Purchased duplex, 1 year and $20k later found out it's zoned SF

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Purchased duplex, 1 year and $20k later found out it's zoned SF

Trey M.
Member since 2022 · 1 post · 1 vote

So I purchased a "duplex" listing says duplex, agent says duplex, all of the paper work says multi-family and the disclosers say no zoning issues, passes inspection, even comes with both units rented. Turns out only zoned/permitted for SF. Undisclosed to me the MLS has agent notes stating that this is actually an SF with ADU, but they are leaving it up to buyers to investigate for themselves.
double kicker the ADU has ceilings that are just a couple inches shy of the 7" ceiling height requirement of legally counting as a BR&BA

Bonus I also spent about $20k+ in surprise mandatory repairs, that slipped by the inspection, so I could keep the home insured. Even if I could get the deal retracted, I'm already out a considerable amount of money. So I’m just trying to figure out what to make of this situation. The market is/was pretty good, it’s possible I could have a correct and honest listing and sell to someone who would be happy with this property and break close to even. Feeling a bit like my realtor/inspector was negligent and the seller was fraudulent though proving the seller was aware of zoning/building-codes/damage/unpermitted work probably would be challenging even then I'd have to calculate and provide proof of damages.  Currently thinking put some sweat equity in with repairs/upgrades over the next 3-6 months and either rent it as SF or/and sell when the markets high. Mentally preparing myself  to chalk this whole thing up to a really nasty learning experience.  On the plus side all of this happened while interest rates were low, a house $100k cheaper would be several hundred a month more then what I pay with current interest rates. 

So I'm just trying to figure out my path forward. 

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Gene Livingston
Investor · Kyle, TX · Member since 2015 · 113 posts · 102 votes
4y
Quote from @Trey M.:

Undisclosed to me the MLS has agent notes stating that this is actually an SF with ADU,

Zoning stuff is very jurisdiction-specific, but generally, 1-4 units is going to be "single family". I'd look up the detail description of the zoning code you are under, and maybe post that here. You might have problems, or not.  Many things around this topic aren't as bad as they sound. 

One thing you need to clearly understand about home inspections...there is no such thing as " passed the inspection". Inspections are not pass/fail, and they DO NOT have anything to do with what building inspectors do. They point out possible deficiencies in the property (only the ones they can visually see!), and are quite limited in scope.

So far from what you've said I don't see any fraud or misdealing here.

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  • Gene Livingston
    Investor · Kyle, TX · Member since 2015 · 113 posts · 102 votes
    4y
    Quote from @Trey M.:

    Undisclosed to me the MLS has agent notes stating that this is actually an SF with ADU,

    Zoning stuff is very jurisdiction-specific, but generally, 1-4 units is going to be "single family". I'd look up the detail description of the zoning code you are under, and maybe post that here. You might have problems, or not.  Many things around this topic aren't as bad as they sound. 

    One thing you need to clearly understand about home inspections...there is no such thing as " passed the inspection". Inspections are not pass/fail, and they DO NOT have anything to do with what building inspectors do. They point out possible deficiencies in the property (only the ones they can visually see!), and are quite limited in scope.

    So far from what you've said I don't see any fraud or misdealing here.

    1Reply
  • Jonathan R McLaughlin
    Rental Property Investor · Boston, Massachusetts (MA) · Member since 2016 · 2k+ posts · 2k+ votes
    4y

    Sorry for the circumstance. I don't see fraud here as the MLS listing said "single family with an ADU on the agent notes, certainly seems like deceptive marketing practice but not sure you have a remedy. Where was your agent here? What did they say when you asked and how did you come upon the agent notes?

    What were the repairs and what do you mean "slipped by" the inspection? Sounds like they are letting you rent it? 

    0Reply
  • Theresa HarrisPro Member
    Member since 2019 · 15k+ posts · 11k+ votes
    4y

    I agree with others about the duplex vs single family.  Not all places with legal suites are zoned as a duplex, many are still single family homes.  I'm guessing the second suite has been there for a while and if it passed inspection, then the city doesn't have a problem with it.

    0Reply
  • Joe Norman
    Property Manager · Baltimore, MD · Member since 2014 · 1k+ posts · 1k+ votes
    4y

    Does your jurisdiction require rental licenses? If so I would consider that the "final word" on whether or not this is a "legal" ADU. If the County/City/Town is allowing you to rent it out then don't worry about the zoning or ceiling height or anything else.

    As Gene pointed out, these situations are often not as bad as they seem.

    0Reply
  • Paul Camuto
    Real Estate Coach · Robbinsville, NJ · Member since 2017 · 185 posts · 99 votes
    4y

    Talk to an attorney

    0Reply
  • Karissa Sampson
    CO · Member since 2020 · 63 posts · 40 votes
    4y

    Contact your city zoning department and ask them about the property zoning. In regards to what to do with the property-can you rent it out as a single family home? Can you get a ceiling height variance and apply to make it a legal ADU if its not already a legal ADU? You may still find a buyer for it. Lots of people who have heard about ADUs and offsetting their mortgage via renting would want a house with a seperate living space. They may take on the trouble of working with the city or just use it for grandma/adult kids etc. and not care about the ceiling height etc. Your job isnt to tell potential buyers that the ceiling might not be tall enough or that its not zoned correctly. Just like the person who sold it to you. Don't feel bad about it-just list it as it is, a SFR with ADU/potential ADU space and let the buyers do their due diligence on it.

    Dont feel too bad-you probably wont lose your *** on this and you will never make this mistake again. I bought a SFR last year thinking I could duplex it but the ceiling was 1" too short (city said they could make that variance work) and zoning is never going to change. Cities typically do not do spot zoning. I knew going into the deal though that we would be living in the basement (for free) as we needed somewhere to live since we were moving out of our live-in BRRRR duplex AND it was in the best neighborhood in town so the property and rent appreciation was fairly dependable. I broke even on the rent each month but now the property appreciated $175,000 in value and $500 in rent in the past year so if you look back at it-it looks like I made a smart decision (when in truth, I was sweating bullets after closing) I was going to sell it bc SFR wasnt part of the plan but am keeping it now due to its current value and the mortgage rate was 2.6% fixed 30yrs.

    0Reply
  • David P.
    Member since 2020 · 404 posts · 235 votes
    4y

    I would of thought the appraiser would of caught that. Not really a big issue in grand scheme of things. As long as it was permitted and generating rental income ADU is more or less a duplex. They are becoming more and more common all over the place and appraisers should have no issue computing value for the adu.

    You may even get better financing terms  since multi-units higher you go the interest rate increases. 

    0Reply
  • Karissa Sampson
    CO · Member since 2020 · 63 posts · 40 votes
    4y

    @Trey M. Keep in mind that local jurisdiction may have restrictions on ADUs. In my town, you cannot legally rent out an ADU unless you, owner, live on the property.

    1Reply
  • Sebastian MarroquinPro Member
    Real Estate Agent · Pasadena, CA · Member since 2015 · 477 posts · 263 votes
    4y

    I see a lot of realtors in my area list a property as "multi family" when in fact it should be : "SFH + ADU" … I also see a lot saying, SFR + ADU when the it is obvious the conversion of the garage was not done with permits and therefore it should read (SFR + un-permitted garage conversion) etc

    A lot of Realtors would or could get into legal trouble for doing this and you may or may not have recourse with "E and O" error and omission insurance with your realtor or the listing agent or even against the seller. 

    Now: this is a big one: at the end of the day, in efforts to take extreme accountability: every buyer should at least question what you are buying. This is why a lot of brokerages do not let us (Realtors) go to building and safety and inquire about any property and the suggestion is always to the buyer to go and ask their own questions. 

    As the buyer you should be part of the investigation and do your part: now, I do understand that sometimes, you do not know what you don't know… and that is valid because you are not the professional here (the realtor is). Where was your realtor? They never suggested for you to check on permits and unit count with the city? 

    They did not read it on the seller disclosures? The seller never disclosed it? Go back and read the seller disclosures and see if what they put on there? 

    This may help you make sense of things. In many parts of CA you can rent an ADU to tenants even if you don't live there. Also check to see if the second unit has permits? if it is not a "2nd unit" or an "ADU" then sorry to say… they did misrepresent the home. Maybe better to discuss with an attorney at that point.

    Your Realtor has access to attorneys (if you still want to work with them… ) 

    Due diligence, due diligence …. 

    Inspectors have a license and bond also : so if they also did not see something glaring and obvious (not behind walls or obscure places)… then, have a talk with them also. That is the point of getting a general inspection… 

    Good luck 

    0Reply
  • Rigo V.
    Investor · Morris Plains, NJ · Member since 2017 · 294 posts · 47 votes
    4y

    ALWAYS call the zoning office before you buy. Bought a 2 unit that had a 3rd unit in the basement. Before I did a major rehab, called the town and asked. They said 2 units so I didn't bother rehabbing the basement unit. Saved me time and money by doing a simple phone call. 

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