Introduction to AB1033: Can You Sell an ADU in California?

Accessory Dwelling Units (ADUs), also known as granny flats, in-law suites, or backyard cottages, have become increasingly popular in California. They provide homeowners with more living space, potential rental income, and a solution to the state’s ongoing housing crisis. However, one common question many homeowners have is: Can you sell an ADU in California?

In 2021, the state legislature passed AB1033, a bill that specifically addresses the legalities surrounding the sale and financing of ADUs in California. This law clarifies how ADUs should be treated in the real estate market, including whether or not they can be sold separately from the primary residence.

In this article, we’ll explain everything you need to know about AB1033, its impact on ADU sales, and what it means for property owners and potential buyers.

What is AB1033?

AB1033, signed into law in 2021, is a piece of legislation aimed at streamlining and clarifying the rules regarding the sale, financing, and legal treatment of Accessory Dwelling Units (ADUs) in California. The bill specifically addresses the question of whether an ADU can be sold separately from the primary home. Prior to AB1033, many homeowners were unsure of the legal implications of selling their ADU independently or separately from their main residence.

AB1033 essentially clarifies that:

• ADUs cannot be sold separately from the primary residence unless the property is subdivided into multiple parcels.

• ADUs are considered part of the primary residence for legal, tax, and financing purposes.

This law seeks to provide greater consistency and predictability for homeowners and real estate professionals dealing with ADUs, and it is part of the state’s broader effort to encourage ADU development as a solution to California’s housing shortage.

Can You Sell an ADU in California?

Under AB1033, you cannot sell an Accessory Dwelling Unit (ADU) separately from the main house unless you undergo a formal subdivision process. This means that, while you may sell your property with an ADU on it, you cannot sell the ADU as a separate unit unless it is legally divided from the primary residence.

Here’s a breakdown of the key points:

1. ADUs and Property Subdivision

If you want to sell the ADU separately from the primary residence, you would need to go through a subdivision process to legally divide the property into two parcels. This process is complex and typically requires:

• Approval from the local city or county government.

• Meeting zoning and land use regulations.

• Submitting formal applications and plans to the local planning department.

This process can be costly, time-consuming, and may not always be possible, depending on the local zoning laws. Most homeowners will find that selling the ADU separately is impractical.

2. ADU as Part of the Primary Residence

For most property owners, the ADU is considered an integral part of the primary home for legal and financial purposes. As such, when you sell your property, both the ADU and the main house are sold together as one unit.

While you cannot sell the ADU separately, you can still:

• Lease the ADU to generate rental income before selling the property.

• Include the ADU as part of the value when selling your property, which can increase the overall market price.

3. Financing and ADUs

Under AB1033, obtaining financing for properties with ADUs can be a bit more complex than for properties without ADUs. Lenders may view the ADU as part of the overall property value, meaning that they will take both the primary home and the ADU into account when assessing the property's total value.

However, you should be aware that some mortgage lenders may require additional documentation or inspections to verify the ADU’s compliance with local building codes and zoning regulations.

Key Considerations When Selling a Property with an ADU

If you're thinking of selling a property with an ADU, there are several things you should keep in mind:

1. ADU Legal Compliance

Before selling your property, ensure that the ADU complies with all local zoning laws, building codes, and regulations. ADUs that do not meet city or county requirements may be subject to fines or legal issues, and buyers may be hesitant to purchase a property with an illegal ADU.

2. Tax Implications

The sale of a property with an ADU could have tax implications, especially if the ADU has been generating rental income. It's important to understand how taxes on rental income, capital gains, or property taxes will affect the sale price and your net proceeds. Consider consulting with a tax professional to ensure compliance with tax laws.

3. Marketability of Your Property

Including an ADU can make your property more attractive to potential buyers who are looking for rental income opportunities or extra living space for family members. Depending on the size and design of the ADU, it could increase the overall value of your home, making it more competitive in the market.

4. Local Zoning and Land Use Regulations

Check your local zoning and land use regulations to ensure that your ADU is permitted and conforms to city or county policies. Some cities may have restrictions on renting or subdividing properties with ADUs, which could impact the property’s future use and sale.

Check San Diego ADU Regulations & Zoning