Properly Addressing a Legal Non-Conforming (Grandfathered) Use
Zoning ordinances are sometimes changed. A property may have had a lawful use prior to the enactment of new zoning ordinances, but the subject does not conform to current zoning regulations. In these cases, the subject is generally considered a legal, non-conforming (grandfathered) use. Examples of typical zoning changes include restrictions on use, lot size, setbacks or improvement size.
Fannie Mae will purchase or securitize a mortgage on non-conforming properties in the following circumstances:
· The property is a one- to four-unit dwelling or a unit in a PUD, and the use of the land and the appraisal analysis reflects any adverse effect that the non-conforming use has on the value and marketability of the property; or
· The property is a condo unit or co-op share loan, and the improvements can be rebuilt to current density in the event of partial or full destruction, and the mortgage file includes either a copy of the applicable zoning regulations or a letter from the local zoning authority that authorizes reconstruction to current density. [1]
What is meant by the idea that the appraisal analysis must reflect any adverse effect that the non-conforming use has on the value and marketability of the property?
A restriction that may impact value and marketability is the inability to rebuild the property in the event of destruction. When the appraiser uses sales with and without this restriction, he or she must determine if there is an impact on value and marketability for the non-conforming use restriction, and provide the proper comments on the results of this analysis.
In some cases, the non-conforming zoning with the ability to rebuild may make a property more valuable as the subject’s use may have become one of the few limited grandfathered uses in a restricted zoning area.
Checklist for Legal Non-Conforming Use
· Always identify the feature that does not conform to current zoning.
· Provide and acknowledge all comparables used in the report that have the same non-conforming zoning as the subject. This provides support for marketability.
· Comment if the subject can be rebuilt if destroyed.
· In the analysis, provide any adverse effect the non-conforming use has on value and marketability. Do non-conforming properties require longer marketing times? After reconciling other differences between the subject and comparables, does the non-conforming use affect value? Provide comments on the analysis.
· If a condo or coop has non-conforming (grandfathered) zoning, ensure the improvements can be rebuilt to current density if destroyed, and include your data source.