The presence of an additional living unit can add value to your property but it can also complicate the appraisal process. It may make it difficult for you, the appraiser, 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? Learn more about this topic, from the ADU meaning to how to identify a single-family with ADU vs. two-family property.
What is an ADU?
ADU stands for accessory dwelling unit. An ADU is an additional living area located on the property of a primary single-family residence.
These are sometimes called “granny flats” or “mother-in-law units” and may be attached or detached from the main home, but their intended purpose is to offer tenants with an independent and complete living facility.
The ancillary unit may be created within, added to, or detached from the primary structure. An ADU can be separated from the main house but legally cannot by sold or separated from the main house.
Per Fannie Mae, the ADU must provide for living, sleeping, cooking, and bathroom facilities and must be on the same parcel as the primary one-unit dwelling. An ADU typically does not have its own postal address or utilities meter.
Some of the nuances around what constitutes an ADU and how it may be used can depend on the particular zoning regulations based on where you live. Some zoning laws will impact the size and style of an ADU and might require that the owner live on the property as well.
Do ADUs add value to a property?
In general, yes, ADUs add value to a given property, although this value is of course heavily tied to the market. Oftentimes property owners are unaware of the value of their ADU until appraisal time. The value typically comes in the form of use: younger family members who can still live at home while saving money or an elderly family member who can stay close to children rather than moving to an assisted living facility.
Types of ADUs
By definition, ADUs aren’t a type of structural style but rather are a type of housing unit. Thus they can vary significantly in what they look like. While the ADU meaning doesn’t change depending on its location relative to the primary dwelling unit, it can be classified as an interior, attached, or detached ADU.
- Many interior ADUs are created by converting a basement or attic space into a separate living unit.
- 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, a breezeway, a manufactured home, or an 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.
- Basement conversion ADUs are also called secondary suites or English basements
Homeowners often add ADUs to property as a way to generate passive income through rent, or they may simply want to meet the housing needs of a friend or family member.
Takeaways
Some thing to remembers when identifying ADUs:
- Units that are noticeably smaller than the typical American house
- They are often developed asynchronously from the primary home by developers
- They are accessory and adjacent to the main housing unit
- They are usually one of two unites owned by an owner on a single family residential lot
- How ADUs look and are used are affected by a variety of municipal land use and zoning regulations
- A large percent of ADUs exist informally (i.e., without a permit)
What is a two-family property?
Fannie Mae defines a two-family property 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 second 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.
Is it a single-family with an ADU or two-family property?
According to the Fannie Mae Selling Guide (as of October 2021), “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 utility meter(s), a unique postal address, and whether the unit can be legally rented. The appraiser must determine compliance with this definition as part of the analysis in the Highest and Best Use section of the appraisal.”
As part of the highest and best use analysis, the following factors may help you determine if it is a single-family with ADU or a two-family property.
| Property Feature | Likely to be an ADU | Likely to be a Two-Family Property |
| Each unit has a separate mailing address | No | Yes |
| Each unit has separate utilities and meters | No | Yes |
| The secondary dwelling can be legally used as a rental unit | No | Yes |
| Property has been marketed as two-family | No | Yes |
| Most similar homes in neighborhood are two-family | No | Yes |
| Detached unit is much smaller than the primary dwelling | Yes | No |
| Both dwellings share utilities | Yes | No |
| Unit is converted living space for a family member | Yes | No |
| Unit is not zoned for rental property | Yes | No |
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 and has no access to the primary dwelling’s living areas
- 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 dwelling
- 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
Learn more about appraising ADUs and multi-family homes with CE courses
If you want to learn more about the differences between an ADU vs two-family properties, McKissock has appraiser CE courses designed to grow your knowledge. Check out these courses:
- The Income Approach: An Overview
- Appraising 2-4 Unit Residences
- Complex properties: The Odd Side of Appraisal
Get the best value with McKissock’s Unlimited CE Membership
Whether you want to learn more about ADUs and multi-family properties, expand your knowledge in other areas, or simply meet your state’s requirements easily, we can help. McKissock’s Unlimited CE Membership unlocks access to our entire CE catalog, including the 7-hour USPAP Update, plus our Learning Library with over 400 helpful resources.
Editor’s Note: This post was originally published on April 30, 2019 and updated in April 2024.
