So what exactly is an ADU?
Fannie Mae defines and ADU as “an additional living area independent of the primary dwelling that may have been added to, created within, or detached from a primary one-unit dwelling. The ADU must provide for living, sleeping, cooking, and bathroom facilities and be on the same parcel as the primary one-unit dwelling”.
When reporting the living area of an ADU, it should not be included with the Gross Living Area calculation of the primary dwelling. It should be reported and adjusted for on a separate line in the grid, unless the ADU is contained within or part of the primary dwelling with interior access and above grade. (Hmmm? That’s a little confusing but it sounds like they will allow the ADU’s GLA to be included in the total GLA of the primary residence if it is all above grade and it has interior access. I will try to get more clarity on that one folks).
If a standalone structure does not meet the ADU minimum requirements (see below), it should be treated as any other ancillary structure and included as a separate line item in the sales comparison approach then adjusted based on its contributory value to the subject property.
Whether a property is defined as a one-unit property with an ADU or a two- to four-unit property will be based on the characteristics of the property, which may include, but are not limited to, the existence of separate utility meter(s), a unique postal address, and whether the unit can be legally rented. The appraiser must determine compliance with this definition as part of the analysis in the Highest and Best Use section of the appraisal. When there is an ADU, the appraisal report must include a description of the ADU and analysis of any effect it has on the value or marketability of the subject property. The appraisal report must demonstrate that the improvements are acceptable for the market. An aged settled sale will qualify as a comparable, and an active listing or under contract sale will qualify as a supplemental exhibit to show marketability.
What are the requirements for classifying an ADU?
Examples of ADUs
Examples of ADUs include, (but are not limited to):
Appraiser A says it’s a single family with an ADU. Appraiser B says, it’s a two flat. Who is correct?
It’s all about the H&BU folks! Whether a property is defined as a one-unit property with an accessory unit or a two- to four-unit property will be based on the characteristics of the property, which may include, but are not limited to, the existence of separate utility meter(s), a unique postal address, and whether the unit can be legally rented. The appraiser must determine compliance with this definition as part of the analysis in the Highest and Best Use section of the appraisal.
Zoning for an ADU
Some ADUs may predate the adoption of the local zoning ordinance and therefore be classified as legal nonconforming. An ADU should always be considered legal if it is allowed under the current zoning code for the subject property.
If it is determined that the property contains an ADU that is not allowed under zoning (where an ADU is not allowed under any circumstance), the property is eligible under the following additional conditions:
I reached out to Freddie Mac today with a lot of questions on ADU’s, illegal basement or attic units on 2 to 4 family properties and the correct method for calculated Gross Building Area (GBA’s) on 2 to 4 units. I hope to be posting a follow up article with more info for everyone. It can get very complicated when we step into a property with these characteristics. Appraisers love to call for a Certificate of Compliance when public records call it a two flat but there are really four units in the building, all rented, with one in the basement and one in the attic. If the owner can’t provide a cert or permits and the public records and the zoning don’t support the current use…APPRAISER BEWARE! Don’t just make a baseless assumption. Ask for assistance from the lender to help you gain clarity or decide if you need to make that appraisal SUBJECT TO.