Second Kitchens
Sooner or later, an appraiser will come across a property that is zoned for single-family use but has a second kitchen. After cringing, the appraiser takes the photo of the second kitchen and includes it in the report but barely addresses the second kitchen in the addendum.
In this module, we will address the most common questions we see from lenders regarding second kitchens so that the appraiser will be aware of the importance of supplying proper disclosure comments that will assist the client in understanding the report. Please note that requirements addressing second kitchens vary from client to client and may also vary based on the scope of work.
Assuming the subject is a single-family residence, the first and most important question that needs to be answered is if the subject’s zoning allows for single-family residential properties to have second kitchens. When a property is zoned for single-family use, a second kitchen might be in violation of zoning codes, making the subject’s present use illegal. Always first address if the subject’s zoning allows for a second kitchen.
The follow-up question pertaining to second kitchens is if the appraiser could confirm if permits were issued specifically for the subject’s second kitchen. This comment should include the data source of the information. In some markets, permits are difficult to confirm. The appraiser should include comments on their due diligence in trying to confirm permits.
Additionally, the appraiser must address if the second kitchen was completed in a workmanlike manner and if it creates any health or safety issues. Occasionally, when second kitchens are completed without permits, the workmanship might be less than professional, creating a safety issue. That is another reason that confirming permits is so important.
Finally, the appraiser should address if second kitchens are “typical” for the market. Acknowledging what comparables used in the report also have second kitchens would provide support for second kitchens being typical.
Appraisers should keep in mind that the existence of a second kitchen may qualify that area to be reported as an accessory dwelling unit. Accessory dwelling units are independent living areas containing a kitchen and full bath and their own direct access to the outside. If this area is an accessory dwelling unit, the comments should include if this ADU is a legal use per zoning and if it is permitted. In these cases, a comparable with an ADU is a Fannie Mae requirement in order to support adjustments and marketability.
These comments will paint a clear picture to the client regarding the issues with the second kitchen.
The scope of work and client-specific requirements should be followed regarding the information that was addressed for each item above.
For reports going to Fannie Mae or the secondary market, if the second kitchen is illegal per zoning or creates a health or safety issue, the report generally would be completed “subject to” removal of the illegal item which is usually just the stove. When the second kitchen is allowed per zoning but the appraiser could not confirm permits, Fannie Mae’s requirement is to comment on the quality and appearance of the work and its impact, if any, on the market value of the subject. A client may go a step further by asking the appraiser to note if non-permitted second kitchens are “typical” for the market and to demonstrate this by including comparables that also have non-permitted second kitchens in order to demonstrate market acceptance.
When the loan is not headed to the secondary market but rather is being kept in the client’s portfolio, the scope of work may require that the report be completed “as-is”. In this case, it is important to understand and follow the client’s direction when addressing these items. In many cases, an adjustment for the market reaction to the estimated cost-to-cure to remove the second kitchen addresses the client’s concerns. It is up to the appraiser to be acquainted with specific client requirements. The appraiser should disclose that the report was not developed to meet secondary market guidelines.
Please note that there are gray areas in addressing second kitchens, and this module is not meant to be the final word on these difficult items but is instead intended to provide information on the most common items that we see from clients when the subject property has a second kitchen. The appraiser should always ascertain the specific lender guidelines for addressing second kitchens as they sometimes vary significantly from client to client.
Second Kitchen Checklist
· Is the second kitchen legal per zoning?
· Could the appraiser confirm permits for the subject’s second kitchen?
· Was the second kitchen completed in a workmanlike manner?
· Does the second kitchen create a health or safety issue?
· Are second kitchens “typical” for the market?
· If second kitchens are typical, address which comparables have second kitchens.
· If permits could not be confirmed, do any of the comparables also have non-permitted second kitchens, providing support for market acceptance?
· Address client-specific guidelines for second kitchens which may include removing the second kitchen or providing and adjusting for a cost-to-cure for removal of the second kitchen when found to be illegal, non-permitted, or if it creates a health or safety issue.
· The appraiser should ascertain if the area that includes the second kitchen now should be considered an accessory dwelling unit.