BROKER RISK MANAGEMENT
WEEKLY PRACTICE TIP
Broker Risk Management (“BRM”) receives numerous questions regarding selling properties with accessory dwelling units (“ADUs”). The following addresses some of the most common issues.
Listing a Property with an ADU – Listing agents who are selling properties with an ADU should ask the sellers whether the sellers obtained permits for the construction of the ADU. If so, ask the seller whether the permits are available to provide to buyers. In addition, if a buyer asks if the ADU is permitted, your response should be, “According to the seller, the ADU is permitted. However, listing agent has not verified the information. A buyer should investigate.” Do not adopt the seller’s statement as true since you have not verified it.
It is strongly recommended that you refrain from checking the permits regarding the property or the ADU. Please note that the California Legislature has specifically stated that checking permits is outside of the scope of an agent’s duties (Civil Code §2079.3). Therefore, there is no reason to elevate your standard of care by checking permits.
If the seller advises you that there are no permits for the ADU, you should ensure that the seller’s Transfer Disclosure Statement and Seller Property Questionnaire properly disclose that fact.
If an ADU exists, listing agents should also note whether there is a discrepancy between the square footage identified on the tax records versus the seller’s representations, appraisals or other sources. It may be that the ADU was built without permits and the square footage discrepancy could be a red flag potentially identifying that issue.
Agents Representing Buyers with an ADU – If a property has an ADU and an agent is representing the buyer, the agent should advise the buyer in writing to investigate whether the ADU has permits. The agent should review the TDS and SPQ to evaluate the seller’s ADU disclosures.
In addition, the buyer’s agent should advise the buyer in writing to check permits and zoning to ensure that the construction of the ADU is built in accordance with local building codes and zoning laws. The local building department could require that the owner of a property with an unpermitted ADU to either modify the structure to comply with local Building Codes or remove the structure altogether, resulting in a significant loss to the buyer. In addition, unpermitted structures, including ADUs, cannot legally be rented without permits and compliance with the local Building Code.
Unpermitted ADUs – A new law as of January 2025 requires cities and counties to provide a clear process for homeowners to obtain permits for their unpermitted ADUs and Junior Accessory Dwelling Units built before 2020. Agents should note that this law still requires ADUs to comply with local Building Code requirements. Therefore, agents should never represent to buyers or sellers that illegal ADUs can easily be permitted, but instead refer their clients to a qualified California real estate attorney for advice.
Selling an ADU Separately – California law allows local agencies to adopt ordinances to allow the separate sale of ADUs and primary residences as condominiums. Any such ordinance must require that the process to establish the condominiums complies with both the Davis-Stirling Act, (which governs HOAs), and the Subdivision Map Act, which governs the subdivision of property. If a property is within an HOA, that HOA must approve the creation of the condominium. Other details also apply. If a seller is selling an ADU and/or the primary property separately, advise your client to consult with a qualified California real estate attorney before proceeding.
To properly advise parties regarding ADUs, BRM has created the attached “Buyer and Seller Advisory Regarding Accessory Dwelling Units.”
WEEKLY PRACTICE TIPS:
- Whether you are representing a buyer or a seller, do not check whether an ADU is permitted. Checking permits is beyond the standard of care for a real estate agent. Instead, advise your clients to check the permits, and to consult with appropriate professionals with any questions.
- If you are representing a seller, ask the seller if the ADU is permitted. If not, ensure that that fact is disclosed and that the seller has properly disclosed that fact on the TDS and SPQ.
- If you are representing a buyer and a property has an ADU, advise the buyer in writing to verify whether there are permits for the ADU and that it complies with local zoning laws.
- Use the attached buyer-seller Advisory regarding accessory dwelling units.
- If a buyer is interested in building an ADU, agents should use the attached Advisory to advise the buyer in writing to investigate whether it is feasible to build an ADU at the property.
- Agents should refrain from advising sellers and buyers of properties with ADUs regarding matters of construction, permitting, subdividing or selling ADUs separately as these issues require that the client consult with appropriate professionals such as architects, contractors and/or attorneys.
Attachment: Advisory Regarding Selling and Buying ADUs
WEEKLY PRACTICE TIP: DO NOT FORWARD TO CLIENTS. This Weekly Practice Tip is an attorney-client privileged communication for the exclusive use of clients of Broker Risk Management and their agents. It may not be reproduced or distributed without the express written consent of Broker Risk Management PC. The advice and recommendations contained herein are not necessarily indicative of standards of care in the industry but rather are intended to suggest good risk management practice.