How Much is a Granny Unit Worth?

What's the Value of a Granny Unit?
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What's the Value of a Granny Unit?

What’s the Value of a Granny Unit?

I received an email the other day from a gentleman who was wondering how much is a granny unit worth in Santa Cruz? That’s an excellent question; many would-be home buyers specifically look for homes with granny units because they’re an excellent “mortgage helper.” Given their popularity, you might be surprised at my answer to the question: not as much as you might expect. Here is a screen shot from an appraisal for a sale I had about 18 months ago, which had a bona fide legal guest unit:

Appraisal Screen Shot

Adjustment Made for Granny Unit

You can see that the appraiser gave the guest unit only a $30,000 value. Granted, this particular guest unit (or “accessory dwelling unit” – ADU) was not in the greatest shape, but it was serviceable. Generally speaking though, I would say a guest unit adds $50-$75K in value versus a similar home without a guest unit.

I am perpetually surprised that legal ADUs do not add more value than they do, considering the enormous amount of money they can potentially make. This is one reason why buying a home with an ADU makes so much sense – it can easily make twice as much money in rent as the additional mortgage would cost you.

Another part of the gentleman’s question though was: how can you calculate how much value a granny unit adds to a property? Is there a methodology someone can use to figure out if one particular ADU adds, say, $50K, or more like $75K in value?

The Magic Formula

The Magic Formula for Valuing ADUs

There is no “official” formula that I have ever come across. I took an appraisal class one time, because I wanted to learn in particular how appraisers made adjustments for specific differences between properties, e.g. 1 car vs. 2 car garage, 3 baths vs 2, guest house vs. no guest house. Time and time again, the answer to that was: it “depends on the experience and judgement of the appraiser.” Not much help there!

Certainly one important factor to consider is how much rent the ADU gets – the more rent, the greater the value it adds. If you’re looking for a formula, that’s probably the closest thing to it. I’d say most units add about 2.5x the yearly gross income of the unit in Santa Cruz county. So let’s say a unit earns $24K per year, that would mean it adds $60K in value.

But that’s “most units.” Some will add more, some will add less, depending on factors like location, quality of construction, etc.

If you really want to geek out on the topic, here’s a link to an article on accessorydwellings.org that goes into considerable depth in valuing accessory units based on income:

http://accessorydwellings.org/2011/12/21/appraising-properties-with-adus-using-the-income-approach-to-value-a-preview-of-new-methods-and-findings/

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