House + ADU VS. Duplex – What’s The Difference? What’s Better?

Duplex vs. Single-Family Residence + ADU

Most people know the basic differences between a duplex and a home with an ADU.

Duplexes are often built as one building with two similar units; they often have separate utility meters; the design and appeal are typically inferior to what you might find in a home with an ADU; and duplexes often require specific zoning (a neighborhood that allows for homes with ADUs might not allow for actual duplexes, despite the similarities).

NOTE: Duplexes do not have to be attached. They can be two homes on a single lot. Duplexes also do not have to have separate utilities, but separate utilities are a great sign that a property is in fact a duplex.

Advantages of a Single-Family Residence (SFR) + An ADU

1. 1. Financing: Interest rates are generally lower for SFRs with ADUs, as are the down payment requirements (particularly for investors). This is because duplexes are deemed to be riskier investments by lenders.
   2. Appraisals: In higher-end areas, an SFR with an ADU will often appraise for more than a duplex, depending on design and appeal.

NOTE/CAVEAT: Appraisers will have to correlate to homes of similar size to the main dwelling. So, if the main dwelling is relatively small with a larger ADU, this will often make appraising more difficult. For example, if the main dwelling is 2,000 square feet, and the ADU is 1,000 square feet, appraisers will generally need to correlate to homes that are within 20% of 2,000 square feet (and then try to find comps with ADUs too), greatly constraining the appraiser. Appraisers cannot correlate to 3,000 square-foot homes simply because the total square footage (SFR + ADU) is 3,000 square feet. The exception would be if the ADU was directly accessible (not detached) from the main dwelling.

Advantages of Duplex

1. Financing: For first-time buyers, the financing options for duplexes are often similar to those offered for SFRs with ADUs. But, for everyone else and especially investors, duplex financing is inferior (higher rates and/or higher down payment requirements).
2. Appraisal: In higher-end areas, an SFR with an ADU will often be worth more than a duplex. But, in lower-end areas, where buyers, investors, lenders, and appraisers, focus more on the income potential of a property, duplexes are often worth more than SFRs with ADUs. Duplex appraisals are done on special forms for income properties, that include an “income approach to value,” while SFRs with ADU are appraised with standard residential appraisal forms.

Which Is Better?

In high-end areas, it is often better to have an SFR with an ADU over a duplex, but it is not always that simple to just declare a property one or the other. Zoning rules may prohibit switches. In addition, appraisers may not always cooperate either. If a property was clearly built as a side-by-side duplex, appraisers will deem the property’s highest and best use to be a duplex as opposed to an SFR with an ADU.