Use California’s New Laws to Convert your Bay Area ADU into a Condo

California’s housing market is evolving rapidly, with new legislation paving the way for homeowners to maximize the value of their properties. One of the most significant changes in recent years is California Assembly Bill 1033, which gave Californians the ability to convert accessory dwelling units (ADUs) into separately owned and sellable properties. If you own an ADU or are considering building one, this guide will help you understand how ADU condo conversions work and whether this strategy is the right fit for you.

What is an ADU Condo Conversion?

An ADU condo conversion is the process of transforming an accessory dwelling unit into a legally separate property that can be sold independently. Traditionally, ADUs have been considered secondary structures on a property and could only be owner-occupied or rented out, but new state laws now allow homeowners to legally split their property and sell the ADU as a standalone home.

This process was first introduced in the City of San Jose and recently adopted by Santa Cruz, with other California cities, including Berkeley, Oakland, San Francisco, and San Diego, currently working on similar ordinances. By converting your ADU into a condo, you gain the flexibility to sell it as a separate unit, creating new opportunities for homeownership and increasing housing supply in high-demand areas.

How the ADU Condo Conversion Process Works

Step 1: Determine Eligibility

Before beginning the process, you need to determine whether your ADU qualifies for conversion. This involves checking local regulations, ensuring the ADU is legally permitted, and verifying that your property complies with zoning laws. If your property is part of a homeowners association (HOA), you will also need approval from the HOA board.

Step 2: Obtain Lienholder Consent

If you have a mortgage on your property, you must obtain consent from your lender before proceeding with the conversion. Lenders may have specific requirements or contingencies before approving the condo conversion. If your lender denies the request, refinancing may be an option.

Step 3: Establish a Homeowners Association (HOA) or Association Agreement

To legally separate the ADU from the primary residence, an association agreement must be created. Unlike traditional HOAs that govern large communities, this agreement is limited to the two property owners and defines shared responsibilities, if any, such as maintaining driveways, shared walls, or utility access.

Step 4: Conduct a Land Survey and Draft a Parcel Map

A professional land surveyor must create a parcel map that defines the physical boundaries of the ADU and primary residence. This step is critical in legally separating the two properties and ensuring that each has a distinct legal identity.

Step 5: Prepare and Submit the Condo Conversion Application

Once all necessary documents, including the governing agreement, parcel map, and lender consent, are in place, the condo conversion application is submitted to the city for approval. This process typically takes around two to four months, depending on the jurisdiction.

Step 6: Final Approval and Recording with the County

After the city approves the conversion, the final step is recording the new legal structure with the county. Once recorded, the ADU becomes a separately owned condo that can be sold independently.

Benefits of Converting an ADU into a Condo

1. Unlock the Value of Your Property

Selling an ADU separately allows homeowners to tap into the equity of their property without having to sell the primary home. This can be particularly beneficial for those looking to pay off a mortgage, fund retirement, or reinvest in other properties.

2. Create Affordable Homeownership Opportunities

With California’s ongoing housing crisis, ADU condo conversions create more homeownership opportunities by offering smaller, more affordable housing options. These units provide first-time buyers, retirees, and small families with a viable alternative to traditional single-family homes.

3. Reduce Property Taxes

Since property taxes are calculated based on property value, selling the ADU separately can potentially lower the tax burden on the remaining primary home. This is especially beneficial for homeowners on a fixed income who want to reduce their expenses.

4. Avoid Large-Scale Developments

Unlike SB9 lot splits, which could require significant changes to a property’s layout, ADU condo conversions work within the existing footprint of the home. This means fewer disruptions, lower costs, and a simpler path to adding housing in established neighborhoods.

5. Enhance Marketability

Detached ADUs that function as independent homes with private entrances, utilities, and outdoor spaces are particularly attractive to buyers. By separating ownership, you make it easier for potential buyers to secure financing and purchase the unit, increasing the likelihood of a successful sale.

Common Challenges and Considerations

While ADU condo conversions offer numerous benefits, there are a few important considerations to keep in mind:

• Lender Approval: Not all lenders may be willing to approve a condo conversion, so exploring financing options early in the process is key.
• Soft Costs: The process of converting an ADU into a condo involves legal fees, land surveying, and city application costs, and professional help to make sure this all goes smoothly – the total cost of which can range from $50,000 to $60,000.
• HOA Fees: While efforts are made to minimize shared responsibilities, some properties may require a small association fee to cover maintenance of shared spaces.
• Market Conditions: The resale value of the ADU depends on location, size, and buyer demand, so consulting a local real estate expert is crucial before moving forward.

Is an ADU Condo Conversion Right for You?

If you own an ADU or are planning to build one, converting it into a condo could be a smart financial move. Whether you want to generate income, reduce your mortgage burden, or offer an affordable housing option to the community, this strategy provides a flexible and innovative solution.

Before making a decision, consult with a real estate professional and a specialized ADU conversion consultant to determine if this path aligns with your goals. With more cities adopting ADU condo conversion policies, now is an excellent time to explore this opportunity.

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