Include illegal ADU income in offer price?

[Eugenia K.]

I'm in negotiations on a duplex property with a nonconforming, illegal basement ADU (3 units total). All units have tenants. However, without more information about the downstairs unit and going through the permitting process, it's unclear whether I can get it legalized, and most likely won't have sufficient time during the due diligence process to know for sure. Therefore, I need to make a judgement call on whether (or how much) to consider the income the sellers are getting on the unit. Would you include it in your calculations around your offer? If so, would you consider the full or partial amount?

For more context:

- The property is located in Seattle and on a SF5000 lot

- All 3 units are registered as rentals and the basement unit has had the same tenants for over a decade

- A cursory email to the city asking whether the unit could the legalized received a "no" (though I think for incorrect reasons)

- There's a high probability that as is, the unit doesn't meet fire codes (window egress), and I would need to spend some cash getting it to code