go hard money and won't be able to refinance conventional until the county planning department shows you pulled permits and met whatever they now want to meet code.
There are some exceptional counties with density and high value that grandfather in a conversion done to code in the 1970's called a granny flats.
What does the tax bill show as square footage?
If there are no comparables you will get a VERY low appraisal. Highest and best use is probably single family if there are no duplexes or house and a garage conversion within two miles with same square footage, lot size, condition. If the second unit is not permitted and you want a conventional loan or FHA or VA they might condition to tear it down.
Probably if no permits you need to go hard money and won't be able to refinance conventional until the county planning department shows you pulled permits and met whatever they now want to meet code.
There are some exceptional counties with density and high value that grandfather in a conversion done to code in the 1970's called a granny flats.
What does the tax bill show as square footage?
Depends:
Is it an sfr with a guest house or a duplex? This typically depends on zoning and what is legally allowable on the property and if it was constructed/converted legally.
I'm not sure what you're referring to when you say "There are no similar comps for this specific property type?" Are you saying there are no similar properties with detached converted garages or there are no duplexes, or no sfr's with guest houses, etc. Again, first thing is to determine "what" the property is (duplex, sfr + garage), and this depends on the zoning or what is legally allowed on the property. Then, the legal status of the structures may play a role. So, if the garage conversion is legally allowed, as a guest house, but was not permitted, it may or may not be given value in the appraisal. There are multiple scenarios that come into play, but it's hard to address them, without knowing the specific zoning, permitting, etc.
If it is an sfr with a guest house, then the appraiser will do their best to find similar properties (sfr + guest house). If it is a duplex, then they will look for similar sold duplexes in the area. If they don't find similar comps, then they should go to neighboring areas/neighborhoods and find comps and analyze and possibly adjust for location differences, as well as go back in time to find older comp sales and analyze and possibly adjust for differences in market conditions (appreciation, etc). They may also choose to use a depreciated cost adjustment, in the absence of comps. There are multiple ways to approach this, but again, it starts with determining what the property legally is.
First thing to do is see what the zoning says re the "burn down" clause, where the zoning code/planner tell you whether one or both structures could be rebuilt if destroyed. Of the three Approaches to Value, if there are no exact comps with two houses on one lot, as an Appraiser, I would probably give most weight to Income Approach; both the Gross Rent Multiplier and Direct Capitalization-hope this helps.
@Kelly Githens garage is considered an ADU or additional Dwelling Unit. It is zoned as such. My question is how is an adu appraised? I have not found other comps outside of multifamily buildings. But I'm not sure that is a far comparison since I have two separate houses each with their own fennced yard. I have read adus are appraised differently but I'm not sure that that difference is.
@Caroline Gerardo I bought the property with tenants in each building. We kept the house tenants and removed the garage tenant for renovations. The house is listed as a 4/2 and the sqft of combined properties. That would be OK too if they viewed it as one large property and aprased it as such. With research the county considers it a additional Dwelling Unit. I'm not sure how those are aprased or what the formula for an adu aprasal looks like.
@Kelly Githens No a residential appraisal does not weight income approach, that is for commercial. A residential appraiser will do a rental survey form 1007 to determine the market for the income but this compares rents in neighborhood.
@Brittany Smith how the house was listed or what tenants doesn't have any bearing on the appraisal.
What does the tax assessor show as square footage and is the garage conversion or division of units permitted by county/city planning? If not permitted and you apply for a conventional or government backed loans the lender may ask you to tear it out and return to match the zoning. If it cannot be rebuilt according to the planning department then the appraiser gives it ZERO value. Appraiser will not ignore the garage conversion or configuration and view it as "one large property." ADU no permit = is no value. ADU with permit it depends on these factors: is this the highest and best use, is this appealing in that particular market, quality and condition, foundation, code specific to location city. If there are no comps in the whole town with no permitted ADU they may give you like $2000 for the ADU- it has to be consistent with neighborhood or is it overbuilt? If you send me specifics as in the square footage the county shows/permits/ and photos I can probably give you a number.
The other problem is getting guaranteed replacement cost in insurance that lender will want. Call your agent to find out.
Brittany,
Just an Insurance note. Be sure your agent is aware of the situation. Discuss with them how the County has the units classified. Make sure the policy has the proper endorsements. If the ADU is grandfathered in, see what would happen in a total loss. if you had to rebuild differently, ask your agent about Ordinance and Law coverage for the additional costs.
The property would be appraised at its highest and best use. Since there is only one tax parcel then these would be appraised as a single property. The appraiser may value the primary residence and then estimate the contributory value of the second unit. It's hard to give specifics with the information provided. Given they are both income-producing, the income of both buildings should be considered.