Appraiser Said What? - Part 1: Accessory Dwelling Units

One of our missions at Follis Appraisal Services, LLC is to help inform and educate others' on how the appraisal process works, and in order to do so, I thought that I would start a new series for the blog where your questions are answered! I am still working on building our audience both on our website blog and also on our new Facebook page, so I sought the help of our local Association of Realtors to find out what questions other members in the real estate community might have regarding the appraisal process. Here are a few of their questions, and of course, my answers!

Q: Tessa Jarvis with RE/MAX Whatcom County, Inc. asked: Tell me about homes with additional living units (garages converted into living spaces, finished basements, etc) Do I really need to remove a stove in order for it to pass the appraisal?

A: Excellent question Tessa! In order for an accessory dwelling unit (ADU) to be considered a legal second dwelling, the unit must be permitted and approved by the city or county, respectively, as such. The unit must be subordinate in size to the primary dwelling, have a sleeping area, kitchen and bathroom, as well as a dedicated entrance separate of the main dwelling. In the city of Bellingham, all ADUs which are to be rented to the public must be on file with the city as a rental unit. The location of the ADU respective to the main living unit is of no concern.

It is noted that a "mother-in-law" unit, which is an accessory unit which has not been permitted and approved for use as a legal rental, can be legally utilized by family members only.

Scenario: Single family dwelling with a recently completed full, finished basement. Separate entrance, full kitchen, and bathroom. Does this qualify as a legal ADU? Well, that depends. Was the project permitted with the city or county, respectively? Has it been permitted for use as a legal dwelling unit? If the answer to either of those questions is "no", then as an appraiser I cannot opine value to it as a secondary dwelling. This living area will still add value to your property, but typically, will not yield the same return as a second unit which is legally rentable.

Regarding the stove in a second kitchen: FHA/HUD will require the stove to be removed if it is:

- Not functional and contributes to the value of the property (e.g. conveys with the sale). They may also require the installation of proper venting if the stove is legal, but does not vent properly per local code.

- A second living unit is not allowed per local municipal code(s), zoning, etc.

It may be a requirement of the lending institution for other loans types, but it is not required according to the Fannie Mae Selling Guide. For more information regarding ADUs in the Fannie Mae Selling Guide, read here: What is Required for ADUs?

I hope this helps answer your question, Tessa! Please feel free to leave comments below! If anyone has any questions they'd like to submit for an upcoming installment of Follis Appraisal Services Answer's Your Questions, please feel free to leave in the comments below, send us a message, or send us a Facebook message!

Special thanks to my fellows members at Whatcom County Association of REALTORS® for allowing me to answer your questions!