Mother-in-Law Suites on the Rise: How Much Value Do They Add?

Whether you’re looking to build out an accessory apartment on your property or want to accurately price it into your home sale, you need to know: how much value does a mother-in-law suite add? We dug into the answer from an ROI and home marketability perspective, spoke with several property appraisers on the matter, and gathered some key insights on how to maximize your enjoyment of this space.

From small screen to real life

Considered an innovative and affordable housing solution in high-cost areas, many homeowners would love to add an accessory dwelling unit (ADU) of some kind to their property for rental income or to house extended family.

Certainly, the above-garage apartment worked perfectly for Fonzie in Happy Days as did the attic conversion for Jesse and Becky in Full House. But beyond the small screen, these spaces (which can come attached or detached to the main house) have many uses and continue to blossom in popularity.

According to research from Freddie Mac, 1.4 million single-family properties nationwide have ADUs to date, reflecting a significant surge since 1950. In addition, property listings promoting ADUs grew 8.6% between 2009 and 2019. California, Florida, Texas, and Georgia account for half of ADU properties. Since 2015, markets such as Portland, Dallas, Seattle, Los Angeles, and Miami have seen double-digit increases in ADU density.

And the list of motivations to build out this kind of separate living area keeps expanding as a result of COVID-19. Family member lost their job? You can offer comfortable, free accommodations. These spaces also convert nicely to a distractionless home office, remote college student dorm room, or safe haven for grandparents avoiding the risks of community living amid a pandemic.

For these reasons, 26% of the 1,100-plus agents we surveyed for our Q3 2020 Top Agent Insights Survey believe that in-law suites will be the most prominent home design trend to emerge from the pandemic environment. However, their rising popularity doesn’t diminish from the weight of this investment.

A mother in law suite with added value.
Source: (Artazum / Shutterstock)

Mother-in-law suites, ADUs, and granny flats

Whether you call it a “teen suite,” a “granny flat,” an “in-law suite,” or a “second unit,” a mother-in-law suite usually brings to mind some kind of accessory apartment.

Any small, self-contained living quarters on a single-family lot qualifies as an ADU as long as it has its own entrance, cooking, and bathing facilities, according to The Appraiser Journal. ADUs can be attached to the main building, as with a basement apartment, or detached, as with a backyard cottage. Either way, it’s not a separate property; it has the same address as the primary dwelling.

Now, the bonus suite you have in mind may not be an ADU. Karen Swinson — an agent who’s part of the top-selling Swinson real estate team with her husband Mark Swinson in Jacksonville, Florida — has seen in-law “suites” with just a microwave and a toaster oven for cooking, as well as some shared laundry or cooking facilities. But how separate the dwelling is affects the appraised value.

What’s more, some residents will want a separate bathroom, a bedroom, and perhaps a sitting area. “The privacy factor is important,” Karen Swinson says.

Some states have enacted laws to encourage municipalities to relax common hurdles — such as utility connection fees and parking requirements — for the building or permitting of ADUs, according to the national property data warehouse ATTOM Data Solutions.

In 2017, following changes to its laws in 2016, California issued almost 4,400 building permits for ADUs, the most nationwide, ATTOM’s analysis shows. By comparison, Oregon issued 1,682 ADU building permits; Washington issued 1,110; Florida issued 994; and Maryland issued 872.

The value of the mother-in-law suite: Research says…

How much value an ADU adds to a house has historically confounded real estate experts and proven to be a source of confusion. As written in a study from The Appraisal Journal conducted by a certified appraiser and statistical analyst: “There frequently are misunderstandings among appraisers, owners, brokers, and lending agents of this type of microdevelopment — as well as some spectacular variations in appraised values on the same property.”

Largely to blame is a lack of suitable comps. It’s difficult to apply the most common method for valuing homes (the comparable sales method) to a property with an ADU. In your typical market (and despite the increasing interest in ADUs) there just aren’t a ton of homes with in-law suites compared to those without.

This same study from the Appraisal Journal — as one of the only published works on valuing homes with ADUs — makes the case that many ADU-equipped properties are in all likelihood worth more than they’re getting credit for in practice. Using an income capitalization appraisal method, the study ran a theoretical analysis of the value of 14 properties with ADUs (the majority of them detached, such as backyard cottages or converted separate garages).

The researchers estimated the appraised value of the properties to be 7.2%-9.8% (~$21,000-$29,000) higher than their most recent sales price which averaged around $400,000. However, the report specifies that this type of value add would only apply to ADUs that you could legally rent out. If such units aren’t fully permitted and legally rentable, this type of approach to assessing value “could be misleading,” the publication writes.

A clipboard used to appraise a mother in law suite.
Source: (prapass / Shutterstock)

How modern appraisers factor in ADUs

We also spoke with several appraisers to get their take on valuing properties with ADUs.

“These do appear to be something buyers are seeking, if only for flexible living space with work-from-home scenarios,” says Rachel Massey, a certified residential appraiser covering Ann Arbor, Michigan, and surrounding Washtenaw County.

However, in-law suites could have different values within the city versus the country; among different price ranges; and (as we mentioned previously) whether they can be rented, she adds. For example, many jurisdictions restrict occupancy to a relative.

One or two comps? Better than none

When an income approach isn’t available and an appraiser uses the traditional comparable sales method, they will need to look for sales of houses that also have such units and similar zoning, while factoring in general market sentiment toward ADUs.

Angie Miller, a longtime appraiser in Suffolk, Virginia, says she’ll pull at least one property with an ADU into her assessment “because there just aren’t that many.”

Following guidelines from the American National Standards Institute, Miller also says that she does not calculate the value of an accessory unit if it’s not attached to a house.

Market sentiment factors in

Most ADUs that Miller encounters are 1,000 square feet or less. She recently appraised 10 acres of waterfront property with a 2,000-square-foot accessory apartment attached to the main house through a utility room; the unit was “not typical” in that it had a separate kitchen, a living room, and three bedrooms.

“When the market’s super hot like it is now, it will add more value than when it’s taking more time to sell,” Miller says. “I’ve also given no value because the market didn’t seem to reflect it.”

Above-grade square footage works in your favor

If you’re planning to add an in-law suite, Tom Horn, a real estate appraiser in Birmingham, Alabama, since 1995, suggests finding out what types of suites are common in your area; this gives you the most comparable properties when you’re ready to sell.

In general, Horn notes on his blog that he appraises any in-law suite that adds on to the main house above grade higher than basement conversions or apartments that are in detached buildings or over a garage.

Reframe ‘value’ as ‘marketability’

It can be helpful to think about the value of your ADU in the context of your greater market, rather than try to determine its exact value in a vacuum. Bringing it back to what homebuyers want, real estate agent Mark Swinson explains it this way: “I wouldn’t call it a dollar per square foot value add. It would be helping to broaden the market for more buyers to be attracted to that property.”

Upstairs in-law suites don’t appeal to as wide a pool of buyers as those on a ground floor, adds Karen Swinson. “Teens like to live in lofts or bonus rooms. In-laws and older folks like to live on a main floor with no stairs,” she says. “If you’ve got all the bedrooms upstairs, including an in-law suite, that takes away from the selling process.”

A garage that will be converted into a mother in law suite.
Source: (Kyle Head / Unsplash)

Converting the space you have

There are several ways you can turn space you already have into an in-law suite before building an addition. For instance, you can:

Convert a garage

Although costs may vary depending on your garage’s size and where you live, converting a garage into an apartment or guest house costs an average of $15,000 to $30,000.

The space will require insulation, drywall, flooring, and a drop ceiling, as well as air-conditioning and heat, not to mention any electrical service upgrades, such as a gas line or a 220 outlet for the stove, according to HomeAdvisor. The apartment also should have a private entrance along with at least one window for an emergency exit.

Remodel the basement

This can be simpler than converting a garage because you can divide a finished basement’s larger space into smaller rooms more easily, plus tap into the main home’s pipes and drains. The average basement remodel on average costs about $20,000, but if you install a bathroom with both a water supply and sewage lines, that raises the cost by at least $6,000.

Remix an attic

Converting an attic is costly because changing over from storage space to any type of living space requires not just adding insulation, ventilation, plumbing, and electrical wiring but reinforcing the floor joists.

You also may have to expand the headroom through a dormer and how the person living there will enter and exit. One estimate to convert unfinished attic space into a 15×15-foot bedroom with a 5×7-foot bathroom and 15-foot dormer, plus closet space and a rail and baluster to an existing stairwell, cost a minimum of about $41,000.

Redo an unused room

An unused formal dining room or a guest room could work as an accessory apartment. The cost to install a new wall runs an average of about $1,800; adding on a bathroom runs an average of about $15,000, depending on finishes.

The costs of adding on

For more privacy, a mother-in-law suite addition might be the better choice. The national average is about $45,600, but this varies depending on the size, materials used, labor, and where you live.

For instance, adding a 12×12-foot room costs from about $12,000 to $29,000, depending on whether you “build out” (extending a home’s footprint by pouring new foundation) or “build up” (adding to the second story, including access if necessary). Also factor in any fixtures and appliances.

Another option is building a miniature home known as a “granny pod” or care cottage, which ranges from 250 to 900 square feet, including a living and sleeping space, a kitchen, and a bathroom. These structures are designed to gather utilities from a main house and cost from $40,000 to as high as $250,000 for a prefab model full of top-of-the-line technology.

Other factors to consider

Adding an in-law suite doesn’t just involve finances. Your municipality or homeowners association (HOA) may already say whether this is doable — and to what degree.

  • What are my zoning laws? Although some geographic areas (such as California) welcome ADUs, municipalities vary. Here’s one guide to check if yours allows these structures. If yours does not, you may be able to convert existing space within your home. Call your local planning or zoning department with detailed questions.
  • What do my local building codes require? A licensed contractor will know minimum requirements for square footage, utilities, and fire safety. A home inspector also could give you an idea of the permits required for the work to proceed correctly. To find someone for a professional consultation, check a reputable online directory such as Angie’s List or Fixr.com, or talk to your real estate agent. “We have all kinds of resources that if someone wants to build on or change or rearrange, we can help them where they don’t have to go off searching on their own,” Karen Swinson says.
  • What does my neighborhood association say? If you live within a deed-restricted community or pay HOA fees, that authority likely has guidelines as well about any additions to or conversions of an existing property. Karen Swinson adds that an experienced agent also can help homeowners explain the type of addition or modification they’re interested in making.
Source: (CDC / Unsplash)

Living with relatives? Weigh these possibilities

An in-law suite might save you money on assisted living, but don’t forget to think about what your relative might need, physically and emotionally. For instance:

  • How accessible will the unit be? If you’re planning this space with a younger relative or tenant in mind, this may not be an issue. But for aging parents or people with disabilities, the ground floor is best. The space also should have “aging in place” features such as an open floor plan, wider doorways (at least 36 inches), and accommodations to the bathroom and kitchen, such as a microwave at counter height, grab bars near the toilet and in the shower, and a handheld showerhead.
  • How long will this arrangement last? Older relatives may have medical issues that escalate quickly. Anticipate that your plans for this space may change within three to five years, Mark Swinson says. He suggests that homeowners ask themselves: “How do I utilize the space to best fit my family’s needs now, with the consideration that this is probably going to change pretty soon?”
  • What are everyone’s expectations? Intergenerational living isn’t suitable for everyone, particularly when family members have different ideas of what the living arrangement will be, Kathryn Watson, author of Help! My Parents Are Aging, told AgingCare.com. For instance, if your relative expects everyone to have dinner together each night and your job or social life brings you home later, everyone should discuss that, along with who will be responsible for transportation and assorted living costs.

Inviting someone to live in your home is a huge endeavor, even when you’re not adding square footage or retrofitting your space. While an in-law suite may save your family money in the short term — or enable you to earn extra rental income — be sure to evaluate whether this suits your family’s lifestyle over the long-term.

“We’ve seen where younger people had brought their mother or father into their home, but their mother or father couldn’t stand all the confusion that was going on, even in a mother-in-law suite, and decided to leave the home and go to assisted living,” Karen Swinson says. “You don’t really know as a family how it’s going to play out until you try it.”

Header Image Source: (Natalya Volchenkova / Shutterstock)