How to Identify a Single-Family with ADU vs. Two-Family Property

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.

Summary

Appraising properties with accessory dwelling units requires different criteria than two-family properties. ADUs, such as granny flats or mother-in-law units, are additional living areas on single-family property, while two-family properties house two separate families on a single deed. Consider rental legalities, utility separation, and structural elements when appraising these properties to determine what category an assignment falls into.

What is an ADU?

Types of ADUs

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.

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. 

What is a two-family property?

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.