Appraisal on Incorrectly Zoned Property

3 Replies

What happens when an incorrectly zoned property is appraised (e.g. 3-units that is zoned as a duplex or 2-units zoned as a triplex (I've seen both))?

Originally posted by @Vlad K. :

What happens when an incorrectly zoned property is appraised (e.g. 3-units that is zoned as a duplex or 2-units zoned as a triplex (I've seen both))?

Hi Vlad,

 It's really a property specific question and a conversation, but to generalize a bit...

- Generally it having "too many" units for the zoning is a bigger deal than it having "too few" units for the zoning.

- Sometimes the extra "unit," above and beyond what the zoning allows, is just a locked door and someone threw a kitchen in, which can be removed prior to the appraiser showing up.

- Appraisals are done based on the home's current configuration and use, not based on speculation about historic uses that may, or may not, have followed all the relevant ordinances.

- Sometimes an appraiser will comment that the property is "legal non-conforming (grandfathered)" or something like that, and generally you are good to go.

- Long gone are the days of cherry picked appraisers. That being said, a local appraisal management company, that uses local appraisers, is your best bet. There are aspects of wonkyness common in Berkeley and Oakland, for example, that are not present in San Jose. It's important that if the real estate is in City X, the AMC assigns an appraiser familiar with City X. 

- Ultimately the appraiser is the eyes and ears of the underwriter for the property in question, and with wonky property it's always possible that an appraiser will kill a deal if the property is just too wonky even for the market in question. For example even a hyper local appraiser familiar with how 'artistic' the East Bay is, is going to have issues with calling a Fruitvale SFR with two yurts in the back yard a triplex, and there probably aren't sufficient yurt comps out there anyways.

But yurts are still cool:

- All of that being said, there is no way to 100% guarantee that a wonky property will not have appraisal issues. Period. The price of a definitive answer specific to the property and financing program being used... is an appraisal fee and waiting.

Haha, thanks Chris! Now that I know how hairy they can get, I'll watch out for those yurt situations.

Do you know if there any rules for underwriting conventional mortgages where the current configuration must be the zoned configuration?

Originally posted by @Vlad K. :

Haha, thanks Chris! Now that I know how hairy they can get, I'll watch out for those yurt situations.

Do you know if there any rules for underwriting conventional mortgages where the current configuration must be the zoned configuration?

 Totally depends on the specific property in question, and the price of a definitive answer is an appraisal fee. It is alas unrealistic to regurgitate all the wonky things that have crossed my desk, and the outcomes, in a forum post. The #1 flag for zoning issues is extra units not allowed by the zoning & not grandfathered in. The listing agent should know what they are selling, and if it's likely to have appraisal issues. 

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