Are Granny Flats Undervalued?
by Kathy Price-Robinson, The Appraisers Research Foundation
Whether you call them granny flats, in-law units, or something else, residential accessory dwelling units (ADUs) on residential properties excite municipal planners, homeowners, and others for social and environmental reasons. They are “green” by nature because of their small size and can provide great benefits to the owner.
But they can also perplex appraisers and other real estate professionals because of erroneous perceptions and various institutional policies that complicate lending on properties featuring ADUs.
To help clarify the estimation of value of residential properties with accessory units, researchers Martin J. Brown and Taylor Watkins conducted a study to test an income-based approach to valuation of properties with ADUs.
My comment: I appraise these types of units often in my city. Typically they are not legal. I consider them similar to detached bonus rooms, offices, guest quarters. If legal, the income approach would work to determine the added value of the ADU. Of course, income from airbnb, etc. vs. “regular” rentals is another big issue. The article does not address non-legal ADUs, the vast majority of them. FYI, The Appraisers Research Foundation has been around for a long time and regularly publishes (and gives grants for) research papers. For more info, go to http://www.appraiserresearch.org/ To see their other research, click on Research Results in the top menu bar.
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