How do you appraise an in-law suite?

A reader’s question about appraising homes with an in-law suite

in-law suiteI was recently asked a question by real estate agent Tammy Anderson about how appraisers might appraise an in-law suite. She was specifically curious about whether a second kitchen and entrance might cause trouble in the valuation. If you have any further questions about an in-law suite or would like to submit your own question, leave a comment below or message me.

In-law suite defined

An in-law suite is not uncommon in homes and can go by various other names, such as mother-in-law suite, granny flat, or it can even be used as a teen apartment. On a side note, there is an older area of Birmingham with homes that have what is known as a carriage house, which is an apartment over a detached garage. Most of the time an in-law suite will have a sleeping and living area, a simple kitchen, a bathroom, and a separate entrance. There are different types of in-law suites as well that can include an apartment over a garage, a finished basement, an add-on to the main house, and an attic conversion.

An important thing to remember if you are going to build an in-law suite is to check with local zoning ordinances. There can also be certain fire guidelines you must follow for an additional kitchen in the home. If you do not get approval with your local building department then it could cause you problems down the road whenever the home is appraised or when you go to sell.

Considerations when appraising a home with an in-law suite

From an appraisal perspective, there are various things that we consider whenever appraising a home with an in-law suite. These are also things that you as a homeowner should be aware of so that you get maximum value for your home and the best return on your investment. By the way, there are no negative consequences with having a separate entrance.

You will get the most value for the finished area in your house when it is above grade and contiguous to other finished areas. Any finished areas that are below grade, such as in a basement, will not typically contribute to the overall value of the home as much as those areas that are above grade.

If you have any finished areas that you access by leaving the main home this will contribute less value. An examplein-law suite considerations of this would be an apartment over a detached garage or an apartment over an attached garage that you must access by going through an unfinished area of the home. Some apartments over attached garages are accessed by going through the garage or by an outside entrance.

When we appraise an in-law suite the two types that typically get the most value, but can also cost the most are those that are either an add on to the above grade area of the main house or are attic conversions. The attic conversion is probably the most costly because you must make sure the foundation is adequate for the addition.

The least costly in-law suite to build is the type where you finish off an unfinished area that is already under roof. As I previously stated, whenever these areas are part of the above grade area of the house you will get maximum value for the money you spend on the conversion.

So now that you are aware of the different types of in-law suites and how they contribute to value let’s look at how they are handled in an appraisal.

It’s all about the comps

Value is measured best whenever there are more similar properties to compare the subject property to. The more truly comparable properties you have the more accurate the appraisal will be. If you have a one of a kind property and there are no other sales to compare it to then it becomes difficult for the appraiser to measure the effect on the value that the in-law suite has.

It will depend on the area you are located in as to which type of in-law suites are most common and therefore the ones that will have the most comps. In the Birmingham, AL area I find that the most common type of in-law suite is the one located in the basement of a home. Because they are common there will be more sales to compare it to and the value arrived at will be more dependable and accurate.

As I noted, the trouble in appraising a home with an in-law suite comes when there are no other properties to compare it to. If you are planning to add an in-law suite to your home the best thing for you to do would be to find out what is common in the area and copy that. You will have more potential buyers should you decide to sell and there will be plenty of comps.

Question

Do you have any other questions about homes with an in-law suite? If so leave a comment below or if you would like your question featured in a future blog post, let me know. As always, thanks for reading.

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Comments

  1. Nice site,Thank you.

  2. Thank you for the post Tom. I had a similar question this week from an agent friend. My response is that all three approaches to value are usually applicable to accessory units. If everyone is doing it, the value could be equal to or greater than cost and if few are doing it then the value could be equal to or less than cost (minus physical depreciation of course). If people are buying the units for extra income, it can help to estimate what it could rent for and then estimate a capitalization rate. Finally, it is important to find comparable sales with a similar accessory unit. Ideally those would directly compare to the subject and could be used in the sales grid, but they could also somewhat compare and be used to pair up and support an adjustment. Then reconcile.

    • Great points, Gary. I find it certain areas of my market that the in-law suite is more for family members and not renters. In another area of town, closer to the university, the income approach would be very relevant since they are rented out most of the time.

  3. john snyder says:

    I have one now with interior and exterior access. 4k square footage total. The In-law suite is on first floor, constructed that way. Do you give extra for the in-law suite? its already counted in above grade square footage but most of market does not need a mother in law suite with exra walls and kitchen..so with no in-law comps that are similar …how to adjust up or down?

    • The value of the in-law suite is based on what typical buyers are willing to pay for it. If there is not a market for this type of home in your market area then there probably will not be any additional value given for the in-law suite. Ideally you would be able to find other sales with this type of floor plan, however if there are none then that should tell you that it is really not very important to buyers. The in-law suite will probably cost more to build but cost is not always a good indicator of value.

  4. Nice Tom. In your market is an in-law suite the same thing as an accessory dwelling unit? I’m curious to hear if there is any distinction. The use of “in-law” as it’s used above to me suggests it’s really something meant for family living in the house rather than a rental.

    • Great question, Ryan. Yes, the in-law suite is the same as an accessory dwelling unit as long they are independent of the main unit. This means that it will typically have a kitchen and a bath.

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