Understanding and appraising properties with accessory dwelling units

By

Martin John Brown
and
Taylor Watkins

Abstract

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Accessory dwelling units (ADUs) are promoted by municipalities for social and environmental reasons. However, appraisals and lending on properties featuring ADUs are complicated by inaccurate perceptions of these dwellings, and certain institutional policies. This paper provides a primer on ADUs, and tests an income-based approach to valuation. For 14 properties with ADUs in Portland, Oregon, an income approach yielded valuations significantly higher than actual sales prices, by 7.2% or 9.8% on average, depending on the formula used. ADUs contributed 25% or 34%, on average, of each property’s appraised value. Valuation by income can increase appraiser insight as ADUs become common.

Please contact authors for additional information: Martin Brown