In 2010 Fannie Mae And FHA began underwriting and approving loans for mixed use residential (condos) and commercial development. The problem was cities were having none of it. Now,
Appraisal Rules For Unpermitted Additions
With housing in SoCal becoming more scarce and more expensive, many cities have begun permitting converted garages and patio enclosures. If the renovations are not done properly, issues can arise when the home is refinanced, bought, or sold. Below are the regulations (Fannie / FHA / VA) outlining the specifics of the renovation process.
NOTE: "Conversions" are not "ADUs - (Accessory Dwelling Units). For information on ADUs visit: http://hcd.ca.gov/policy-research/AccessoryDwellingUnits.shtml
Rules for Appraising Conversions
All of the following conditions are required to allow a garage conversion without permits for all financing:
· If a garage was converted without a permit, the appraiser must show the value as a garage, not as a converted room. The appraiser must also estimate a cost to cure for re-conversion back to a garage.
· If the garage is converted to living space with no extra plumbing or electrical work, no permit is required if the appraiser indicates it was completed in a “workmanlike manner,” the comps support the value, and the lack of car storage is not prohibited by local ordinances.
· If the appraiser can obtain comps that are the same as the non-permitted living space, no adjustment to the property value is necessary. If the comps do not have a similar living space, the room must be valued based on its original use. This requirement applies to family rooms and patio enclosures as well. However, if the above requirements for garage conversions are not met, permits are required unless the loan meets the un-permitted addition requirements as listed in the Lending Product Profile. Additionally, if permits are specifically required by purchase agreement, sales contract, etc. for the conversion, then they must be provided.
· The subject addition complies with all lending guidelines
· The quality of the work is described in the appraisal and deemed acceptable ("workmanlike quality") by the appraiser
· The addition doesn't result in a change in the number of units comprising the subject property (e.g. a 1 unit converted into a 2 unit - regardless of how the appraiser classifies the property with the addition, improvement or conversion)
· If the appraiser gives the un-permitted addition value, the appraiser must be able to demonstrate market acceptance by the use of comparable sales with similar additions and state the following in the appraisal
· If Non-Permitted additions are typical for the market area and a typical buyer would consider the "un-permitted" additional square footage to be part of the overall square footage of the property.
· The appraiser has no reason to believe the addition would not pass inspection for a permit.
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