If You Are A California Homeowner, You Can Now Sell ADUs

On October 11th, of 2023, Assembly Bill No. 1033 was approved by California Governor Gavin Newsom.

The contents of this new bill are complex. But, the essence is quite simple: if you are a California homeowner, then it is now possible for you to sell ADUs.

A variety of reasons were given, regarding the passing of this bill. Out of all these reasons, though, one stands out above all the others: California’s housing market is unable to keep up with the demand for housing and ADUs serve as one way of creating affordable housing for those in need of a home.

To further encourage homeowners to build ADUs, up to 50% of estimated income from a new ADU can be used to obtain an FHA-insured mortgage that allows homeowners to build, and then sell, that ADU.

Going over what it means to sell an ADU, and how this new bill works, will allow you to satisfy the state’s requirements and make money selling your ADU.

What Is An ADU?

The term “ADU” refers to “Accessory Dwelling Unit.” Other names for an ADU include “granny flats” and “backyard units.”

An ADU is a self-contained secondary unit that sits on the same lot as a residential property, but exists as a self-contained dwelling.

A wide variety of different dwellings can be considered ADUs. Some of these dwellings are as follows:

• A converted garage.
• A portion of your home that is unused.
• A cottage in the backyard.
• A space above a garage.
• A basement apartment.

If you own, or intend to build, any one of the dwellings listed, then, assuming your municipality opts-in to this new law, you can now sell them in the state of California.

What Does This New Law Mean?

You can find many ADUs within the state of California. But, prior to the passing of Assembly Bill No. 1033, ADUs were only available for renting; homeowners were not allowed to sell their ADUs as homes.

The above is no longer true.

A homeowner can, if their municipality allows them to, sell the ADU that they have built. And, in doing so, they can sell it as a condominium, which means they must abide by the same rules that come with selling a condominium.

Just as an example, if you construct a cottage in your backyard, you can now sell that cottage as a condominium to someone who would like to own a home.

How Does It Work?

A homeowner who wishes to build, and then sell, an ADU must contact their local building department, in order to set up a lot split. If they are allowed to split the lot, and build an ADU, then they can proceed.

To further the process, a homeowner must then contact their local utilities provider. And, in doing so, they must clarify that they intend to build an ADU that is separate from their main home.

Right after doing so, a homeowner must then create a homeowners association for their property. This allows the dues needed to cover the cost of the property’s shared spaces – a driveway, for example – to be properly assessed.

A similar set of rules applies to water and electricity: both dwellings must have their own electrical meter and, in turn, their own water meter.

Even though an ADU is on the same property as a larger main home, there will be two distinct property taxes; one for the main home and one for the ADU itself.

A person who owns, and lives in, the ADU will need to pay property taxes on their main home. And, the person who lives in the main home will pay property taxes that are separate from the ADU.

Outside of what has been outlined above, any other, more specific, rules regarding the building and selling of ADUs, are left up to each municipality and what they believe is most appropriate.

Can Every California Homeowner Now Sell ADUs?

Every local government within the state of California that would like to allow their local homeowners to sell ADUs must opt-in to the “ADU as a condominium” approach.

If a particular local government chooses not to, then the people who live within the city or town that local government manages will be unable to sell ADUs.

On the other hand, if a particular local government does choose to allow their local homeowners to sell ADUs, and they opt-in to this law, then those living within the city or town that the local government manages can sell ADUs.