A single-family ADU vs. a Multifamily Property

While a valuable asset to your investment property, an additional living unit can quickly become a concern for an appraiser. Learning to differentiate an ADU from a duplex is imperative in the appraisal process. Here at A+ Construction & Remodeling, we offer professional guidance in the field of appraisal work. This article aims to give you all the necessary tools and guide you through the ADU or two-family home journey.

The following article provides comprehensive information on single-family additional living space vs. two-family property and defines accessory dwelling units.

ADU and Two-Family Homes Explained

The appraisal process in case of a single family accessory dwelling units (ADUs) should be approached using the criteria and expectations separate from those that would apply to a two-family property. Both legally and factually, these properties are distinctly not the same. While similar and often confused, both an appraiser and a homeowner need to know which is which.

Two-family properties, not to be confused with two-income households, refer to a living space occupied by two families simultaneously, and accessory dwelling units are additional living spaces on the land owned by one single family. The former type is also typically called a duplex. Some common examples are an additional living area above a garage, a granny flat, and an in-law suite.

To competently appraise these and other types of subject property, the specialist must consider key differences in structure, legality, and more.

Accessory Dwelling Units 101

The definition of an ADU is an “accessory dwelling unit” or sometimes an “additional dwelling unit”. It is a supplementary, additional living unit built on the property of the main residence of one family.

Some common names for single family ADUs also include mother-in-law suites, granny apartments, aka granny flats, a carriage house, or a detached garage. Regardless of what they are called, and regardless of whether the owners separate them from the main house or not, their intended purpose is to provide an additional location for the family to live in or to serve as a rental property.

A single-family dwelling unit could be located inside or outside the primary unit, detached or attached. While physically, it can be a completely separate building, legally, it is still considered a part of the main property, even in a rental property scenario. In the sense of ownership rights, this means that the owner cannot sell it separately.

According to the Federal National Mortgage Association, the ancillary construction must meet a list of certain criteria on top of a shared parcel. A single family ADU requires to feature all of the same living accommodations as the original house, from the bathroom to the kitchen. 

Although the association does not regulate this aspect, accessory dwelling units normally do not have separate postal addresses or utility meters.

Top-3 ADU Types

The next important step includes considering the three types of single-family ADUs. These are the following:

1. An interior ADU. A common way to construct it is by remodeling a basement or an attic or doing a garage conversion to meet the criteria of an additional living unit. As the name suggests, this type is located inside the original construction.
2. An attached ADU. This type of ADU is a building near the main house. An attached additional unit possesses distinguishing characteristics. These are shared walls with the original structure and the same foundation. Normally, the owner constructs them on one of the sides of the house or opposite the main entrance.
3. A detached unit. Like an attached ADU, a detached one is a building near the primary unit, but it does not have any common walls with the main structure and stands completely separately, often as a rental property. When owners think of such a separate structure as a single-family dwelling unit, they often imagine a guest house, a carriage house, a detached garage, an independent suite, and so on.

All of these single-family homes with ADUs are perfect housing opportunities for a family member in need. If you do not have an immediate or extended family member in need or even close friends who could seek accommodation, there are other reasons to invest in an ADU. In this sense, accessory dwelling units can become rental property. Just one unit offers a passive cash flow in the form of rental income for its owner.

In the current economy and its interest rates, many tenants are looking to rent such affordable housing.

Two-Family Home Living

A two-family property, also known as a multifamily home or “duplex,” is a single-deed residence of two dwelling units for two or more families, according to the FNMA. In other words, an important difference is that such multi family dwellings consist of living spaces for two families simultaneously. There is a lot of confusion when it comes to telling multifamily properties and single family ADUs apart.

Similar to a single-family ADU, in a duplex, there is a secondary unit on top of the primary one. There is a lot of variation in imaginative design choices, but the former typically comes in three distinct aforementioned types. As for the portrait of the people who live in two-family units, some diversity is seen as well. 

The occupants can be the legal owners of the two family property in question, tenants who rent it, or even a mix of both of these types.

How to Differentiate Single-Family Homes with an ADU vs Two-Family Property

The Fannie Mae Selling Guide, with the latest publication dating to June 5 of 2024, helps clear up confusion between a single family ADU vs two-family dwelling units. Some helpful criteria for evaluating a duplex are the number of utility meters and postal addresses, as well as renting possibilities for the second unit.

Still, the appraiser always makes the final decision. To make their statement, the appraiser must compare the difference in each given case with the legal definition. This process falls under the Highest and Best Use section of the evaluation. Below, you will find some properties and traits that can aid an appraiser in the process.

Signs that you are looking at a duplex, two-family property:

1. A separate postal address and a utility meter from the main residence
2. Separate utilities from the main residence
3. More than one bedroom and more than one bathroom
4. A separate entrance with no entry into the main dwelling area
5. Compliance with local legal norms in terms of zoning, including rent possibility
6. The property in question is already being rented for income, including additional revenue.
7. The owners have advertised the property as a two-family unit
8. The neighborhood views the examined property as a two-family unit, with similar examples in the area and the local market.

Hints that you are appraising an ADU, single-family home:

1. The examined space has a history of previously being a basement floor, an attic space, or an attached garage
2. The additional area is similar both in inner construction and exterior characteristics to the original structure
3. The new property is a typically smaller version of the main dwelling
4. The space offers no separate utilities
5. It complies with local legal norms in terms of zoning and tenant-occupied residence, including a distinction between a permanent and a principal residence
6. The neighborhood views the examined property as a single-family unit, with similar examples in the area and the local market

A+ Construction & Remodeling and Your Appraisal Process

Do you want to grow your expertise in the field, helping many communities along the way? Do you seek information about typical single-family ADU vs. multifamily properties, as well as norms that apply to them in California? Are you an asset manager in need of educational resources? Invest in professional guidance by A+ Construction & Remodeling and be confident in your abilities to successfully bring all your projects to life.

What to choose, a single family with ADU vs. two family property? We can help you find the answer to the question.

Frequently Asked Questions — FAQ

Can multiple families share one property legally?

A multifamily property can be a legal way for two or more family units to live in the same space. This allows many owners to save money on land related expenses, helps build community, offers companionship with your neighbors. The crucial detail in achieving your own perfect home project is to remember the key differences with an ADU. Refer to the text above to gain the required knowledge, and when in doubt, reach for professional help here at A+.

Are there any legal differences between an ADU vs. a two-family household?

The short answer is “yes”. Although often confused, ADU and two-family homes are very different. These differences include not only the way they function, but the way they are perceived by local authorities as well. For general information, please refer to the Fannie Mae Selling Guide. However, it is important to keep in mind that each state, including California, has its own specifications and norms for appraisers. When in doubt, seek professional consultation.

Can two types of subject property coexist?

Though uncommon, this scenario is possible. For example, a large two-family house could also come with a detached unit on the premises. The owners could rent the latter. When working with such a case, knowing and understanding the difference between the two types of property is even more important. Undertaking such a project could be challenging, but the potential increase in value is something to look forward to for the owner.

Should I invest in an ADU or expand my home to accommodate a second family?

Every case is different, so it is impossible to give one single answer to this question. Some of the things to consider would include how big or small the land surrounding the original house is, the availability of a vacant basement, a detached garage, or an old attic, and even the size of the owner’s family. In very rare cases, there is no option for expansion at all. However, it is most likely not your case. To choose the option that best suits you, seek help from experienced appraisers. Our A+ professionals are always ready to help you with your project.