If You’re A California Homeowner, You Can Now Sell ADUs

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. This law takes effect January 2024.

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 your ADU with some requirements.

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.

What Is An ADU?

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

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.

If you own, or intend to build, a standalone ADU, then, assuming your municipality opts-in to this new law, you can now sell it in the state of California.

What Does This New Law Mean?

Many homeowners and investors have taken advantage of the incentives given by the state of California and local municipalities an ADU on their property. But, prior to the passing of Assembly Bill No. 1033, ADUs were only available for rental; homeowners were not allowed to sell their ADUs as homes.

The above is no longer the case.

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

For example, if you construct a cottage in your backyard, you can now sell that home as a condominium to a prospective homeowner. 

How Does It Work?

AB1033 created the Subdivision Map Act which grants local governments the power to regulate how their communities grow by requiring them to enact local ordinances that property owners must comply with to obtain approval to divide their land into smaller parcels. Further this new law no longer requires expensive lot line splits, city or county approval, or large parcels of land. Homeowners must also have all lenders and the existing HOA, if applicable, to approve the creation of separate property interests before submittal.

In addition, a homeowner must create a homeowners association for their property. This allows assessment of the dues needed to cover the cost of the property’s shared spaces such as a driveway or yard, properly assessed.

A similar set of rules applies to water and electricity: 

Even though an ADU is on the same property as the main home, there will be two distinct annual property tax bills; one for the main home and one for the ADU.

A person who owns, and lives in, the ADU will need to pay property taxes on their dwelling. 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 opts out, then the people who live within the city or town that local government manages will be unable to take advantage of AB1033.

Considering building an ADU on your property, and wondering if you can take advantage of AB1033? Contact OneStop ADU, we can perform a feasibility study at no cost to you. Our team of experience professionals provide backyard home consultation services throughout San Diego County. Including San Diego, Chula, Vista, Oceanside, and nearby areas.