Ok...here's a doosy! I'll try and make this short and sweet.

I did an interior over the weekend where the owner is basically treating a SFR property as if it were multi-family. The structure had at least 3 separate tenants, one of which was a woman who ran an outreach shelter for mentally disabled residents. The woman and 6 metally ill residents occupy probably 90% of the structure.

The fact that there are likely 3 different lease agreements to deal with, in my opinion, would make any buyer/investor leery of the headache that would bring. But the housing for those residents puts this thing into a whole different category. Not to mention that the utility of the structure is in direct violation of the current zoning.

So, when valuating this thing, do you dock it for having "special circumstances" or keep it in line with recent residential sales?

I believe that the occupancy situation definitely makes this thing less attractive to potential buyers and would have a direct impact on market value.

Thoughts? Comments?

Well I would look at it this way- if the purpose of the interior is for a short sale or refi or HELOC I would definitely adjust the value based on the non-conforming use because of the potential resale problems AND potential problems with the local building dept/county etc. However, if it is an interior for REO purposes I would assume the property would likely be vacated prior to resale, so then the non-conforming use would not effect the value unless the property was altered significantly enough to effect the functional utility. Good luck with that one.

Thanks Lacey! As you can imagine, QC is having a difficult time with my valuation.