I’ve recently been looking into real estate as an investor, and I found a rental property relatively close to my home that looked pretty promising. It was advertised as a 4-plex, with 2 duplexes on the same property. The price was fairly steep, but not unreasonable considering the income the property was generating. I was amazed that after several months on the market, it hadn’t sold (this is very unusual for my local market). I decided to dig a little deeper before making the plunge.
I started by calling my local city zoning office, and asked them to look up the property and tell me about it. At first, everything checked out – the property had 4 addresses, and its history was consistent with its advertised 4-plex status. But when I asked them to dig a little deeper, it was discovered that, due to local laws, this property could not be used as a 4-plex. One structure was just fine. However, due to ceiling heights and door widths and other restrictions, the other building did not meet the legal definitions necessary to be part of a 4-plex.
Imagine for a minute that you were asked to appraise this property. Are we as appraisers giving due diligence to our work? Are we digging deep to find these kinds of issues? Suppose an investor were to purchase this property, only to find out that they can’t use it in the way it was advertised. Who’s at fault here? While the appraiser may not be liable in such a situation, I hope it gives us reason to pause and think about our work, and whether we’re giving it due diligence.
For more information on this subject, please download and listen to The Appraiser Coach Podcast Episode: