So you think you know something about appraisals?

[Andrew Gingerich]

Hi BP know it alls!

We recently purchased a property that has two houses on it. We purchased the property for the market value of only one house (good deal for us). We did this because the appraiser insisted that he give "no value" to the second house on the property since it doesn’t meet setback requirements for the adjacent parcel. As in, the second house is too close to the lot boundary and, therefore, in the eyes of the appraiser, had no value to the note holder.

As I understand it, the non-conforming house was grandfathered into city zoning (built in the 40s) but doesn't meet new zoning laws. If it burns down it could not be rebuilt in its current location. But certainly it has value now! The rents on this "no value" and "non-conforming" house alone cover the PITI on the property. The rents from the main or conforming house cover cap ex, vacancy, and provide strong cash flow. So far I am quite happy with the deal.

My question is, is there a way to assign value to the non-conforming house even though it doesn’t meet zoning rules? If I could get an appraisal that includes the value of the non-conforming house I could either A) sell the entire property with a great profit or B) refinance it and get all my down payment and some $$$ out of it.

Is there an income method of residential appraisal that could be used in this situation? Gross Rent or Gross Income Multiplier to assign value? 

Basically, the property has gross rents of $29,700 annually. Surely I could use this to determine value? But can this be used when one of the residences doesn’t have the correct setback?

Simply put, the property is worth much more than we paid for it and I’m not sure how to convince a bank to issue a note for full value.

Heck, even my insurance on the properties back the full value, so the bank should be comfortable issuing full value.

Calling all appraisers… and experts on the subject.

Respectfully, A.G.