Anyone who understands appraisal? Will duplex-turned-SFH be appraised less?

Question

Hi, all

The property has two houses on one lot, so it's already a multi-family on surface. But the two are each single family houses. The bigger house is two-story building already with separate entrances. So I'm thinking to add a kitchen on the first floor and make it a separate unit. This will bring in more rental income but I'm curious if that'll have a negative impact on its appraised value. I read that multi-family doesn't compare apple to apple with sfh and there's less purchase demand, so it may appraise less. It is in a mostly sfh residential area so it doesn't have a direct comp nearby either.

The reason why I think it makes sense other than the additional rental income is that current floor plan is really inefficient with the stairs and dead space. But given the renovation cost and potential disadvantage on appraisal, adding a bedroom to make it a 4b2b sfh might work just fine..

Anyone familiar with appraisal that can provide input on this? Appreciate it! Thanks!

Justin Hammerle · Answer

@Bora Moon - Values for SFH and MFH homes are location specific. Generally speaking, on a per sqft basis, a MFH will appraise for more value than a SFH.

Rick Albert · Answer

RD-1 is for single family use. So unless the second unit was grandfathered in or permitted as an ADU, it may be an illegal unit. In either case, since it is zoned for single family, you may be maxed out without going the SB 9 route. You could look into a Junior ADU, but you as an owner would have to live somewhere on the property in order to legally rent it out. I would consult with an architect who will know more than me.

Bora Moon · Answer

Thanks a lot! A lot of info there. So the lot is a single lot in RD-1 zoning which I understand allows multi family dwellings (upto quadflex). And there are two seperate houses on the same lot, each with its own number. I haven't been able to check APN but I assume it's under the same APN. Then, it would be considered triplex (already two, and I'm converting one of them into a duplex). And you're saying if that's the case, it will add value but cost more. I'm hesitant to go that route because as much as I would love that extra income, I think the overhead and the cost associated might not worth that much unless it can increase value significantly compared to the unit being a rehabbed single fam house (or potentially one more bedroom). I will need to understand the cost to be able to do a better cost analysis..

Dan H. · Answer

Depending on the zoning and under what context it already has a 2nd unit, you may be restricted to having the new unit as a JADU.

If you are limited to adding the new unit as a JADU, it typically lowers the value of the property as you speculated maybe a little for the reason you specify but more so because JADUs require owner occupancy.  Unless you have a long hold p,a that could justify adding and then moving the JADU at time of selling, I would not add a JADU.

In general, ADUs add less value than they cost but do add some value.  Typically I am seeing added values in north inland San Diego between $50k and $100k.  The hands off cost to do a garage conversion is greater than $100k.

If the new 3rd unit is not a ADU or JADU, mean zoning and lot allow a triplex, the cost to add will be greater than adding a JADU (even though construction is the same the fees will be higher), but it will add some value.  In general, small triplexes are valued greater than duplexes of the same total size.   This is likely your best option if it is available and you want the extra unit and associated income.  Note it may not an option if zoning or lot do not work.

Good luck

Rick Albert · Answer

What is the zoning and what does it show on title? For example, a house with ADU will show as single family zoning and therefore an appraiser will look at it like a house and make a value adjustment for the ADU. If the property is zoned for a duplex then the appraiser will consider it a duplex. This is assuming it is on the same lot with same APN and permitted as such.

Andrew Postell · Answer

@Bora Moon what is your real estate agent telling you here? How about your lender, what have they said about this property?