Do not miss the above parody video on Portland tiny
homes. It is the hilarious and the perfect
introduction for an article on Portland accessory dwelling units.
An accessory dwelling unit (ADU), also known around
Portland, Oregon as “granny flats, mother-in-law apartments, and carriage
houses” is a second residential living unit on an existing single-family home
site. ADUs became popular in Portland in
2010 after the city waived many development fees as a way to increase density
and affordability. Portland ADUs come in
many shapes and sizes. An ADU can be created
by building a small detached home next to (but a minimum of six feet away from)
an existing home, by adding an attached unit onto the existing home, or by converting
a portion of the existing home, garage, basement, or attic into a unit.
Appraising ADUs is difficult because each is unique and because
there are often few comparable sales of other accessory unit properties. Additionally, it is common that ADUs have
been built without proper permitting, and income from accessory units is not
directly comparable to other more common income properties such as apartments
or small detached homes. Rather than
write a book about appraising accessory units, here is a list of some
interesting appraisal-related facts about ADUs in Portland.
residential zones in Portland allow for accessory units. This means that when an appraiser considers
the highest and best use of a property in Portland, adding an accessory unit
should be a legally-permissible consideration.
2. In the
City of Portland, ADUs and the main house can usually be legally rented, just
as with a traditional duplex. However, many of the municipal areas surrounding Portland
do not allow renting. It is important
for appraisers to understand the legal uses of the ADU because that could
change the type of buyers who would be interested in the property.
Portland, ADUs cannot exceed 800 square feet or 75 percent (including basement)
of the main home.
kitchen defines an accessory unit in Portland.
Simply having a bedroom or a second living space is not considered an
accessory unit. Also, ADUs do not
require the separately metered utilities or additional parking that are common
with a typical duplex.
ADUs in Portland were created outside of the permitting process. Such units may be unsafe and might not add
value to the home. Legally permitted
ADUs can be extremely valuable and many are becoming more valuable with the
popularity of the “tiny home” and the proliferation of vacation rentals like Airbnb.
accessory units will have very high site development costs due to sidewalks, permits,
the need to match the existing home, utilities, and such. Builders have indicated to me that a person
can spend $50,000 before even beginning construction of a detached unit.
building an accessory unit, your entire house could become subject to
additional tax due to reappraisal of the whole property and not just the
addition of the accessory unit. (Click
here for a recent article that shows citizens are upset about this
and that reappraisal requirement might be changing in the future.) However, remember that tax laws are complex. Anyone considering building an ADU should
first consult with the assessor.
lenders often are not experienced with providing loans on homes that have ADUs,
nor do many appraisers have experience with valuation of them. These two factors, combined with very few
comparable sales, different ways for appraisers to report appraisals of homes
with ADUs (as a Duplex on a 1025 form or a Single Family with ADU on a 1004
form) can make it challenging to refinance or purchase a home with an ADU. If you need to get a loan on a home with an
ADU, I recommend the following.
a. Find a
lender with experience in ADUs and income-producing properties. Often local credit unions will have more
experience and offer loan options for borrowers with ADUs.
your lender to select an appraiser who has experience in ADUs.
the appraiser and your lender with documentation that your ADU was legally
permitted. Also, list information about
rental income, expenses, and detail construction costs (if your unit was
you’re an appraiser, it is important to openly discuss the ADU appraisal with
the client before accepting or proceeding with the assignment. Lenders who do a lot of loans for ADUs will
often have a specific list of appraisal requirements to follow when appraising
ADUs. Following lender guidelines will
help appraisers avoid the problems and delays that come from client
expectations not aligning with the final appraisal product.
If you want to learn more about appraising ADUs in
Portland, I recommend taking Taylor Watkins’ class at Earth
Advantage on February 18th, 2016.
Did I leave anything out or do you want to join in the
conversation? Let me know in the
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