How do you know if it’s a second unit or an accessory dwelling unit?

Is it a second unit or an accessory dwelling? How do you know the difference? If the post office gives the second structure an address, that makes it a second unit, right? Or if the dwellings are separately metered, it must mean there are two units. Let’s talk through some distinctions below, and then discuss a bit of a “monkey wrench” since there is an added subjective layer when making this call.

accessory dwelling unit in sacramento - by home appraiser blog

Accessory Dwelling:

  • Not recognized by city or county as a second unit (sometimes it is though)
  • The market does NOT consider it a second unit
  • Probably does not contribute as much to value
  • Inferior to the main unit in size and location (maybe quality too)
  • Has kitchen, bathroom and sleeping area
  • May or may not be separately metered
  • May or may not have a separate address
  • May or may not be attached to the main house

Second Unit:

  • Recognized by city or county as a second unit
  • The market recognizes it as a second unit
  • Likely contributes more substantially to value
  • Zoning allows two units
  • It is probably separately metered
  • Most likely has a separate address
  • May or may not be inferior in size and location to the other unit
  • May or may not be attached to to the main unit

two houses on one lot - by home appraiser blog

The Short Answer: A second unit and an accessory dwelling might look like the same thing to a casual observer, but what matters most in determining whether a structure is a second unit or accessory dwelling is what zoning allows and whether the market perceives the structure as a second unit or not. The post office might have a separate address for an accessory dwelling, but that does not make it a legal and legitimate second unit. The utility company might have two meters on site also, but even that does not mean there are two units. The key comes down to the property being legal as two units in the eyes of the city or county, recognized by the market as a second unit, and even how the dwelling contributes to value.

Fannie Mae language on second unitsThe Monkey Wrench: Part of determining whether something is an accessory dwelling or second unit comes down to its contributory value, and the appraiser is really going to have to give this some thought. For instance, some counties might legally consider any secondary structure as a second unit despite its size or how much value it really adds. But just because a city or county declares something is a second unit does not mean it should be appraised as a duplex (2 houses on 1 lot is considered a duplex). For instance, imagine Placer County considers a property with a 4500 sq ft house and a 300 sq ft detached studio as a duplex. But are these really two units? Don’t you think the added value would be fairly minor for the 300 sq ft studio? A property like this should probably be appraised as a single family residence with an accessory dwelling instead of two separate units (a duplex). While there may be two units technically in the eyes of the county, the 300 sq ft studio is hands-down really seen as an accessory dwelling by the market. In fact, some buyers wouldn’t hardly care about the small accessory dwelling because they are purchasing the property for the main house instead of whether there there is a 300 sq ft studio or not. Imagine a different scenario where there are two houses on one lot, but one is a complete tear-down. If one unit is beyond repair, it’s probably best for this property to be appraised as a single family residence because that’s how the market would see the property (instead of as a duplex). This is where a subjective element comes into play because appraisers have to consider how much value a secondary structure adds, and how the market sees that structure.

HUD logoWhat FHA says about Accessory Dwellings: An accessory dwelling unit (ADU) is defined as a habitable living unit added to, created within, or detached from a primary single-family dwelling and contained on one lot. ADU’s are commonly understood to be a separate additional living unit, including kitchen, sleeping, and bathroom facilities. ADU’s are subordinate in size, location, and appearance to the primary home and may or may not have separate means of ingress or egress. An attached unit contained within a single-family home, also known as a “mother-in-law apartment,” or a “garage apartment” that may or may not be attached to the primary residence are the most common types of accessory dwelling unit. An accessory dwelling unit sometimes involves the renovation of a garage, basement, or a small addition to a primary residence. The determination of whether or not an ADU is a second dwelling unit is to be made by the appraiser and indicated in the site analysis section of the report where zoning, highest and best use, and legal use are addressed. The fact that an ADU is rented or generates income should not categorically result in a determination that the property contains two dwelling units.

fannie mae What Fannie Mae says about Accessory Dwellings: An accessory dwelling unit is typically an additional living area independent of the primary dwelling unit, and includes a fully functioning kitchen and bathroom. Some examples may include a living area over a garage and basement units. Whether a property is a one-unit property with an accessory unit or a two-unit property will be based on the characteristics of the property, which may include, but are not limited to, the existence of separate utilities, a unique postal address, and whether the unit is rented. The appraiser is required to provide a description of the accessory unit, and analyze any effect it has on the value or marketability of the subject property (Page 583 of Fannie Mae Seller’s Guide).

Why does this matter? If there are two units, the appraiser will be comparing your two units with other two-unit properties. If you have a house with an accessory dwelling, the appraiser will be comparing your house with other homes with accessory dwellings. Keep in mind an accessory dwelling unit is NOT considered square footage if it is separate from the main living area, so it won’t be included in the total square footage of the main house (though it can still add to the value).

NOTE on Local Requirements: There may be additional local code requirements for accessory dwelling units in terms of allowable size, parking spaces, setback, height, etc… There is not a once size fits all rule here for every state, so be sure to know your area. For instance, Sacramento County requires a 10 ft setback for accessory dwellings, one parking space for each bedroom, and a size no more than 1200 sq ft.

Questions: Any stories or insight to share? Do you think it makes a difference whether a property has a second unit or an accessory dwelling unit?

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Some important things to know about water heaters and FHA

After reading this post, you will hopefully be more prepared to play the “FHA water heater” category on Jeopardy. This means you could win lots of money. Okay, maybe not, but let’s do some thinking together anyway.

gas or electric water heater - sacramento appraisal blog

Is it gas or electric? First off, how do you know if a water heater is gas or electric? Both water heaters look very similar to the untrained eye, but there are some noticeable differences when you really compare the two. As you can see in the image above, there is a gas line going into the gas water heater, but no such line going into the electric water heater. Additionally, there is a vent on top of the gas water heater, but no vent on the electric. You might notice too the gas water heater has a space for a pilot light, but there is no pilot light on the electric water heater. I know this is elementary, but it’s good to rehearse since not everyone is a water heater Jedi.

FHA water heater requirements - Sacramento Appraisal Blog

What does FHA say about water heaters? It’s important to realize FHA does not create or enforce code. FHA simply defers to local code for water heater requirements. This means if local code mandates particular types of water heater straps, requirements for a pressure release valve or whether a water heater is on or off the ground, that’s what the home owner, real estate agent and appraiser should be paying attention to during an FHA transaction (or any transaction).

In the case of the photo above, the gas water heater (do you see the gas line?) was originally directly on the ground when it should have been raised 18 inches off the ground per Sacramento County code. Gas water heaters are required to be elevated so the pilot light is removed from any gas fumes lurking just above the floor. If the water heater had been electric though, it could have been on the garage floor per county code since electric water heaters do not have a pilot light (which means there is not a gas and flame danger). Lastly, regardless of whether the water heater is gas or electric, earthquake straps are required in California on standard water heaters.

Ultimately since the gas water heater was on the ground during an FHA appraisal inspection, it had to be raised to meet current code. This is always what needs to happen during an FHA loan due to local standards. Keep in mind some conventional lenders have strict guidelines about water heaters, but many do not. It is a case by case basis whether a conventional lender would require the water heater to be raised or strapped.

Action Step: If you are wondering what your city or county says about water heater installation for your specific situation, you ought to give the building department a call. There are honestly so many different water heater scenarios depending on size and location, so it is important to ask these questions to your city or county so you can get the definitive answer. I know a thing or two about water heaters, but I won’t know the answers to all of your questions. Please note also that specific water heater requirements in one area of the country may be different from other states (this is again one reason why you should call your city or county).

FHA Article Library: I hope this was helpful. If you’re looking for more information on FHA property or appraisal standards, you can check out other FHA appraisal articles I’ve written.

Any thoughts, questions or stories to share? Comment below.

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Does a property with a flat roof require a roof inspection for an FHA loan?

It depends. A roof really only requires an inspection during an FHA loan if the appraiser or underwriter calls for an inspection. This goes for both flat and pitch roofs. Let’s read a bit more below.

flat roof inspection for an fha loan - by Sacramento Appraisal Blog

Straight from HUD on whether an appraiser will automatically require a roof inspection on a flat roof (Mortgagee Letter 05-48):

FHA-photo-by-Ryan-LundquistFHA no longer mandates automatic inspections for flat or unobservable roofs. In the appraisal report the appraiser will note any evidence of deterioration of roofing materials (missing tiles, shingles, flashing). Deteriorated roofing materials include those that are worn, cupped, or curled. If the roof is not observable, the appraiser will look for and include in the appraisal report any telltale signs of roof problems on the interior, such as damage or water stains to the ceiling area of a room or closet. The appraiser must note in the appraisal report that he/she could not adequately observe the entire roof area (state which area(s) were unobservable). Based on the information reported by the appraiser, the lender’s underwriter will determine whether or not a roofing inspection is required.

Summary & Attics: All things considered, a flat roof on any portion of a house won’t necessarily trigger a roof inspection, but an inspection may be required if there are signs on the interior or exterior that point toward roof failure. Remember, a roof has to have at least two years of remaining economic life for an FHA loan. On a related note, the appraiser is required to do a “head and shoulders” inspection of the attic, but when the roof is flat and there is no attic, this requirement obviously doesn’t apply.

I hope this was helpful to answer some of your questions. You can check out other FHA appraisal articles I’ve written, and definitely comment below if you’d like.

Anything you’d like to add or ask?

If you have any questions or Sacramento home appraisal or property tax appeal needs, let’s connect by phone 916-595-3735, email, Twitter, subscribe to posts by email (or RSS) or “like” my page on Facebook

Why do appraisers hold FHA loans hostage for such minor repairs?

Have you ever felt like an appraiser required ridiculously small repairs? I mean, can an inoperable dishwasher, missing carbon monoxide detector or minor amounts of chipping paint seriously hold up an FHA loan? If a house is worth $200,000 and $20 worth of repairs are needed, is it really legit for the appraiser to require repairs?

It’s understandably frustrating when a sale or refinance is held up by repair items noted by the appraiser – especially for very small-ticket items. However, appraisers aren’t in the hostage business, and they should only be requiring repairs as outlined by FHA / HUD. Any required repairs for an FHA loan should be about bringing the property up to FHA Minimum Property Requirements (MPR) so the property can be guaranteed for a loan by HUD. The appraiser acts as the eyes of the lender and FHA, so the appraiser will put on FHA “goggles” (I don’t literally put on goggles like the picture) to inspect the property to look for FHA standards and any issues that might impact security, safety, soundness and economic longevity. Sure, the appraiser gets paid for a reinspection, but that’s not the motivating factor for calling out repairs (or shouldn’t be).

Does the appraiser actually have to reinspect the property? Most of the time the appraiser is called to go back out to verify repairs were made. It’s my understanding the underwriter can overrule a reinspection, but my clients typically want me to go back out so they know repairs were truly done.

Why can’t the appraiser use photos from the owner or agent? The appraiser cannot verify repairs were completed simply by someone else’s word or even photos. In my experience most agents and owners are telling the truth about repairs (and I believe them), but if my client has hired me to go back out to a property, and I have to sign my name to verify repairs were made, then I need to be the person doing the reinspection. It can sometimes feel like appraisers are being difficult and picky about needing to do a reinspection, but they’re simply following instructions from the client. Besides, if your client hired you to verify work was done, would you sign your name to something if you didn’t actually see the work in person? Here is a recent email conversation that illustrates misunderstanding and frustration about this scenario.

Agent: The repairs are being installed by tonight. Please consider sending in your report tonight. The seller is committed to making sure these items are done. We are truly in a time crunch.
Me: I can only sign off when it is done.
Agent: You’re killing me.
Me: I’ll get out there right away when it’s done.

Common FHA Repair Issues: If you’re going to be selling a property or doing a refinance, you may wish to brush up on FHA standards. Please see the video below (or here) for 25 of the most common FHA repair issues, and take a look at the FHA Appraisal Article Library on the Sacramento Appraisal Blog.

What is the most random repair you’ve seen an appraiser call out? What types of repairs are most common? If you work in the real estate industry, do you find appraisers to be handling reinspections right away? I’d love to hear any stories or questions you have below in the comments.

If you have any questions or Sacramento area real estate appraisal or property tax appeal needs, contact me by phone 916-595-3735, email, Twitter, subscribe to posts by email or “like” my page on Facebook