Enabling a Pathway for the Separate Sale of an ADU
ADU Goal Supported: Amending ADU Codes to Increase Development
Overview
This strategy encourages the separate sale of an ADU, also referred to as ADU condoization or ADU condo conversion. This process allows an ADU to be split into a separately saleable condominium with distinct ownership, while remaining on the same parcel as the primary residence, meaning there is no actual subdivision of the land itself. The resulting for-sale ADU is a legally recognized, independent property with its own deed and ownership rights, managed under shared agreements and governance structures. By adopting an ADU condoization policy, an ADU Supportive Jurisdiction can help increase access to homeownership, wealth building, and ADU development.
Benefits
- Creates for-sale ADUs that are typically less expensive than primary homes in the same area.
- Broadens access to homeownership and wealth generation through smaller, more affordable units. In particular, it can enable moderate-income buyers to enter the housing market, including in older, established neighborhoods.
- Leverages existing residential properties to meet housing demands more efficiently.
- Provides economic flexibility for homeowners by giving them the ability to sell or finance their ADU separately from the primary residence, unlocking equity and generating capital without needing to sell their entire property or to accrue rental income over time. For example, it can allow an elderly homeowner to convert his/her property, sell the primary residence to pay off debt, and remain mortgage-free in the condoized ADU.
- Provides an option for larger, immediate financial returns on ADU development.
- Can create increased property tax revenue because the ADUs are reassessed at market value upon sale.
- Convene a cross-departmental team. Assign program leads and bring in all necessary departments, including planning, building, public works, utilities, and others.
- Clarify and confirm goals. Using the “benefits” list above as a starting point, articulate clear goals for the program, including desired outcomes and metrics of success. Review, refine and confirm the goals as part of the stakeholder and public engagement process.
- Review relevant local policies. Conduct a review of local ordinances to identify any policy barriers, as well as opportunities to incorporate separate sale into an existing zoning, subdivision, or condominium code.
- Conduct stakeholder and public engagement. As part of a broader housing strategy conversation or as a stand-alone policy process, engage key stakeholders and the community at-large in reviewing and refining policy goals, evaluating program options, and determining program metrics. Stakeholder groups can include those with knowledge of the local housing market (realtors, lenders, developers) as well as representatives from neighborhood groups and housing advocates.
- Identify partnerships. There may be opportunities to partner with non-profit organizations and affordable housing providers in your community, like Habitat for Humanity, that have expressed interest in utilizing such a policy.
- Evaluate and decide on program design options. Take into consideration policy goals, policy gaps that require drafting and adopting ordinances, and the necessary administrative workflows (which may require partnership with outside departments – see below steps for more details). Options to consider include:
- Potential resale restrictions to prevent quick resale, which can cause substantial increases in ADUs rents/costs
- Geographic limitations
- Potential incentives for participation (such as fee waivers/reductions)
- Once the program is designed, confirm standards and administrative workflows for the program, including:
- Parcel mapping requirements
- Governance structures
- Safety inspections
- Lienholder consent
- Utility and infrastructure requirements
- Create applicant support and public resources. Applicants will need comprehensive guidance materials about what it means to engage in the separate sale program. Provide handouts and a public-facing webpage and consider outreach events. If possible, provide templates for Covenants, Conditions, and Restrictions (CC&Rs), condominium plans, and HOA agreements to guide applicants through setup and compliance.
- Ensure homeowners are aware of the program and its benefits. Utilize existing communication channels to reach existing ADU homeowners (e.g., city newsletters, utility bill inserts, social media) and to make sure homeowners considering a new ADU are aware of the separate sale option. Local media, targeted mailings, and/or presentations to groups like community organizations can help get the word out.
Separate sale opportunities can possibly lead to developers buying an existing home, building an ADU, and immediately selling both. This may be a needed and welcome way to add more accessible homeownership opportunities in existing neighborhoods, but it might also lead to community/political backlash and impact local housing market dynamics. Jurisdictions should consider their priorities in adopting this strategy and weigh responses accordingly.
- Consider establishing a program in which only nonprofits and community land trusts can utilize the separate sale provisions, with complementary policies and programs to support and incentivize affordable for-sale ADUs.
Allowing the separate sale of existing ADUs could lead to displacement of current tenants. This risk aligns with concerns about affordability and accessibility, especially in high-demand areas with limited affordable rental housing and where separate-sale ADUs are likely to command high prices.
- Depending on the local market and housing policy priorities, consider a first-right of offer to tenants in existing ADUs, allowing them to become ADU owners. This can be linked with a down payment assistance program.
- Some communities require at least three-months of notification to impacted tenants, relocation assistance, and/or other tenant protections.
Homeowners may find the cost of conversion and parcel mapping process to be expensive and prohibitive.
- Providing financial incentives and comprehensive technical assistance and clear resources can help reduce this burden. Technical assistance can be provided to all homeowners, with financial assistance targeted to income-qualified homeowners or affordable housing developer partners.
Homeowners may face difficulties working with financial institutions. Obtaining consent from lienholders and navigating existing mortgages can be challenging.
- Engage local lenders early in the policy and program design process to address concerns and ensure that necessary support as well as targeted lending products are available.
Outside of Colorado:
- San Jose, CA: The City has a newly adopted ADU Condoization ordinance (website and ADU Condominium Checklist for homeowners).
- Seattle, WA: ADUs can be sold separately under a condominium agreement. A 2022 report found that ADUs sold as condos cost 40% less than a single-family home on the same parcel. (See more condoization details in their 2023 ADU Annual Report.)
- Allowing ADUs in Zones Other Than Single-Family: Adding an ADU (or even multiple) to multi-family properties and then allowing these units to be sold separately is particularly fitting for existing condo developments.
- Providing Development Bonuses to Nonprofit Developers: This strategy can be used in coordination with an ADU condoization policy to incentivize nonprofits and community land trusts to develop ADUs that are then made available as affordable for-sale units.
- ADU Technical Assistance for Homeowners: Navigating separate sale of an ADU can be a daunting prospect for a property owner. Outreach materials and technical assistance with clear, plainly written instructions and connections to resources (ex: requirement checklists, applications, contacts) are key to the success of a condoization policy.