I get asked this question often, and as much as I would like to give a figure like 15.4% higher, truth is I can't. The simple reason is because there is no good data for this.
What Realtors Say
Speaking to numerous Realtors "on the ground" I've heard price differences between legal secondary suites and illegal ones ranging from zero to 25 percent. Although it may vary based on the specific market, this range is not reliable at all in determining the real value difference between an illegal secondary suite and one that has been done properly and legally.
Why Actual Data Is Hard
There are several reasons why there is no good reliable data. And in many markets there probably actually is no difference in price. The reasons are:
1. First and foremost, many buyers aren't aware that there is an actual difference between a legal and an illegal unit, and all things being equal, will pay the same for either property.
2. There is little or no enforcement from the municipality on illegal suites.
3. Real estate listings are ambiguous on the issue, often using liability limiting language to hide the fact that it is an illegal unit.
4. In some cases, listings with secondary suites show up as legal after the contractor did the renovation according to building code but never got permits and did not register with the city. While this might look to be a legal unit to the untrained eye, it's not. If a neighbor called the city because they're not happy about your tenant walking on their lawn, guess what? The city inspector will check their system, and then come by to inform you that the suite is illegal, and the consequence can be any number of things, including shutting it down or a fine.
Where We're Heading
Having said this, the trend across all municipalities is that there is greater awareness and enforcement. More buyers with knowledgeable agents are asking for suites that are legal. As affordable housing is an increasing issue, many secondary suites are coming onto the renters market and tenants themselves are demanding properly built units.
There's also instances of RECO (Real Estate Council of Ontario), the regulatory body that governs Realtors in Ontario, being heavy handed in disciplining Realtors who are using ambiguous language on the legality of secondary suites on their listings.(1)
Some cities are staffing up on municipal licensing and building inspectors to investigate and shut down units that are illegal. Doesn't matter how cheery their golf shirts look.(2)
What this very well could mean in the near future is that you will have difficulty transacting any property with an illegal unit, at which point it would need to be legalized or removed. This will unquestionably translate to a tangible price difference between the legal unit and an illegal one.
There's also a good chance that community mailboxes will eventually phase out all individual mailboxes in people's homes. This can be an issue since you can only have one mailbox per single household, which will make mail delivery difficult for Illegal secondary suites. This is happening in many cities, and of course, is already an issue in newer developments with illegal suites. Right now in older communities, they're still able to deal with the issue simply by having a 2nd mailbox at the house with "Unit 2" on it.
Garbage bins is another potential issue. With 2 households, you're bound to produce more waste, and many cities have a cap on how many or how large the bins can be.
So even though it's hard to put an actual figure on the price difference, simply by doing it properly, you will likely experience greater gains in the future when the issue is front and center and all of the trends above become mature.
At Suite Additions, we're keeping a close ear to the ground on market data to get a better understanding of where the value's lie and what opportunities are available.
We are now tracking data on actual sale price of real legal units after going out to look at them, and then comparing them with sale prices of illegal units nearby. Once we have more precise data, we will provide that information on this site.
In the meantime, feel comfortable knowing the fact that a well constructed legal secondary suite is going to at least keep you in good standing with your city, lender and insurer. You'll know that the job was done right, and that any tenants you have living in it is safe. This ultimately will to lead to a much higher price.