3-Flat or 4-Flat Zoning Discrepancy

[Demetrius Davis]

I have what was presented to me as a 4-unit under contract in Chicago. The appraiser commented that it is a “legal 4-unit building” on the appraisal. The Cook County Assessor lists it as a 4-unit as well. The seller requested a zoning certificate from the city and it came back as a 3-unit. I should add that the seller’s attorney screwed up the application for zoning certificate by listing it as having 2 units on each floor, rather than 1 unit on each floor including the basement.

During the inspection we discovered that the basement apartment, which is occupied by the owner’s son doesn’t have its own gas meter or furnace. It shares a meter and furnace with the 1st floor apartment, but has its own vents.

What do I make of the discrepancy between these various entities including the appraiser? Has anyone dealt with something similar? Any advice on how to proceed?

[Adrian Miller]

Quote from @Sean McKee:

Quote from:

@Demetrius Davis don't listen to others telling you to worry about what the seller thinks and the other offers!

If another buyer is too ignorant to do the research you have and overpays - why should you compete with them?

Your proce reduction should be based on 3-unit comparables or the cost to install separate meters and other associated costs to turn it into a legal 4-unit.

 @Drew Sygit - Your advice is spot on and I agree that’s how it should be done. But unfortunately in Chicago this is a very common situation and the truth is there are lots of investors and owner occupants who don’t care. I think everyone else is simply saying that the reality is the seller might simply move on to the next. If he’s ok with that then great, but if he’s not and wants the deal then he should tread more carefully. Ultimately each investor should determine if they can handle the risk associated with the deals.

Facts.

I've run into this situation as well. Listed at 3 or 4 unit ends up being a 2 or 3 unit with a bonus illegal in a lot of cases, apartment. When doing the deal it has to be based on current sold comps and if it's a 3 plus 1 you have to price it as that. Especially if it's an illegal unit in the basement that income goes away and the valuation goes down with it.