FHA Friday: What does FHA say about a Converted Garage?

So we’re starting a new blog series called ‘FHA Friday’.  We’re doing so much FHA appraisal work right now, we thought it might be helpful to discuss some of the FHA-related appraisal issues we find.  If you have an FHA, USDA, or even VA appraisal related question, feel free to let us know!

Today, we’re going to briefly discuss the garage conversion / room addition.  In the photo above, the home looks like a typical single-family residence with a one-car attached garage, right?  Wrong.  What’s behind that garage door is actually a family room.  The owners converted the garage into living area, but left the garage door in place.

The photo below is what’s behind the garage door (I’m standing at the same wall the garage door is on).

So does FHA care that the garage was converted?  Absolutely!  Here are the FHA guidelines for converted garages:

The Appraiser must treat room additions and garage conversions as part of the GLA of the dwelling, provided that the addition or conversion space:
• is accessible from the interior of the main dwelling in a functional manner;
• has a permanent and sufficient heat source; and
• was built in keeping with the design, appeal, and quality of construction of the main dwelling.

From the 4000.1 HUD Handbook

Room additions and garage conversions that do not meet the criteria listed above are to be addressed as a separate line item in the sales grid, not in the GLA. The appraiser must address the impact of inferior quality garage conversions and room additions on marketability as well as Contributory Value, if any.  The appraiser must analyze and report differences in functional utility when selecting comparable properties of similar total GLA that do not include converted living space. If the Appraiser chooses to include converted living spaces as GLA, the Appraiser must include an explanation detailing the composition of the GLA reported for the comparable sales, functional utility of the subject and comparable properties, and market reaction.  Alternatively, the Appraiser may consider and analyze converted living spaces on a separate line within the sales comparison grid including the functional utility line in order to demonstrate market reaction.

Interestingly, FHA does not require the room addition / conversion to be permitted.  However, you should keep in mind that many lenders will either (1) not lend on the home if it has unpermitted living space; or (2) will require a comparable sale with similar unpermitted area (almost impossible to find).

So if you’re selling your home, or if you are representing a seller, it’s best to get any unpermitted areas permitted before the home hits the market, to save potential headaches and delays down the road.

We’ve just scratched the surface on this issue, so if you have any questions related to this issue, let us know!

Have a great weekend!