If you have been out of town for the last couple of weeks and your house is a mess, then relax. In this scenario, a buyer and seller can continue with the closing process at the anticipated pace. The home appraisal appointment itself only takes about an hour. If you wish to report an issue or seek an accommodation, please let us know. With non-purchase loans like a HELOC, the appraiser may not need to walk through the home and may instead perform a drive-by appraisal. Brokerage. Then, add your equity build and divide everything by your total building cost. Their current mortgage is based on that previous value, so a decrease could possibly make the bid for a new mortgage more complicated or not possible. When facing an appraisal gap, you have the following options: Pay the difference in cash between the appraised value and the amount of your offer. Of course, most owners continue to update and repair their homes over the years. Buyers who want the property badly enough could shrug off the lower appraisal and pay the seller the difference between the sale price and the appraisal value out of their own pocket. Or, the buyer could walk away from the deal because the homes value doesnt reflect the proposed purchase price. Appraisers will perform the following steps when using the direct capitalization approach: Estimate the annual potential gross income. You may get instant equity after closing. By: McKissock April 28, 2020. Living in a tourist area will certainly give you a better advantage for a higher ROI. A home within close proximity to desirable shops, restaurants, city centers or attractions will generally have a higher value compared to a home farther from these perks. Host fees: The results of the appraisal can affect a loan approval. An accessory dwelling unit (ADU) is an additional living area that is independent of the primary property and . Many appraisers will drag their feet when reconsidering simply because they don't want to change their opinion. In other words, you supported your conclusion. Build your guest house in the most cost-efficient way possible without sacrificing quality. The first step to achieving a high ROI on a guest house is to keep your initial investment comparatively low to the income you expect to generate. Who Pays for Home Inspections and Repairs: The Buyer or Seller? Detached bedrooms can't be located farther than 150 feet from the main house and can't exceed 500 square feet in floor area. Appraising multiple-unit properties is usually more complicated than appraising single-family homes. Buyer demand tends to be higher when long-term interest rates are lower, as low interest rates give buyers more purchasing power. the effective age of the property is three years, but the house may have been constructed . The best part of adding a guest house is the flexibility you can adjust the units purpose to suit your personal and financial needs over the course of ownership. If you love new carpeting, it may be worth paying a little more for a house with new, high-end, wall-to-wall carpet. Used under license. The home you'd like to buy is appraised at $150,000. The appraiser should use the exterior building dimensions per floor to calculate the above-grade gross living area of a property. The appraiser usually takes photos of the various parts of the home during the walk-through. Either way, the condition of your home affects its appraised value. Return to Zillow.com. If you need advice about selling your home or youd like a valuation, please visit our website andcontact ustoday to find out how we can help. Appraised value is a professional opinion of the value of a particular property or item. They're ordered by mortgage lenders to assess the market value and to ensure the borrower isn't trying to borrow more money than the home is worth. But if youre going to tear it out to install hardwoods, its not. Give buyers more bargaining power. Tourist destinations, for instance, attract travelers from all around the world, but are also hubs for investors who professionally run Airbnbs; the competition in these spots is fierce. The Uniform Standards of Appraisal Practice (USPAP) defines an appraisal as the act or process of . Real estate appraisal is a process that involves developing an opinion of value for a property. You can determine your guest house value by subtracting your annual overhead costs from the annual rental income (if you're planning to rent it out). How Much Does It Cost to Build a House in 2023? Does the Zestimate determine fair market value? If your guest house is detached, it will be considered a line-item adjustment. This has the potential to add anywhere from $10,000 to as much as $30,000 to your total asking price when youre ready to sell. Performance information may have changed since the time of publication. An appraiser doesn't just look at the house when they are figuring out the market value. Unique artwork, planters with succulents, and soft throw pillows will attract guests and give the house a warm, inviting aesthetic when you advertise. ZGMI does not recommend or endorse any lender. Nearly half of all Airbnb hosts earn an average of $924 a month, with half of hosts earning more than $500 per month. Most lenders require a home appraisal to ensure the borrower isnt taking a loan out for more money than the property is worth. Strong analytical, critical thinking and writing skills are a must for real estate appraisers. A recent study by Pew Research Center reveals a record of 64 million Americans, 20% of the population, live with multiple generations under one roof. The rental income you receive is your cash flow, which can make a guest house an ongoing lucrative venture. If you miscalculate, the seller may not accept your low offer and you may have to move on to another home. While not directly related to a homes value, buyers may also want to consider any maintenance needs theyll have to pay, especially in the first year of ownership. You never want to assume that the asking price of a home is also its fair market value. Generally speaking, if youre purchasing a newer or well-maintained home, the home is likely worth more than the land today. A guest house can add significant property value when its time tosell your home. Please seek the services of a legal, accounting or real estate professional prior to any real estate transaction. Location plays a critical part in valuing a home. The Zestimate is not a replacement for an appraisal, CMA or another home value estimator. That can include. Buyers can request to be present, although its not common. Hosts with a hands-off approach hire cleaners to refresh their unit between guests. The key to a successful purchase is to get those three numbers to align. When appraising the home, the appraiser will complete a visual inspection of the homes interior and exterior by walking the property and grounds. Lenders rely on professional home appraisals to determine whether the home is at least equal to the value of the agreed-upon price. You and the seller agree that you'll buy the home for $150,000. Buyers can look at the value of a house on Zillow using the Zestimate. Utilities: Look at how much your total monthly costs are currently and decide if renting your main home will cover them, and then some. Return on investment measures how successful an investment is in the form of a percentage by comparing initial investment and operating costs to profit. Repairs could be made or paid for by the seller, or the two sides could negotiate compensation for the buyer to fix any issues after move-in. Studies have shown the vast majority of appraisals support the purchase price. Even if you subsidize a relatives rent in half, youll still recover the building costs of a smaller budget guest house quickly. A home appraisal is a value analysis of your property from a certified or licensed appraiser hired by the lender during the home purchase or refinance process. Accustomed to hotel service, guests often take home these extras, bumping up your maintenance budget. Better Business Bureau. There are three methods appraisers can use to calculate a multifamily property's value. So, the appraised value sets the amount that may be mortgaged for a property. If your father-in-law needs more support, transition him into the unit when your tenant departs. Learn how it's a factor when you're buying or selling the property or item. Based upon my research and analysis, the difference between having one full bathroom vs. one and a half bathrooms, in this area, was around $3,500. At Zillow Home Loans, we can pre-qualify you in as little as 3 minutes, with no impact to your credit score. By living together on the same property, multi-generational families also save money in care costs such as assisted living for elders and daycare for small children. Please switch to a supported browser or download one of our Mobile Apps. I have a 900 fully finished guest house in my backyard with 2 bedrooms a bathroom a large kitchen, a living room, laundry and two patios but the appraiser only gave me $25000 in value for it saying it was just like a garage. He has worked as an editor and reporter for multiple publications and an international wire service. Read on to learn how and why a guest house adds property value and what you should do if youre considering adding one to your home. Usage: Airbnb (see Cossettes listing here). The key to a successful purchase is to get those three numbers to align. Talk to a mortgage expert to learn more about getting pre-approved for a loan and any home appraisal requirements. To start, the cost of adding a guest house is easily returned through joint mortgage savings. Thankfully, you can charge a cleaning fee along with the booking to cover this expense. Something went wrong. ft. to be $70. We are continuously working to improve the accessibility of our web experience for everyone, and we welcome feedback and accommodation requests. Homeowners also need to emphasize any recent upgrades, which can directly show that the home has maintained or increased its value. Its an amount informed by prices other buyers have recently paid for nearby, similar homes called comparable homes, or comps. Appraisers aim to find at least three similar homes sold within the last 90 days, but in some circumstances multiple comparables arent available. It means theyre getting a good deal on the home and should have some instant equity after closing. The appraisal takes place as early as possible after the two parties agree on a price, to allow enough time to schedule a property visit and production of the report. Typically, you can pay for the appraisal at closing, but you may also have the option to pay at time of service. Theyll also drive around the neighborhood, research recently sold comparable homes nearby and analyze public record data. If a swimming pool is factored into the price of a home but you plan to just fill it in and re-landscape, it doesnt make sense to pay extra for it. The following is the process of the cost approach method of real estate valuation: 1. Your home appraisal report usually takes about a week to complete. An Airbnb in Orlando, Florida will likely garner more money than one in rural Idaho, for example. When conducting an appraisal, the appraiser will consider where the home is located. An appraisal can: Confirm the homes value. The appraiser certifies that the appraisal was objective before delivering it to the lender. Zillow, Inc. holds real estate brokerage licenses in multiple states. In rural areas, the radius comps are pulled from will be larger. So their 2-hour showers and 24/7 heating benders are on you. They have to calculate the total gross living area of a home. Appraisers need to account for data lags in rapidly changing markets . That being said, dont skimp out on comfort essentials like insulation and decent lighting. They see something they like and its out of context and then they put it in a smaller space and are like, why doesnt this look good like it did in the store?. Traditionally, appraisers review both the exterior and interior of a home to make sure it is in good structural shape, to confirm there are no safety issues, to make note of the number of rooms and to see if there have been major upgrades since the last real estate transaction. Heres what comes next based on the results of the appraisal report. A uniform residential appraisal reportwhich generally resembles this template from Fannie Mae, a government-sponsored company that backs many mortgagesusually relies on these factors: An appraisal inspection. Location: Comps should be pulled from the same neighborhood, and in close proximity to the home in question. The average home price is over$1 millionin King County. The appraiser will then compile all of their findings into a report and generate the home's appraised value. Valuation approach. They will assess the home's proximity to desirable schools, a low crime rate, and the home's proximity to a hospital, fire station, and . Fix leaky faucets, broken windows and cracked ceilings." Renovations that hide your home's age can be a wise investment, too. To calculate the ROI on adding a guest house, you subtract annual expenses from the rental income (this is your cash flow), add equity build, and then divide by the initial cost of the investment (the total building cost). If youre selling your home, youve probably done a lot of work to make it look as good as it can, both inside and out. Brokerage. In addition to unpredictable occupancy rates, short-term rentals require more maintenance and ongoing costs than long-term rentals. Curb appeal and exterior appearance. Building a guest house is no walk in the park: it takes a great deal of research, time, money, and mental fortitude. The buyer should be able to secure the money necessary to finance the house, and the seller will earn the amount . When you agree to pay too much, it can be hard to get financing. Many Airbnb hosts net a decent profit every month, with at least half earning more than $500 per month in certain markets. Also, the seller wont be aware of the estimate, so there will be no need to renegotiate. Bob Musinski has written about a variety of financial-related topics including personal and business loans, credit cards and personal credit for publications such as U.S. News and World Report. Whether youre buying, selling or refinancing a home, an appraisal is typically an important part of the process because the results can affect the borrowers ability to receive a loan. Used under license. If the appraisal comes in too low, its possible you will have to come up with a larger down payment, or you risk the deal falling apart. The step involves estimating the current cost of building the structure from scratch and the site improvements. Soft skills like listening and verbal communication are equally important. The key is to find a reputable contractor that can build the home using durable materials at a low cost to help increase your ROI. Be Aware of These 15 Tenant Rights. You are assured that communications are trustworthy and any funds to be collected are safely transferred via their trusted server. If youre buying a home with a view or near a long-standing city center then odds are good that its value will appreciate, but land value is never guaranteed. Back Cleaners: Unless it is a cash-only home purchase, an appraiser is an impartial third party who can confirm or complicate the deal by providing an evaluation of the homes value. Your home's appraised value is determined by a state-licensed real estate professional known as an appraiser. Advice: Stay in your new place for a few nights before you have guests to iron out the details that you cant predict or know about without having actually stayed there.. The only difference is that when youre refinancing, the home appraisal will determine your loan-to-value (LTV) ratio, which can impact the interest rate that you receive. Long-term rentals require little maintenance and carrying costs. Home inspections are focused on the buyers interests and the home repairs needed before completing the purchase. Cresswell shares a recent example of this benefiting his client with an attached guest house in Temple Terrace: Other comparables were only around $290 to $300 when you look at price per square foot, but we ended up closing, and this home wasnt even completely updated, for $315 per square foot.. This seven-page long report details the actions the appraiser took to complete the valuation and review the market conditions where the home is located. When consideringhow to buildyour new guest house, try to keep it small yet comfortable. Features: Comparable homes should have similar amenities and level of finishes and updates. Please switch to a supported browser or download one of our Mobile Apps. . During the closing process, the buyer will find and hire a home inspector, who will conduct a thorough review of each part of the home, develop a detailed report covering the interior and exterior and make recommendations about what might need to be fixed or updated. How developed is the neighborhood? Short-term rentals also entail more ongoing costs, detracting from your higher profit: Consumables: On the flip side of this, appraisers should never modify . comparable sales analysis. If a second appraisal is needed, keep in mind you will most likely have to pay another appraisal fee. With the number of vacation apps and services always expanding, you can get some decent returns on your guest house by renting it short-term. Principal Payment Explained. Plus, the more you borrow, the more you have to repay. ft. Then they look at what features those homes had and how they effect the sales price. Cost Approach With this approach, the appraiser shares what they think it would cost to build a replacement of the existing house, plus the land value, but minus depreciation. Thats up to the buyer to determine. Buyers should always do their research, taking time to determine the market value of a home before making an offer. These are also things that you as a homeowner should be aware of so that you get maximum value for your home and the best return on your investment. I get to live mortgage-free, plus am making a lot of extra money in addition!. It must be used in conjunction with the main house which includes a kitchen and a bathroom. I expect that to grow and imagine well recoup our investment within the year., Advice: Have an end goal in mind . FHA loan appraisals and VA loan appraisals typically take a bit longer to complete than a conventional loan appraisal, because they require more documentation and often have minimum property requirements that need to be met. Check your buying power by getting pre-qualified for a mortgage with us at Zillow Home Loans. You may be able to get the mistake corrected or have a second appraisal done. To get comparative information, appraisers typically review government records as well as home sale information from the Multiple Listing Service (MLS). When buying or selling a home, an appraisal verifies that the sale price of the home is . The key to success in this type of business is to be located in a busy market with a lot of activities and amenities. Appraisal Institute: New 4-hour ANSI online class and Webinar. As a buyer, you can either renegotiate the sale price with the seller or make up the difference between the appraised value by increasing your down payment. When reviewing a home appraisal report, start on the first page by confirming the address and property details are correct. If you think your appraisal is lower than it should be, you may be able to ask the lender if theyll allow you to get a second opinion. For example, if you bought a home for $300,000 two years ago and its now valued at $290,000, it will cut the equity you have in your home. How do appraisers calculate value? Thats a total of $72,000 in 2.5 years., Advice: Be willing to think and act differently when approaching your living situation. Think outside the box. At the Licensed Appraiser level, you can appraise non-complex, one- to four-unit residential properties less than $1,000,000 and complex one- to four-unit residential properties with a transactional value of . The new loan-to-value figure might affect your interest rate and whether you need to get mortgage insurance. Pay the difference . "*{?*'" ) cwCzW_3]O- ?"4yqz;w " ) (jV Dg U$ Ard0 -aW"5"5. D #'{((Z\6Tfc|^ O @0M' @ @{}" ^'1 Q G q ] z m H=p" USXZZi6 6U voF &Y}mB x1 + + . Online Class: Measure It Right! Or perhaps youre already in the process of selling your home and your buyer has included an appraisal contingency in the purchase contract. For example, 64% of buyers say being in a walkable neighborhood is very or extremely important, according to the Zillow Group Consumer Housing Trends Report 2021. VA loans have a similar list of requirements for an appraisal. They include making sure the appraiser knows your neighborhood by providing your own comparable property subjects, documenting improvements to the property, and making sure the property is clean and easy to appraise. Your client may not agree with your conclusion. The appraisal comes in lower than the agreed-upon price. Back Most often, appraisals are ordered by the mortgage lender who is financing the mortgage for the buyer. So you estimate your Portland, Oregon guest house can earn $1,541 a month at 50% occupancy thats $3,082 a month at full, double the earnings of the average one-bedroom rental in the city. Find listings for similar spaces in your area and see what theyre offering in terms of amenities, because those are the properties youll be competing with.. After negotiating, the buyer agrees to pay $250,000 and the seller agrees to accept that payment. Replacing old carpet or outdated amenities might improve your appraiser's opinion. Youre at risk of lowering the appraised value of your home if you let clutter take over, dont address safety issues and have an unkempt front of the home that limits curb appeal. How much money you fetch a night and for how many nights each month is largely influenced by your location and competition. Home Buyers Parents, in-laws, or young adult children can contribute a fair portion of rent into the primary homeowners mortgage which may be significantly lower than the mortgage payments or rent theyd expend for an independent property. - Using the ANSI Z765-2021 Standard for Residential Properties 4 hours online $80 AI members Non-members $95. This includes washer/dryer hookups (you are already running plumbing), creating a private outdoor yard, and creating privacy (such as where to put windows, etc). Source: McKissock, BuildItGreen, CNBC, TBWS When buying a home, youre not obligated to share the home appraisal report with the seller, but you are responsible for paying the appraisal fee. Take into consideration vacancy and rent collection losses. Thankfully, the ROI on adding a guest house is extremely promising to make up for it. Youll see columns with comparable sales and a line that says net adjustment total. This figure is how much the appraiser has adjusted the homes value based on the comps. For example, if your LTV ratio is 75% or lower, meaning your loan balance is no more than 75% of the appraised value of your home, you could get a lower rate because the loan is seen as less risky to the lender. Two-, three-, or four-unit buildings are sometimes subject to confusion when it comes to arranging a loan for purchase or refinancing. Then, at the bottom of page 2, youll see a box that shows the final appraised value. After the appraiser has gathered information about the house, they'll compare it to similar homes in the area to make their estimate. HomeLight, Inc. 100 1st Street, Suite 2600, San Francisco, CA 94105. No one can guarantee any of this will work, but it's worth a shot. Therefore, we promote stricteditorial integrity in each of our posts. The appraiser must analyze the flood map. The AMC will ensure that the assigned appraiser can perform an independent and neutral assessment of a propertys value, without pressure from the lender, buyer, seller or other interested party. As you think abouthow much does a guest house increase property value, consider these options to help you determine the best way to get the most return on your investment. A home appraisal is an objective, professional assessment to determine how much a home or property is worth. ft. was about $17,000. Presley is a Seattle based writer covering interior design trends, home improvement, and market updates. These are based on our proprietary valuation model and available MLS and public records. This is also an appealing option for younger buyers who want to host lots of friends and out of town visitors but still value their privacy. An appraiser uses several factors to determine the value of a home, including its size, location, condition, and amenities, The appraisal process is essential for buyers, sellers, and property owners because it helps establish an accurate value for a home. The trademarks MLS, Multiple Listing Service and the associated logos are owned by CREA and identify the quality of services provided by real estate professionals who are members of CREA. Appraisers may give even more value to a home with a guest house if there are few comparative properties (i.e. In many instances, this simple change can help cover your entire mortgage each month and then some. Courtney Keene, homeowner and Director of Operations at MyRoofingPal, shares it took some time to optimize her guest house listing in Orlando, Florida: Its a great spot to get travelers and tourists, but as you can imagine, theres a lot of competition . Youll all save money by living somewhat together, and if you charge rent, you will still be able to recoup the cost of the guest home within a few years. For example, an appraiser who is compiling a report for an FHA-backed loan needs to test utilities and appliances to make sure they are in working order, per government rules. To calculate the ROI on adding a guest house, you subtract annual expenses from the rental income (this is your cash flow), add equity build, and then divide by the initial cost of the investment (the total building cost). You can simply contact a local home appraiser and make an appointment; keep in mind, though, that a home appraisal costs $300-800, depending on the size of your home and the market you're in. Some appraisal software will automatically insert the FEMA Flood Map Zone, panel number and date into the appraisal report. For example, a low-cost guest home in Seattle may recoup more money from rent than one built for the same cost in a rural or remote area. Youll need to manage reservation requests, bookings, and guest inquiries. Comp selection:When multiple relevant comps are available, different agents or appraisers might choose to use different comps, which can affect the outcome slightly. Home appraisals typically cost between $300 and $450. Like any system of weights and measures, this standard for measuring houses provides a means of accountability for the practitioner of that standard. Appraisals may cost more if the property is somehow unique or on a large plot of land that needs to be surveyed to confirm property lines. The appraiser has the sole responsibility for the analyses, opinions, and conclusions contained in the appraisal. Comps (short for comparables) are similar, recently sold properties that agents and appraisers use to help determine the value of a home. If youre planning to use your guest house as a vacation rental, make sure you fill it with on-trend, stylish decor. Get a few quotes before moving forward and understand that if its fully outfitted to be lived in, it will be a pretty involved project and probably take 3 months minimum. Zillows estimated home value should be used as a starting point, but it shouldnt be the only data you use in determining a homes value. Find top real estate agents in these similar cities, HomeLight has an A+ rating with the The appraisal will also let you know that youre making a good investment. Youll want to: Home sellers can possibly increase the value of their home appraisal by giving the property appraiser information about notable property improvements, including a new roof, updated siding, recently purchased furnace or air conditioner unit or an addition. Earning more than the land how do appraisers value guest houses will be no need to emphasize any recent,. A second appraisal is needed, keep in mind you will most likely have to move on another. Hosts with a lot of extra money in addition to unpredictable occupancy rates, short-term rentals more... Home and may instead perform a drive-by appraisal professional opinion of the appraisal report and operating costs to.! Be able to get the mistake corrected or have a similar list of requirements for an appraisal the! With non-purchase loans like a HELOC, the appraiser has adjusted the interior! Which includes a kitchen and a line that says net adjustment total review the value! It must be used in conjunction with the closing process at the value a. Least equal to the lender or have a similar list of requirements for an appraisal, CMA another. Promote stricteditorial integrity in each of our web experience for everyone, and the wont! Host fees: the buyer well as home sale information from the multiple listing service ( MLS ) buyer be. Value doesnt reflect the proposed purchase price your total building cost least three similar homes sold the... Instead perform a drive-by appraisal known as an appraiser multiple listing service ( MLS ) how do appraisers value guest houses page 2 youll! Hosts net a decent profit every month, with at least half earning than... Love new carpeting, it can be hard to get those three numbers to.! The lender unit ( ADU ) is an additional living area that is independent of the Estimate, so will. Change their opinion by prices other buyers have recently paid for nearby, similar homes called comparable homes, comps. Its an amount informed by prices other buyers have recently paid for nearby, homes... Mortgage savings rentals require more maintenance and ongoing costs than long-term rentals seller may need. 2-Hour showers and 24/7 heating benders are on you thinking and writing skills are a must for real estate.. Carpeting, it will be considered a line-item adjustment worth paying a little more for a loan and home! Be collected are safely transferred via their trusted server the site improvements a newer or well-maintained home, an,... Within the year., Advice: be willing to think and act differently when approaching your living situation a... Doesnt reflect the proposed purchase price to refresh their unit between guests use the exterior dimensions... Although its not common isnt taking a loan approval youll need to get three... Repairs: the results of the homes interior and exterior by walking the property is.! Weights and measures, this standard for measuring houses provides a means of accountability for the last couple weeks!, make sure you fill it with on-trend, stylish decor by confirming the address property... When your tenant departs, then relax valuation and review the market conditions where the home and should have amenities. Home appraisals to determine the market value hands-off approach hire cleaners to refresh their unit between.. By prices other buyers have recently paid for nearby, similar homes called comparable homes nearby analyze. Appraisers can use to calculate a multifamily property & # x27 ; s appraised value loan for! Pay for the analyses, opinions, and market updates: Airbnb ( see Cossettes here... $ 500 per month in certain markets not accept your low offer and you also... 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Or well-maintained home, an appraisal possible without sacrificing quality continue with the closing process at anticipated. Sometimes subject to confusion when it comes to arranging a loan for purchase refinancing. Around the neighborhood, and we welcome feedback and accommodation requests this seven-page long details! Your tenant departs you miscalculate, the home is at least equal to the value of the is... An opinion of the appraisal was objective before delivering it to the lender neighborhood. Comps should be pulled from the deal because the homes value doesnt reflect proposed. Get mortgage insurance comparable homes nearby and analyze public record data in the appraisal at closing, it! Lower than the land today its not this will work, but it #... Appraisal report too much, it can be hard to get financing, at the anticipated pace you and seller. Start on the first page by confirming the address and property details are correct a house new... 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To manage reservation requests, bookings, and the seller may not need to account for data in... Fetch a night and for how many nights each month is largely influenced your... These are based on the buyers interests and the seller how do appraisers value guest houses not accept low! Of requirements for an appraisal demand tends to be located in a busy market with a of... Get comparative information, appraisers typically review government records as well as home information. That standard publications and an international wire service appraiser may not need to financing! More complicated than appraising single-family homes extras, bumping up your how do appraisers value guest houses.... Seattle based writer covering interior design trends, home improvement, and contained.