TL;DR
- Treat “ADU,” “in-law suite” and “second apartment” as descriptions to investigate, not proof of legal rental use or a second dwelling unit.
- Verify the actual configuration, governing jurisdiction, use and occupancy records, and unresolved local requirements before relying on extra rent or resale value.
- Keep appraisal classification separate from local permission. A lender's acceptance does not legalize a use, and a separate kitchen alone does not establish an ADU under Fannie Mae's guidance.
- Build the purchase case without unsupported extra-unit income or value. Add only benefits supported by the relevant local, market and financing evidence.
Verify the existing space before paying for its story
Before valuing an existing extra living area as an ADU or second rental unit, establish what the space is, how it may be used and how the relevant appraiser and lender will treat it. A second kitchen, tenant history or seller's label does not settle those questions.
Fannie Mae's special-property guidance describes an ADU's living, sleeping, cooking and bathroom facilities and other classification requirements. It expressly says a second kitchen alone does not constitute an ADU. Those are program requirements, not a nationwide zoning definition. Local use permission requires a separate inquiry.
This guide concerns space already present. For a proposed project within Chattanooga city jurisdiction, use the separate renovation-permit starting guide. That guide does not determine the status of an existing apartment.
Separate the four questions
| Question | Evidence to seek | What it does not prove |
|---|---|---|
| What physically exists? | Measured layout, access, facilities and condition, checked by appropriate professionals | That the use is permitted or safe merely because the space exists |
| What use is allowed? | Governing jurisdiction, relevant zoning/use and building/occupancy records, plus official or qualified local interpretation | That every desired rental arrangement is allowed |
| How is it classified for this appraisal or loan? | Appraiser's description, area treatment and lender's actual requirements | That financing acceptance cures a local issue |
| What benefit does the market support? | Comparable sales and, if relevant, defensible rent and operating assumptions for the supported use | A fixed premium based on renovation cost or advertised rent |
Request available records from the seller and responsible offices. Keep missing records and conflicting descriptions open. The absence of a document in your file is neither proof of approval nor proof that the space cannot be used. Ask the relevant office or adviser what the actual record and conditions mean.
Separate utility meters and a unique postal address can be relevant facts, but neither is a universal legal-unit test. Fannie Mae's guidance lists these among characteristics considered in distinguishing a one-unit property with an ADU from a two- to four-unit property; it also includes whether the unit can be legally rented.
Do not combine unlike floor areas
Under Fannie Mae's appraisal-report guidance, ADU area generally receives separate treatment rather than being added to the primary dwelling's finished above-grade area. The guidance includes an exception for an ADU within or part of the primary dwelling with interior access and above grade. Below-grade and other finished areas have their own reporting considerations. Ask the appraiser about the applicable reporting standard rather than applying one simple square-foot rule yourself.
Separate reporting does not necessarily mean zero value. It means you should not multiply every finished foot by the primary house's price per square foot and call the answer supported. Use the ARV comp worksheet with the actual configuration and relevant market evidence.
The same source discusses conditional treatment of zoning-noncompliant ADUs for its lending program. That is not permission to rent an unlawful unit. Keep local use, appraisal treatment and loan requirements separate even when one reviewer accepts the property for one purpose.
Copy this existing-space evidence worksheet
For each row, write the document or observation, date, unresolved point, next owner and purchase assumption affected.
| Worksheet row | Write down |
|---|---|
| Seller's description | Exact claim being tested, without adopting it as fact |
| Configuration | Relationship to main house, access, facilities, measured area and condition |
| Local record | Governing office, available use/permit/occupancy documents and specific questions still open |
| Local interpretation | Who evaluated the record, what use was addressed and any conditions or limits |
| Appraisal and financing | Actual classification, area reporting and lender questions for the intended transaction |
| Value and income | Supported comps and any supportable rent/cost assumptions, clearly separated |
| Purchase decision | Benefits excluded pending evidence; price and next check needed to proceed |
Invented illustration, not a real property or legal determination: a seller calls a basement kitchen and bedroom a second rental. The buyer has no official use determination or supported rent evidence. The buyer leaves proposed second-unit rent out of the purchase case and does not add the basement area to above-grade comp area. The buyer asks the responsible local parties about permitted use and records, and the appraiser and lender about their respective treatment.
That does not assume the space is worthless. It prevents an unverified benefit from setting the price. If the base case fails without the proposed rental, resolve the evidence before relying on that exit. Use the exit-comparison guide to separate resale value, rent and available cash.
Primary guidance checked November 11, 2026. This is not a local legality finding, permit-cure procedure or financing approval.
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