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Post Fire Property Tax Reassessment – Focus Guest Homes

Nov 18, 2019

What is the value-added for a guest home?

I was asked to help with a property tax re-assessment due to damage to the property after a fire. The guest home on the property was destroyed.

To answer the question “what is the value the guest home added” It would really depend on the neighborhood and price tier.

The easiest way to get an estimate is:

1) Find a sale in the same neighborhood with a guest house.

2) Find a sale without a guest house that is as close a match to the guest house property possible.

3) Calculate the contribution of the guest house amenity – a percentage is usually the best/most reasonable metric used by most certified appraisers.

To complicate matters, recent changes in the law could affect the metric going forward. In the past, municipalities placed burdens on homeowners who would want to construct a guest house (or ADU = Accessory Dwelling Unit) on their property. State law was enacted to require building departments to alleviate most of those burdens.

The advent of VRBO, AirBnB and the like, have increased the desirability of ADU’s, and in theory, increased value to have one, at least where transient occupancy in a single-family residential neighborhood is still legal. Regardless of the legality of transient occupancy, guest homes are in demand as long-term rentals.

Step 2 in the above instruction is easier said than done. Guest homes are found almost exclusively in custom neighborhoods. No two homes are alike.  Differences in selling prices are attributed to a multitude of factors including location, lot size, topography, lot utility, other amenities such as sports court, horse facilities, pool, landscaping, orientation, style, and others.

In conclusion, to estimate the value a guest home adds is a challenge. Few guest homes even existed in the past, and the way guest homes are being used has evolved.  As with any appraisal, an analysis of this kind is a snapshot in time. The best advice is to seek an evaluation from a seasoned real estate broker with experience in the area of the property.

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