The presence of an additional living unit may complicate the appraisal process by making it difficult to know how to classify the subject property. How do you know whether you’re dealing with an accessory dwelling unit (ADU) or a second unit? Use the following guide to help you identify a single-family with ADU vs. two-family property.
What is an accessory dwelling unit?
Per Fannie Mae, an accessory dwelling unit (ADU) is typically an additional living area independent of the primary dwelling unit that includes a fully functioning kitchen and bathroom. ADUs are usually subordinate in size, location, and appearance to the primary unit and may or may not have separate means of ingress or egress.
Types of ADUs
Depending on its location relative to the primary dwelling unit, an ADU can be classified as an interior, attached, or detached ADU.
Many interior ADUs are created through a conversion of the attached garage, basement, or attic space into a separate living unit. The most common interior ADU contained within the single-family home is known as an “in-law apartment.” These interior units are commonly referred to as in-law units, mother-in-law flats, or accessory apartments.
An attached ADU is an additional living unit added to the main residence, typically to the side or rear of the primary residential structure or finished living space added to the top of an attached garage—think of Fonzie’s apartment on the sitcom, Happy Days.
Detached ADUs are free-standing structures or are attached to another structure that is separate from the primary structure, such as a detached garage, breezeway, or outbuilding. A detached ADU may be called a guest cottage, guest house, garden suite, carriage house, casita, sidekick, or various other terminologies depending on the geographical area.
What is a two-family property?
Fannie Mae defines a two family as a property that consists of a structure that provides living space (dwelling units) for two families, although ownership of the structure is evidenced by a single deed.
Like an ADU, the additional living unit can be an interior, detached, or attached unit to the primary structure. The second unit may be apartment-style, a separate structure, a basement unit, a garage or attic conversion, or numerous other possible configurations and designs. Occupancy of the two dwelling units can fluctuate between owner-occupied, tenant-occupied, or a combination of both.
How to tell if it’s a single-family with ADU vs. two-family property
According to the Fannie Mae Selling Guide (as of January 2019), “Whether a property is defined as 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.”
It’s more likely to be a two-family property vs. single-family with ADU if:
- The unit has its own separate mailing address
- The unit has its own separate utilities and meter
- The unit has more than two bedrooms
- The attached or interior additional dwelling unit has its own private entrance
- A two-family dwelling is legal under the current zoning
- Zoning allows the unit to be rented
- The additional dwelling unit is currently and legally used as a rental unit
- The property generates additional revenues or income from its occupants in addition to unit rental income, such as additional rent for parking, car storage, or coin laundry
- The property has been marketed in the past as a two-family
- The main dwelling and additional unit(s) are mostly conforming to the neighborhood as a two-family
- The predominant use for similarly configured properties in the market area is two-family
It’s more likely to be a single-family with ADU vs. two-family property if:
- The unit was an attic, basement, or garage conversion for the purpose of providing additional living space to a family member
- The detached unit is built to characteristically mimic the primary structure’s architectural style and design
- The detached unit is subordinate in size to the primary structure
- The accessory unit does not have its own separate utilities
- Zoning requires the primary structure to be occupied by the property owner as a permanent and principal residence
- The main dwelling and additional unit(s) are mostly conforming to the neighborhood as a single-family with ADU
- The predominate use for similarly configured properties in the market area is single-family with ADU
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