Several months ago, I blogged about a 3,700 square foot property that appraised for far less than the owner thought it would because it was really a 2,300 square foot main house with a detached 1,400 square foot in-law unit.
The property appraised for less than expected primarily b/c the appraiser had to correlate to properties with much smaller main dwellings (2,300 square feet vs. 3,700 square feet).
The above case was obvious because the in-law unit was located above a giant garage and clearly detached from the main dwelling.
The case is much cloudier, however, when there is an in-law unit that is still separate from the main dwelling but directly accessible via an interior hall or stairway.
We had a transaction a few months ago in fact with a 3,000 square foot property that could have appraised either way: (1) as a 3,000 square foot dwelling; or (2) as a 2,200 square foot dwelling with an 800 square foot in-law unit.
Because there were so few comparable sales with similar in-law units, the property clearly could have appraised for more as a 3,000 square foot dwelling.
In some areas, however, where in-law units are relatively common and in high-demand, properties can appraise for more as “smaller dwellings + an in-law unit.”
Conclusion: There is no hard and fast rule when it comes to attached in-law units and agents should do some serious research into the market before committing one way or another for appraisal purposes.
“PRICE PER ACRE” ISSUES
Danville, CA is a very high-end community with many large acreages on its far east side.
Closer to town, it is not difficult to find five to ten-acre properties with large dwellings that would easily appraise for $3 million or more.
Another mile east, however, there are 20-acre properties with smaller dwellings that would be lucky to garner a $2 million appraisal.
The above scenario is sort of an extreme case, but it illuminates why “price per acre” analyses often do not work when we are appraising properties with large lots.
In my above example, a five-acre property with a $3 million valuation would seem to indicate a $600,000 per acre value.
But, if that was the case, the nearby 20-acre property would be worth $12 million, and that is most definitely not the case.
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