Blogs & Information

What's an Accessory Dwelling Unit? (ADU)

An accessory dwelling unit, usually just called an ADU, is a secondary housing unit on a single-family residential lot. Think of it as a guest house or in-law house that is fully permitted and the homeowner can rent out for additional income.

 

The term “accessory dwelling unit” is an institutional-sounding name, but it’s the most commonly-used term across the country to describe this type of housing. While the full name is a mouthful, the shorthand “ADU” is better.

The fact that it’s a secondary housing unit—rather than a given structural form—is what defines an ADU. But, when we’re learning about concepts, it’s natural to want to know what that concept looks like in the flesh. We want to visually embed the design concept in our brains as a tangible object that we can mentally reference.

 

However, ADUs vary in their physical form quite a bit, so allow me to broaden that mental model by exposing you to the range of common ADU types, in order to better understand what they are.

Different Styles of ADU's

ADU's come in different styles. The most common is a detached unit where the ADU is a stand-alone unit that is smaller than the main home. Sometimes called backyard cottages, granny flats, laneway houses, or DADUs, depending on the jurisdiction. Other styles of ADU's include garage conversions (take your existing garage, pull permits for the conversion and begin construction. Another common ADU is an above-garage unit. As it sounds, build a unit above your existing garage, taking advantage of vertical space. 

West Coast Property Partners has built custom ADU's before. Here's our latest build in Toluca Lake California, a 450 sqft unit with a dedicated bedroom. 

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Why Build an ADU?

This is the most common question. Why? The number 1 reason is for passive income. Essentially, you can become a landlord just by renting out a unit in your backyard. The generated income is useful to pay off your mortgage or just have extra funds. 

 

If you don't want a long-term tenant, Airbnb short stays can still be very lucrative. This is perfect for LA residents due to the housing shortage and for those traveling to LA for short term business trips.

 

If you're not at all interested in renting it out, you can still use it for when guests come over and spend the night. They can have their own privacy and even use their own kitchen. 

What's the difference between Assessed Value and Market Value?

Home prices aren't set in stone; instead, their value can change depending on a few key factors—that's what makes buying and selling real estate so fun! (Or frustrating, depending on your perspective.)

As a buyer or seller, you will likely hear two "prices" thrown about: assessed value versus market value.

 

So what's the difference?

 

While assessed value and market value may seem similar, these numbers can be different—typically, the value as assessed is lower—and they're used in different ways. So let's clear up any confusion, so you can use these terms to your advantage.

Assessed Value

To arrive at a value for tax purposes, the assessor looks at what similar properties are selling for, the value of any recent improvements, any income you may be making from, say, renting out a room in the property, and other factors—like the replacement cost of the property if, God forbid, it burns down in a fire (which sounds dark, but assessors are thorough professionals, who consider every possibility).

In the end, the assessor comes up with an assessment value of a home and deducts any tax exemptions for which you qualify. Then, that number is multiplied by an “assessment rate,” also known as "assessment ratio," a uniform percentage that each tax jurisdiction sets that is typically 80% to 90%, to arrive at the taxable value of your property.

 

So if, say, the market value of your home is $200,000, and your local assessment tax rate is 80%, then the taxable value of your home is $160,000. That $160,000 is then used by your local government to calculate your property tax bill.

The higher your home's assessed value, the more you'll pay in tax. You can check with your local tax assessor for a more exact tax date for your home, or search by state, county, and ZIP code 

Market Value

Market Value is the price that a buyer is willing to pay for a home, and that a seller is willing to accept.

Our real estate agents are trained to pinpoint a home's value in the real estate market, which is done by looking at a variety of characteristics, including the following:

  • External characteristics: Curb appeal, exterior condition of the home, lot size, home style, availability of public utilities.

  • Internal characteristics: Size and number of rooms, construction and appliance quality and condition, heating systems, and energy efficiency.

  • Comps, or comparables: What similar homes in the same area have sold for recently.

  • Supply and demand: The number of buyers and the number of sellers in your area.

  • Location: How desirable is the neighborhood? Are the schools good? Is the crime rate low?

A home's market value is often a good starting point for determining all kinds of concerns that home buyers might have.

For one, our listing agents use this value to help sellers come up with a fair asking price for their home. And, since buyers shouldn't just trust what sellers say their place is worth, their own agents can also determine the home's approximate value and come up with a different price that they think their clients should offer.

No number is right or wrong; the ultimate deciding force is what price a buyer and seller determine they are willing to shake hands on to close the deal.

In Conclusion

But the thing to remember with values both market and assessed is that at the end of the day, the price of a home is the amount for which a seller is willing to sell, and a buyer is ready to buy. The only number that matters is the price a buyer and a seller agree on.

Article by Lisa K Gordon of Realtor.com