CRAZY ADU value on appraisal

[Greg R.]

Hey guys,

I know there's been a few posts on this topic over the years, but I wanted to share my experience to see if anyone has input or new info.

I am doing a cash out VA refinance. My home is in San Diego (single family residence) and I have an ADU. I got my appraisal back and it's AT LEAST 100-150k low. When I got into the weeds of the appraisal report, I was only given 35k value for my 494 sqft ADU which is about $70 per sqft.

My main house was given over $450 per sqft. To add a little context, this is not a garage conversion. The ADU is attached to my home and fully permitted. I also have an attached 2-car garage. Overall the quality of the ADU is equal if not higher quality to my main house. It's also a cash cow generating a very high revenue.

Seems outrageous to me that the appraiser would only give my ADU 15% the value of my main home (that it's attached to).

Again, this is a VA appraisal so I went the route to dispute/ rebut the appraisal with the VA. I got one message from their staff appraiser that said "the ADU’s value will be market derived; therefore, value per square foot of an ADU may differ from value per square foot of main dwelling area in a market area." Their decision is still in process and I should get a response sometime mid-next week.

From talking to my lender and realtor (both have been in the business for many decades specializing in my area), they've never heard of anything like this. They said that it can be somewhat common to get ADU value at 50-60% of the price per sqft of the main house, but never anything like 15%.

Like always, thanks for the time.

Greg

[Twana Rasoul]

@Greg R. As mentioned by @Dan H. , low valuations for ADUs in San Diego is not uncommon but I am seeing them get better as slowly there are more property with ADUs that can be used as comps. That said, when doing a cash out refinance, especially with an ADU, your homework with comps has to be done up front and provided to the appraiser beforehand.

An appraiser has very little incentive to go back and redo an appraisal once it is complete as they are not compensated more for doing so unless there is a huge mistake of some sort.  

Also, something to keep in mind. Always check the zoning of your property because a single family home with an ADU on a multifamily zoned property is worth more than that same property on a SFR zone lot and should be compared to 2 unit properties/duplexes as opposed to SFR w/ ADU.