What’s in This Newsletter (in Order, Scroll Down) August 2, 2024
- Avoiding Court: A Common Sentiment Among Appraisers
- When Is Single-Family a Multi-Family Appraisal?
- What Is a Superhome? 10 Must-See Mansions That Define the High-End Trend
- Accurate Appraisal Underreporting
- How Confidential is Your Appraisal?
- Agencies Issue Final Rule to Help Ensure Credibility and Integrity of Automated Valuation Models
- Mortgage applications decreased 3.9 percent from one week earlier
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How to Identify a Single-Family with ADU vs. Two-Family Property 9-29-23-
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When Is Single-Family a Multi-Family Appraisal?
SFR or 2 units with an ADU?
by Richard Hagar, SRA
Excerpts: Once upon a time, it was easy to classify single-family homes, duplexes, triplexes and multi-family buildings. Though there have always been exceptions, if a property was zoned single-family residential (SFR) and there was a single home on the site, you’d use a 1004 form for bank appraisals.
If a property was zoned multi-family and there were two to four units on the site, an appraiser would use the 1025 form. And, if there were five or more units on the site, it would be something a commercial appraiser would handle via a narrative format.
Ah, the good old days. Then, along came accessory dwelling units (ADU), which in some states and cities are messing with established appraisal and lending systems.
Things Get Twisted – ADUs
Many counties and cities that allow ADUs do not “change” the official zoning; SFR 5000 still means one single-family home per 5,000-square-foot lot (and allow an ADU). What a few politically and emotionally driven cities have done is bypass the normal requirements for changing zoning (public hearings, notifications, etc.) and passed laws that overlay additional uses and requirements on to existing zoning codes. It’s their “clever” way of changing things without following the historic path to … well, changing things without informed consent by the citizens.
So, here we are: appraisers looking at zoning codes trying to determine the highest and best use for the subject’s site (as if vacant) and the structure as improved. We see SF7500 and say, “great, single family.” But did you look to see if there are overlay additions to the code? If so, did you read them? Did you look at regulations related to accessory dwelling units? If you didn’t, you’d better start looking because these things are popping up in numerous counties and cities across the United States, and they have a massive impact on unit density, the highest and best use, land values and depreciation rates.
Conflict With Lending
The Federal National Mortgage Association (FNMA) will buy a loan where the single-family home has a single ADU. Look at the below form (Figure 1) and note the two options: Units “One” and “One with Accessory Unit.” There is no space on the 1004 form to identify a second ADU.
Now we have a conflict between cities allowing two or more ADUs and the lending world of FNMA, the Federal Home Loan Mortgage Corp. (FHLMC), the VA and FHA. These entities will not buy loans with two or more ADUs. And when FNMA won’t buy (or VA and FHA insure) a loan from a lender it results in fewer lenders offering loans, higher interest rates and possibly larger down payments. In a city’s zeal to lower the cost of housing, they’ve increased the cost of housing.
Required Information
When you run across properties with ADUs, all sorts of additional information is required in the appraisal. ANSI requires the square footage to be separately indicated. Fannie Mae needs additional information specific to the ADU, and just wait until you see FNMA’s new appraisal “form,” along with its 20-plus new information fields in the special ADU section. If you want an example of how we provide square-footage information, email me (See author bio) and I’ll provide you with a copy of the form we use.
The appraisal will also require fully supported adjustments, explanations on how you determined the adjustments, and the ADUs impact on value measured by the cost, income and sales comparison approaches.
To read more, Click Here
My comments: Read this detailed article if you appraise any properties with ADUs. It is a comprehensive analysis of all the new issues. Richard Hagar is one of my favorite appraisal instructors.
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