A Little Income Adds a Lot of Value

If you’ve inherited or converted even a small slice of space to a standalone living unit that could be rented, you’ve substantially boosted the value of the whole property.

A Little Income Adds a Lot of Value

Photo: ShappacherWhite Ltd.

The Appraisal Institute recently announced the results of an in-depth report, “Understanding and Appraising Properties with Accessory Dwelling Units,” which provides guidance for appraisers who need to pinpoint the market value for such homes.

Homeowners have been converting basements, garages, and any space with an exterior entrance into rental units to accommodate both millennials and aging seniors. The census and other reports document the millions of millennials living with their parents, because they can’t find self-supporting jobs. At the other end of the demographic spectrum, recent health care regulations channel funds to home health care and away from institutional care. That means many families will be searching for ways to adapt a first-floor “auxiliary” space for an aging relative.

Despite these trends, so-called in-law suites traditionally have been treated by appraisers as hard-to-value exceptions. With this new report, the Institute equips appraisers with the standards for calculating the value added by such arrangements.

It adds up: The study found that auxiliary units can add 7.2% to 9.8% to the market value of the primary residence. That’s a significant number when you are setting a market value, negotiating with a buyer, or supporting a valuation being considered by a lender.

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