ADU Appraisals: What You Need to Know
Appraisals can be intimidating in and of themselves. However, when it’s for an Accessory Dwelling Unit, or ADU it’s a completely new learning curve. Because ADUs are still a relatively new trend, the regulatory bodies are still catching up and creating new market standards for this process. There are, however, some key points that most appraisers would agree upon, so we’ll go over those with you.
First up: market comparison. An appraiser will look at the square footage of your ADU, with a margin of +/- 20%, over a six-month timeline, in a radius of roughly one mile around your home to try and find any comparison properties to help set a baseline.
Here’s the problem.
Because ADUs are a rising market, there’s usually little to none historical data for the appraiser to go utilize. So, the appraiser first expands the target radius to five miles, which will likely jump from your neighborhood into another. The ADU will be assessed against other residential properties, with or without an ADU, pulling data from roughly ten homes. Based on the affluence of each neighborhood, the estimated baseline value would be adjusted up or down.
What are the appraisers going to be looking for?
What does a single-family home sell for in each neighborhood?
Are there any duplexes, and if so, what are they selling for?
What does a house with an ADU sell for?
Usually, the appraiser will treat a home with an ADU like he/she would a duplex, because, really, you’ve turned a single-family home into two homes, so the appraiser would do the evaluation based on an income approach.
What is the income approach?
An appraiser is looking at your property from a viewpoint of income generation: how much income would both properties be able to produce? For a single-family home with one ADU, that would be similar to a 2-on-1 duplex, where you have two residences on one property (2-on-1). If you have a multi-family residence, like multiple townhouses on one property, (2-4 units), the amount of income generated by those properties will have a direct correlation with their appraised market value. The income approach will be more heavily utilized especially when there aren’t any comparable sales within the originally designated guidelines, like the six-month time frame or mile radius. What can bite into your appraisal would be any needed large scale (non-cosmetic) repairs, like redoing walls, flooring, plumbing, electrical, etc.
Internal & External Factors
What is the appraiser going to be looking at inside your ADU? Don’t get caught up on furniture or having just the right decor- your appraiser is concerned with the “bones” of the property, not it’s makeup.
Internal factors would be things like:
- Age of the ADU vs age of your home. What is the difference between current economic life and remaining economic life of the structure? (ie, how long until you need to do a from the studs-out remodel?)
- Size of overall property
- Size of the lot
- Bedroom and bathroom counts
- Overall condition of the home- general construction, flooring, water damage, electrical, etc
- Energy efficiency
- Functionality and flow of the space
- Parking: garage or carport
- Heating and cooling
- RoofingExternally, it’s a little simpler. Are there any specific views or “draws” to the neighborhood? Is it sitting on the edge of a canyon or mesa, a cul-de-sac, or near a water-front, or facing our spectacular mountains?
The ADU market is just getting started and it’s expected to continue to skyrocket. As baby boomers continue to age into retirement and look for more affordable housing options, the market is truly limitless.
Let us help you get started on your ADU today! Click contact us to get started!