Should comps for house with new ADU include other houses w/ADUs?

Question

I'm converting my garage into a Junior ADU and almost done. The main house is a 3 bed 2.5 bath and the JADU is 1 bed 1 bath. The total SF is about 2,000 with the JADU. We also have a lot of solar on the house. The house is in Van Nuys.

The realtor we are looking to use gave us comps of houses with 4 beds and 4 baths and similar square footage. When I asked about comps of houses with ADUs and solar they said it doesn't affect the house pricing that much and this is how they have been doing their house comps for houses with ADUs and have sold 150 of them in the last 2 years. Also that solar is not as big a factor in the sale of the house.

They ended up giving me what I thought was a pretty low comp at 950k which I think the house could sell at without the solar and ADU. I know they want to set expectations and not list too high but I also don't want to list too low as any higher offer or bidding war is not going to 200k higher which what I think it should sell at.

The JADU is 400 SF and could fetch $2,200 rent which would certainly help with the mortgage payments and the solar is enough to cover the house, JADU and 2 Teslas being driven 40 miles a day. This seems like good selling points to me and would appraise quite well.

I'd like to get thoughts from anyone who has had experience with similar houses in LA recently. Thanks in advance!

Dan H. · Answer

In San Diego I see the JADU add zero value compared to the home without the JADU and in some cases it lowers the value.  It is because as @Rick Albert indicated JADUs limit buyers because of their owner occupied requirement.  Many investors do not plan to OO and those that do think about their next RE investment opportunity and want to have multiple options.   I look at virtually every multi unit listing in north inland San Diego.  With this knowledge, I think your RE agent’s estimated value could be a little high.

With ADUs I have seen valuations all over the place (I have not figured them out) but the one that seems to be most prevalent is to have the ADU add $50k to $80k then subtract for any subtractions (in your case the loss of the garage would subtract from the value they assign for the ADU) with a primary factor being how much the units appear to be unrelated.  If you share a common driveway and walk past one of the units, the valuation is unlikely to come in at the the $80k.   Note a 400’ garage conversion hands off ADU in San Diego will cost over $100k.  A complete new structure is more.  This implies even ADU additions are typically not a value adds (I.e. they do not add a value greater than their cost). It is critical to know how the ADU will be valued prior to adding an AFU because it could take years of cash flow to recover any negative position.  Add to this the lost opportunity costs from having investible money trapped in a property.

In San Diego, it would definitely be worth getting this classified as an ADU vs a JADU.

good luck

Rick Albert · Answer

I have represented clients on buying and selling of ADUs and I have an ADU property myself. I have also helped clients buy and sell with solar. This is all within Los Angeles (including in the valley such as San Fernando, Reseda, Lake Balboa, and Toluca Lake).

Regarding solar panels:

As mentioned before, it is a great marketing point, but not necessarily a dollar value add. If there are still payments to be made, then it hurts the buyer pool because the lender will require the borrower to qualify with the payments. If you can make sure it is paid off prior to the close of escrow, it will be better. Appraisers also aren't giving much value to solar panels. Your Realtor will need to prove there is value by showing homes that are identical but sold for more with the difference being solar panels. Zillow did a study in 2019 saying in LA solar panels added 3.6% in value. I haven't seen the bump personally but I sell every single property in all of Los Angeles.

For the ADU:

Because you did a Junior ADU, you actually limited the pool of buyers. I would see about getting it permitted as an ADU with it's own address, etc. The reason being is the guidelines for JADUs require an owner to live somewhere on the property. That's great for house hackers, but when I bring it up to my buyers, their immediate response is, "but what happens after I move out?" House hackers think about the next step. Even non investor buyers think about the options. Every appraiser is different. Typically, they don't combine the square footage and bedroom count. They will keep the ADU separate. In the Valley, appraisers usually give about $50,000 in value in comparison to properties without ADUs. Only once I have seen an appraiser combine the square footage and bedroom/bathroom count on an appraisal (my personal HELOC) and I pushed back with the lender and got a different appraiser in. I showed the comps and my adjustments (I speak appraiser lingo), and got my property to appraise $35,000 higher. The other thing to factor in is how the ADU was designed. Is there privacy? Private outdoor space? I usually go through a mental checklist when I view ADU properties to see how it would work.

We are still seeing multiple offers, but instead of 10 it might be 2-5 offers. There is a buyer for every property.

If you have serious concerns about your Realtor, then I suggested speaking with ones more familiar with ADUs. I have had to educate other Realtors on ADUs/multifamily properties, etc, which allows my buying clients to get discounts on properties because they don't know how to properly negotiate or price it out.

Matt Devincenzo · Answer

Don't assume it's too late...you can submit a construction change to the building department and process the plan revisions to make the change. So ask your architect what the cost to do that would be. It may be worth the change if it opens up your buyer pool...

Jen Day · Answer

Hello Bryce, Often comps for SFRs with ADUs or JADUs are not easy to find in your property's location, and the LA County market is very local specific for pricing.  That said, a sold property with similar square footage, lot size and condition will usually be pretty comparable for what a Lender Appraiser or Investor company will be looking at.  My advice to get the most money when selling your property, is to price it a touch under the comps to cast the widest net and get the most eyes on the property to create a Buyer frenzy, AND have as many open houses and showings as possible.  My suggestion for your target Buyer in this case will not be an investor, it will be an end user/family who will be more likely to come see the property in person several times and will be willing to spend more because they can see the potential for their family to actually live there and have the JADU for either in laws or to rent out over time.  I just sold a total FIXER 2 bedroom/1 bathroom SFR (1300 sqft) in Westchester for $1.3M ($100k over the asking price) because it went to an end user.  It has a detached 2 car garage that can be turned into an ADU, but most of the investors that wrote offers did not see the property in person so they didn't realize the incredible potential this property has.  The end user came twice and fell in love, so they were willing to spend more to out bid everyone else. Side note to investors looking to buy fixers...go see the property in person! Your competition from bigger companies probably will not go, and then you will have the advantage to see the potential in a property first hand.  You may not need to offer that much more, and if you can build a report with the Listing Agent, they will be more likely to give you the answers to the quiz, and then you got yourself another property.  Best of luck with your sale Bryce! - Jen Day

Shaun Weekes · Answer

The appraisal will need to have comps of homes with other ADU's.  If the loan is a Fannie Mae loan this is a requirement based on Fannie Mae guidelines.  I have attached a link for your use and please look over the paragraph titled Zoning for ADU's.  If the ADU is permitted, then I believe only one comp with a permitted ADU is required.  All Fannie appraisals need at least 3 comps and in this case they should all be with ADU's.

https://selling-guide.fanniema...

I hope this helps and have a good one.

Robert Reynolds · Answer

Hi @Bryce Matson,

Sometimes it is hard for an agent to find another house with an adu in your area to use a comp. Your agent will do his best to find similar properties and then add or subtract value depending on the features of your house and the comparable house. The appraiser will do the same thing. You are very fortunate to have a great property in an area of Southern California that has seen massive appreciation in the last several years. I'm sure you will have no trouble selling your house. My recommendation is to list it at a reasonable price and hope for multiple offers. We are still seeing multiple offers on most homes as long as they are priced correctly. Make sure not to overprice, because those homes have been sitting on the market and seeing price decreases. Please reach out for any assistance.

Heather Luikart · Answer

I could be wrong, and this is based on my very limited experience with the three properties we have bought, but three times out of three the appraisal has come in at the offered price. So for me, personally, I would set the listing price using comps with legal ADUs. Any investor, or anyone who knows anything about ADUs, will see the value, and will recognize an appropriate price.

Bryce Matson · Answer

Thank you. I will look into what it will take.

Bryce Matson · Answer

Thanks Rick. The construction is almost done so it is too late to cahnge it to an ADU from JADU. It does have its own separate entrance and small hangout area and definitely has privacy. I guess we'll see what the market thinks of it.

Sergey A. Petrov · Answer

Single family, with or without an ADU, are generally “valued” on comps. Having an ADU or the potential income it may generate doesn’t necessarily get accounted for. That is not to say that it won’t command a higher sale price. Ultimately, the market will set the real value. If someone is willing to pay more for an ADU, the appraiser may support the higher valuation. In the meantime, all you are doing is adding square footage and bedrooms (and reducing parking/ garage). Using your logic, one could say your house is worth more than the identical house next door because you rent 2 bedrooms out at $1k/mo and your neighbor doesn’t

Should comps for house with new ADU include other houses w/ADUs?

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