Would you be willing to sell an ADU separately from your house? That’s a wild idea, but it’s exactly what a newer California law allows people to do. The first example of a sale like this happened recently in San Jose, so let’s talk about this law and what to do for comps. When laws or markets change, we sometimes have to start thinking about things differently.
NOTE: I shared new stats last week on the stats tab instead of writing an entire post with twelve counties of data. Also, I’ve talked more about ADUs lately. This is not an ADU blog. Just a coincidence.
UPCOMING SPEAKING GIGS:
8/25/26 Elk Grove MLS Meeting 8:30am
9/1/26 ROG Talks
9/9/26 Private market update with local builder
9/15/26 Culbertson & Gray
9/22/26 Downtown Regional MLS Meeting Q&A
9/24/26 Appraiser webinar TBA
10/2/26 PCAR Rocklin
10/21/26 Coldwell Banker Sierra Oaks / EDH
11/19/26 Appraiser webinar TBA
THE FIRST CONDO CONVERSION JUST HAPPENED
Two years ago, AB 1033 became law, and this allows owners to sell an ADU separately from the main house. This would not normally be allowed without some sort of a parcel split, but under AB 1033, the entire parcel can be converted to a condo, and that allows the rear ADU condo to be sold separately. Basically, the parcel becomes a two-unit condo development. On one hand, this is innovative thinking to help with affordability, but on the other hand, this type of law is sadly only needed because of a lack of affordability. Anyway, the first reported sale of an ADU condo conversion just happened in June in San Jose, so I wanted to put together some visuals for perspective since I have access to San Jose data.
EXPECT TO SEE THIS MORE IN OTHER CITIES
Keep in mind, AB 1033 is not mandatory, so these types of sales can’t happen everywhere since individual areas have to adopt the law. Only one local city I’m aware of has adopted AB 1033, and that’s West Sacramento (it’s being discussed in Sacramento). Otherwise, there are a handful of cities across the state that have embraced this new law including San Jose, San Diego, Berkeley, Oakland, San Francisco, Santa Monica, and others.
THIS UNIT SOLD TOWARD THE LOWER END OF THE MARKET
What are you going to do for comps if this law happens in your area? That’s one reason why we want to start watching examples like this. The 749 sq ft ADU conversion in San Jose sold toward the lower end of the competitive range in the ZIP Code at $530,000. Look, it’s hard to buy anything at this price point in the area. Remember, this is the city where a meth house was listed for sale at $1.5M a couple years ago (it sold at $1.36M). There are zero single family detached units selling around $530K, and there are only a few recent condo sales that low. Keep in mind, this former ADU was built in 2024, so it’s on the newer side of the age spectrum. From public records and MLS, it looks like it was financed with conventional financing, which means an appraiser had to choose condo comps from somewhere most likely (unless there was an appraisal waiver).
All condos in bright pink compared to 600-900 SQ FT in yellow.
And here’s a look at all single family detached sales of similar size compared to the ADU condo conversion. The closest sale of similar size was about $700,000. Granted, the ADU conversion isn’t really a single family detached home, so this is not a reasonable comparison. I just wanted to show context as it looks like AB 1033 is going to help some people get into the housing market at a lower cost.
QUESTIONS FOR THE FUTURE
1) What comps do we use for an ADU conversion?
What condo comps can we use for an ADU conversion if there aren’t any ADU conversion condos yet in the local area? In this example above, the ADU conversion sold toward the lower end of the competitive range, and that’s something we can keep in mind, but it’s also just one data point. What we want to do over time is look at various examples. Granted, if they all tend to sell toward the lower end of the range, that would be telling. For now, I think these types of valuations are going to be challenging for appraisers and the real estate community because there might not be any great comps for a while. At the least, it’ll be helpful to pull some examples in other parts of the state to study. Let’s ask questions though. What is the entry level price point for the neighborhood? What are other condos selling for? What are other detached homes of similar size selling for? And from an investment standpoint, is the sum of the parts greater than the whole here? In other words, will investors be able to split and make more money by selling each unit separately?
Remember, the ADU is now a condo, so we’re going to compare it to other condos. It’s a tough comparison because it’s not really the same thing as a traditional condo found in a gated complex.
2) What happens to the value of the main dwelling?
Is the value of the main dwelling going to be affected by the condo conversion? We’re going to need some data at some point to understand any impact. Keep in mind, the main house is now also considered a condo since everything on the parcel has been converted to a condo. It’s not just the ADU being converted. Will the need for condo financing or a condo form of ownership affect buyer demand and value? We don’t have these answers yet, but I have to think the pool of buyers is now smaller for a main home (I could be wrong). Previously, the main house on the front of the lot above sold for $900,000 in November 2020 without the ADU. After the ADU was built in 2024, the owner tried to sell the house and ADU for $1,390,000 in early 2025, but the listing expired.
UPDATE: Monica in the comments told me the main unit is currently listed for sale, and that’s true. Listed at $868,000 (listed as a condo on MLS too).
3) How many owners will make this conversion?
Converting the entire parcel to a condo comes with some challenges because now the main house has a little less privacy potentially, and it also needs to be compared to other condos as the ideal. I suspect this new law is only going to apply to a handful of situations.
4) What other counties and cities will adopt AB 1033?
AB 1033 is state law in California, but it has to be adopted by various counties or cities, so it is not mandatory. I do think we’re going to see more cities adopt this, so real estate professionals need to stay on their toes. I suspect there is going to be an appetite for buying something like this also as it gets someone into a traditional neighborhood at a condo price point (without a huge HOA fee probably too). Remember, just because it is law doesn’t mean it’s going to happen on every parcel. I think many owners would not be comfortable with the condo conversion in the first place, so I don’t expect to see this everywhere.
CLOSING THOUGHTS
This is an example of policy shaping the housing market. We often talk about supply and demand as being the main thing in real estate, but it’s really policy that shapes both supply and demand. In this case, on the buyer side, I like the idea of buying an ADU conversion in a neighborhood instead of a bigger condo community, but I think there are concerns for the owner when converting the entire parcel to a condo in terms of future marketability or privacy. This won’t work for everyone, but it will work for some.
Thanks for being here.
Question: Would you buy a condo conversion like this? Would you convert your parcel into a condo? I’d love to hear your take.
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I think the value of the now-primary-condo unit, the former detached SFR, takes a huge hit. The yard, driveway and most of the site becoming common area. You better like, really like, the buyer of your ADU condo. They will be coming and going and walking around your formerly private back yard. Who is responsible for maintenance? Setting dues? Agreeing on all this.
Don’t think there will be many of these conversions happening. Not financially feasible in most situations. Though perhaps in modest older neighborhoods it could work. I think this is another case of policy making that sounds productive but won’t be. Yes ADUs do add to the supply of new dwellings. But most will remain as rental units.
Thanks, John. Yeah, these are all such important questions. What happens if the ADU occupant starts renting it instead? Or what if the occupant decides to start a short-term rental business?
I suspect AB 1033 won’t make sense for so many units. I do think some savvy investors will crack the code and milk this new law for profit. The parcel has to be right though. Maybe a high-density area, urban environment, corner lot with extra privacy, etc…
Since condo ownership is defined as the airspace ownership within the walls of the structure. Who owns the parcel of land under the dwellings? Who is responsible for the exterior maintenance of the dwellings and the land?
Such good questions. This is where the HOA documents better be clear. I was surprised to hear the San Jose units did not have an HOA fee. Seems like some form of management should be present.
Thanks for bringing this up. It’s interesting to see California experiment with new ideas to increase housing. I don’t think this is a great solution in most cases, but any increase in supply is a positive.
That first assignment in the region is going to be challenging.
Agreed. Thanks Joe. I think this works for specific scenarios. It’s one extra layer to help with housing, but this is likely a pretty small piece. I’m going to let you do the first assignment, Joe. I did wonder if an appraiser who does that might find my blog for some supplementary research.
Not a fan. This doesn’t increase housing but rather density. Its the State grasping for anything to show its working on housing but in the wrong way. Plus it lowers the value of the main house!
Yeah, I think the buyer benefits more than the owner of the main house. We’ll see how it shakes out. Higher density is the move right now. Lots of locations in California and across the country are talking about it. I don’t know that there is any escaping this because new single family detached units aren’t always possible to pull off. Or they are done, but they have tiny lots (higher density). Let’s keep watching. This is new territory.
Sounds like a classic case of the sum of the parts being worth more than the individual pieces.
Will the various MLSs develop a new property type? A seller of the main house will be sorely disappointed to learn their home will only show up when “condo” is added to a search, since they’ll still think of their home as an SFR.
This is a good point. It looks like a single family detached unit, but the ownership is condo. If we start seeing more of these, I have to think the real estate community is going to have to start looking at “condos” also when doing a search. There are some portions of the country where there are detached condos, but we don’t really see those here.
Having built an ADU within my Single-Family Home in 2019, it was very difficult to get over / under / around the local regulations at that time: It tested me as an owner /builder to the MAX… I think in the last 5 yrs, the rules have been relaxed and the State has given owners more power than ever… remember, any Legal Living unit, regardless of size or location, will have a positive impact on our markets. But, ultimately, the Real Estate market will decide in the long term.
Thanks, Bruce. And thank you for sending me the link to the San Jose press release last week. You inspired this post. I had so much fun creating scatter graphs.
I think this particular condo conversion is due to the owner trying to recoup costs after making a somewhat bad investment. They paid $900k 6 years ago and spent, probably another $250k (?) to build the ADU.
It looks like the SFR (built in 1908) had been a rental, and still is a rental, and up for sale now (asking $868k). If they get asking price, the total for the two units would be close to $1.4M, which would be a clever way to try to break even.
The new owners may get a bit of a headache in the future. The blurb advertises “no HOA dues” but there must be some legal document that defines how the land is owned, and how the common areas are maintained. The lot looks very small, so not much landscaping, maybe just pavement/driveway to argue about.
Thank you, Monica. Oh, I didn’t realize the main house was for sale. I should have caught that. I wonder how much of a hit it could take for being a “condo” now? I guess only time will tell. ADUs can be SO expensive to build. For investors, it almost seems like the move would be to build an ADU and rent it for many years to help pay down the cost of building. And then sell it. It’s not always easy to build something brand new and have the numbers pencil right away. I think this is an emerging market, and it’s going to take the right situation to make the math work.
I’m wondering how they insure the 2 condos now. I would think they need a master policy and both owners get an HO6 for their units but it sounds like they are each getting their own insurance if there is no HOA fee. Probably not the right way to go but I’m not an insurance person so maybe its ok.
I’m wondering the same thing, Richard. I’m a little surprised there is no HOA fee in this situation. Seems like that would be normative in light of HOA management and such, but who knows. I suspect there is a learning curve here for everyone, and that includes insurance. I will say one of the challenges here could be easily identifying a condo like this in Tax Records. For instance, these two units have the same listed APN in Tax Records right now. I’m not sure if only one APN will exist or not, but we usually see a separate APN for each condo in a typical development. Moreover, there is no mention of “condo” in Tax Records as of yet. In short, it’s going to be easy in situations like this to not identify the ownership of a property (quickly as we normally might through Tax Records). The one thing that is helpful here is the addresses have a #1 and a #2, so maybe that needs to be a compelling clue to the real estate community that there is something different going on here. Like I said, a learning curve…
This has been happening here in Portland for about fifteen years, but comps are still hard to come by when appraising these types of units.
Portland is so progressive. I’m not surprised to hear, though I’m dismayed to think comps are sparse after fifteen years.
Once again California rises to the point of???????. So if there is deck in the back yard does it have to pass the condo rules of review of balconies.
I wish I could what I am really thinking but I won’t. Okay will ask where is the ingress and egress. Has to be a common area. I like to take on complex assignments but NOPE not evening close.
Haha. That’s a good question. I’m guessing there is a technicality on why SB326 wouldn’t apply. This does get complicated. It’s going to be challenging to identify these properties in tax records also.
For real estate investors, the math on this could get very interesting in high-density urban markets. We might start to see developers buying home specifically to built ADUs and sell both homes/condos. Need to see more data/ sales to see if this is something buyers have interest in. Also have alot of questions regarding insurance, HOA and how lenders scrutinize it.
THANKS FOR SHARING
Thanks, Naeem. Yeah, I think we have to feel out the market. I could see upside if buying a home with an existing ADU already too. The ADU is only going to contribute so much to value, and it could be significantly lower than the cost. Would it be more valuable if turning the entire parcel into a condo and selling off the parts? I wonder how long this process takes too, which is a factor for holding costs. Investors will crack the code if there is money to be made. Investors tend to be good at exploiting loopholes too and getting creative with various laws.
I can see this developing into a royal cluster if there isn’t a special boiler plate of HOA guidelines for the home/adu as condos scenario.
Agreed. I wouldn’t just ask ChatGPT to crank out the guidelines. I hope people know what they are doing. 🙂
Good intentions with massive unintended consequences. ADU law throws out decades of zoning refinements, not that they were great, but at least they were a known quantity. All those ideas of setting aside areas for known density, and economic affordability are out the window in favor of throwing all the balls in the air at one time, mixing it all up, and let’s see what happens. This is perhaps the most irrational, under thought-out legislation imaginable. It is also a new and expanding chapter in the old “Lawyers Full Time Employment Act” as I can personally attest. Pre-existing law, I am reliably informed, already allowed for a nominal Grandma’s cottage out back. A good and great thing in my experience having grown up next to extended family. Instead of perhaps a needed tweak to existing law to loosen up a few requirements, we get a massive overhaul that affects existing as well as new development. Yes, it will benefit a deserving few who need a reasonable place to live. More so, it will enrich a lot of shysters who will flock to California take advantage of the new confusing reality. Unsuspecting owners, and apparently professional appraisers too, already do not know how to fairly price their properties for sale. Six years ago we recognized the hundred year anniversary of our family’s arrival in the Sacramento Valley. They settled in what is now the heart of Elk Grove and adapted from extensive ranching, to intensive farming to land development. Along the way, family members became founders and builders of the community, starting multiple churches, serving the town in multiple capacities and receiving recognition in the naming of public facilities. Now, for the first time I am seriously thinking that moving out of state is the logical next move. A move that has not been long planned and anticipated, but is rather an opportunity of avoid the turmoil that ADU law has injected into California neighborhoods. Neighbors and neighborhoods have not yet fully anticipated, observed, or responded to ADU development that will affect them, but affect them it will.
Thank you, Hans. I appreciate you sharing your thoughts and deep local history too. The world looks so much different than it did 100 years ago. That’s for sure. I do wonder how much this will affect neighborhoods. It’s still very expensive to build an ADU, so it’s hard to see them show up on every parcel. If they did though, that could really crowd an area. On a related note, many people are stuck in place right now in light of the cost of a replacement home being so challenging. Part of me wonders if this would incentivize more ADU construction if the finances and/or equity are there to pull it off. No matter what, there is a high-density trend taking place right now where we are starting to see a greater emphasis on fitting more square footage into each parcel (FAR: Floor Area Ratio). I think part of this is a growing trend to do away with single-family zoning, but it’s also a byproduct of a lack of affordability and less space for building (and the cost of construction).