Rental Property Investor · Tipp City, OH · Member since 2019 · 3 posts · 1 vote
Hi I’m still new and learning as much as possible. We bought a fix and flip for 78000. It has two house on the property one is a mother in law suite. We fixed this one up and put 23000 into it, it was pretty bad. Wanted to get some of that cash back to fix the main house up next so I refinanced for cash. The appraisal just came back and was saying the house is only worth 84000. It’s seems like they compared only houses that looked like the main house and didn’t go off of anything for the mother in law suite. I’m just wondering if anyone has ever ran into this and why fixing up the mother in law suite wouldn’t add any value. Thanks for the help everyone!
Lender · Los Angeles, CA · Member since 2020 · 45 posts · 17 votes
5y
@Jacob Albright The mother in law suite certainly does add value but the challenge is that it is very hard to quantify that value as there likely aren't many recently sold homes nearby of a similar size, bed/bath count, and condition that also have a mother in law suite. For this reason, many lenders/appraisers will not count unique/hard to value items such as mother in law suites, pools (in some areas), golf memberships, etc.
Lender · Los Angeles, CA · Member since 2020 · 45 posts · 17 votes
5y
@Jacob Albright The mother in law suite certainly does add value but the challenge is that it is very hard to quantify that value as there likely aren't many recently sold homes nearby of a similar size, bed/bath count, and condition that also have a mother in law suite. For this reason, many lenders/appraisers will not count unique/hard to value items such as mother in law suites, pools (in some areas), golf memberships, etc.
Rental Property Investor · Tipp City, OH · Member since 2019 · 3 posts · 1 vote
5y
@Bronson Massas thank you! So next question when I go to sell it’s not going to appraise for the numbers I had calculated, and it has to appraise for what it sells for right? What do you think I should do in this situation?
Lender · Los Angeles, CA · Member since 2020 · 45 posts · 17 votes
5y
@Jacob Albright There's no perfect answer to that question. I am still very young in the industry so there may be alternatives that I am not aware of that others on BP can shed some light on. That being said, there are some lenders/appraisers that will value these unique amenities, you'd just need to broach the topic up front to be sure that value is included. Outside of that, you can do your own comparable research to determine the average value of a mother-in-law suite in your area and add that to your appraised value to determine your asking price. Again, these are the only options that come to mind for me, but there may be a better solution out there from somebody who has dealt with these scenarios more than I have.
Rental Property Investor · Tipp City, OH · Member since 2019 · 3 posts · 1 vote
5y
@Bronson Massas thanks for the help. I got ahold of the appraiser and he said they couldn’t add the mother in law suite do to the zoning. Which it does have its own address and utilities. I’m going to call the city to see what needs to be done. Thanks for the help again! I’ll let you know what happens.
Real Estate Broker · Moore County, NC · Member since 2020 · 168 posts · 141 votes
5y
@Jacob Albright
Great topic! As a realtor in Moore County, NC, I listed and sold a beautiful restored house that had a detached "small house/mother in law" structure. While I love the idea of a separate "house" (could be used for a home office, mother in law suite, possible rental... check zoning, etc), they're still pretty rare. And rare means hard for appraisers to find comps for.
In the case of the property I listed (and sold), zoning didn't allow for the "small house" to be rented out (like for long or short term rental). As part of the sale, the septic system had to be replaced....the small house was connected to the new septic (it was close enough to the main house that it was feasible).
Since I personally get excited when I see a property that has a house and a small detached house (1 bed, 1 bath), I plan to eventually build or create more properties with this arrangement. Until this set up becomes more common, it's going to be challenging getting a good comp for appraisal purposes.
If this setup interests you, learn all you can...it can become a "niche" that eventually brings you business.
Cincinnati, OH · Member since 2020 · 4k+ posts · 3k+ votes
5y
@Jacob Albright, regarding the initial appraisal, it is hard to get a value for an outlier, particularly without an arm's length transaction (sale). When you go to sell, technically the property does not need to appraise for the sales price, but the lender will only lend to a certain percent of the appraised value. If the seller is able to come up with the shortfall in cash, you can still close.
With an outlier that you have, when you sell, the best possibility will be to have multiple offers around the same price. Even as an outlier, if you can provide to the appraiser all of the offers you received, it will show them that more than just the buyer agree with the value. I have had an appraiser tell me that her job is to find confirmation of the contract price, as at the end of the day the value for ANYTHING is the price a willing buyer and willing seller agree on.
The other can of worms is the zoning issue. Hopefully, the appraiser only looked that map, and didn't pull any actual variances. Even if the area is zoned single family residential, the person that built the secondary structure could have received a variance to make it legal non-conforming,