Dear PoPville – Apprasial help, Basement Rental vs In-Law Suite, Does it Matter?

Photo by PoPville flickr user Mr. T in DC

“Dear PoPville,

After spending lots of money to finish my basement and convert it into a one bedroom apartment, I need to increase the insurance on the property. My insurance says I need to get the property appraised. The appraisal company is telling it will cost over $600 to get an appraisal for both my residence and the apartment below, or he can do a regular appraisal and include the apartment below as an in-law suite, this will cost $375. According to the appraiser the in-law suite solution will not reflect the real value of the property. Am I being taken for a ride? What is the difference. I don’t want to beat the system, I just want to make sure I get back what I have spent in the event of a fire or other unforeseen issue.”

9 Comment

  • ah

    Since you own both, I don’t see why the combined version is a problem. I imagine the reason a separate appraisal is more expensive is because it (a) requires two reports and (b) requires an allocation of the common elements (e.g., how much of the foundation, which benefits both the house and the apartment, should be allocated to each.

    But, really, what you should do is call the insurance company to find out what they will accept.

  • If you do it as an in-law suite and then you rent it out, you might void any insurance policy you ultimately get. Seems risky to me. Is there another appraiser you could call to see if they can do it cheaper?

    • +1 Definitely do it as a two unit (this is standard practice), but see if you can get someone to do it for $500.

  • While it is more expensive, if you plan to rent basement as a LEGAL rental then you want good coverage and no red flags should your tenants sue you or skip out on rent and you sue them. And, if you operate with a business license (again, falling under the legal category), could you possibly write off some of the expense of the appraisal on your taxable income from the basement? Something else to think about, a legal rental can really add a lot of value to your house, I have been told upwards of 50k in resell value on the house. So you might want to get the most thorough appraisal you can. In the grand scheme of things, its probably a one time expense and you should make it back over time if you are renting the unit out.

  • Will it definitely qualify as a “legal” rental, i.e., does it have the required minimum ceiling height, separately metered utilities, no connection to the upstairs, etc.?

    • Yes, it is legal. I have had the City inspectors in at each step of the renovation. I have height, seperated electricals, heat and air.

  • Check other insurance companies. I put in a (legal) basement apt. and a 3rd floor “in-law” suite after buying the house, and they (Travelers Insurance) cover both and never asked for an appraisal.

  • The appraisal amount is correct. I got that rude awakening when I bought in 2003. If the unit has a kitchen it is supposed to be treated as a separate unit for appraisal purposes. In-law suites according to DC regulations are not suppose to have kitchens. So I would not use the appraiser that suggested classifying it as a in-law.

    I also just insured my building under travelers as a sole landlord and umbrella policy. They didn’t ask for a appraisal – be sure to have them classify it as a 2-unit though

  • Also use travelers. Found that is was about $400 cheaper than Ameriprise, and way cheaper overall than seemed possible.

    However, they just raised my rate about 11.5%. When questioned about this, the lady gave me some yadda yadda about my house replacement value going up and such. At that point, I challenged her, and she somewhat agreed that my rate went up to cover losses at natural disasters nationwide. Damn you hurricanes!

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