fremont, CA · Member since 2016 · 41 posts · 3 votes
I am working on refinance of my single family home with an recently developed ADU unit in the bay area that cost more than 300k to build and the appraiser only added 75k in value for the in law unit
The ADU unit is detached 2 bed/2bath/den/kitchen with its own address and pge meter.
Is that a norm in the bay area for ADU properites or the appraiser had no clue on what he is doing.
If this is true then practically I lost money and 2 years of my time to get the design/approval and construction done and it looks like adding ADU does not make any sense in the bay area.
fremont, CA · Member since 2016 · 41 posts · 3 votes
8y
Found this really nice article on appraising adu with income capitalization approach. Till the appraisers realize this, ADU will be bad investments if not renting for long terms.
Investor · Hercules, CA · Member since 2016 · 32 posts · 4 votes
7y
Just wanted to follow up on this thread as I also live in the Bay Area (Martinez) and am trying to finish my ADU. Was wanting to BRRRR the property, but not sure what it will get appraised for. Adu costing around $300k to build Do you guys know if there has been any changes on appraisals coming in higher on the price now that ADU are getting built more and are more common?
Real Estate Appraiser · Isabella lake, CA · Member since 2018 · 628 posts · 491 votes
7y
The appraiser will want to have a comp or comps with a similar ADU so as to demonstrate the premium being paid for said ADU. If there aren't ADU comps, then this is a big headache. I don't know your area and can't comment on what an ADU might be worth there. But compare houses similar to yours without ADU to houses similar to your with ADU and you can form your own opinion. BTW, don't go looking in superior areas for comps. Not gonna fly.
Also, ADU is kind of a generic term. I have seen a 100 SF "ADU" and much larger ones that would be a decent size house all by itself.
Rental Property Investor · Santa Clara, CA · Member since 2019 · 160 posts · 156 votes
5y
Hi everyone, wanted to share with you a great way to tap into the equity built from your ADU.
The problem today: most appraisers used by traditional lenders would give ADU square footage a second-class treatment than the main house (as some of your mentioned above) since there aren't that many comps and they're trying to be conservative.
However, you can consider taking out a HELOC/doing cash-out refi through Figure.com (HELOC up to $250k, Cash-out refi up to $1M). I just took out a 30-year fixed-rate HELOC through Figure from my San Jose property that has an ADU on it. Unlike the other lenders, Figure.com does automatic appraisal (without a human involved) based on public data and they treat ADU square footage the same as the main house square footage. Because their generous appraisal value, I was able to take out all the cash I invested into the ADU (plus some more). The whole process only took 2 weeks and I'm really happy about it. In fact, you can check your property's appraised value by simply filing out the questions on their website. If you have an ADU on your property, it's super easy to find out approximately how much you can take out through just a few clicks with only a soft credit pull...
A side note: the founder of Figure.com Mike Cagney also founded Sofi and they got pretty some impressive investors. I think they really did a great job simplifying the process and removing all the inefficiencies in mortgage industry today...
You can see that in all of these cases (whether with detached or attached ADUs), ADU added more value than the estimated construction cost, which shows that building an ADU can be a proven strategy for bay area home owners to not only improve cash flow, but also immediately add equity value. Buyers are willing to pay $$$ for additional flexible spaces that can be used as office, gym, guest home for elderly parents or adult kids, or simply as rental to help pay off the mortgage. This might not apply to other lower-cost areas, so please do your own research if you are in areas like SoCal or Portland.
However, I do think that one of the biggest mistakes when building an ADU is to overspend on an ADU. You definitely want to make sure your construction cost doesn't exceed the potential value an ADU can add. So picking the right ADU design and the right team to work with is critical. Let me know if you are looking for referrals.