What You Need to Know When Listing an ADU
By Mercedes Shaffer / Published in AOA Magazine
To combat the statewide housing crisis, government officials in Sacramento have passed legislation to encourage property owners to add accessory dwelling units (ADUs) – small, secondary homes - to residential zoned single-family homes and multi-family buildings. The idea is that adding ADU’s will create more affordable housing in California.
An ADU can be a stand-alone separate structure that is added to a property or a conversion of an existing space such as a garage, storage room, basement or attic. If you have taken the steps to add an ADU to your home or apartment building, here’s what you need to know when you go to list it for sale or for rent.
How an ADU will Impact the Value of Your Property
An ADU is a new, relatively affordable option for adding rental income to your existing property and it can also increase the value of your property should you decide to sell it. If selling a property, even if it is a stand-alone structure, you can not sell the ADU separately from the home or apartment building. You must sell all the structures together, and in most cases the ADU will have the same address as the already existing home or building and be assigned a unit letter that follows the sequence of the other units on the property. For example if it’s a tri-plex with Units A, B & C – then the ADU would be Unit D. If it is a single family home, then the ADU would be the property address, 123 Main St, Unit A. This is also how the address would appear in the listing or advertisement.
How to Avoid Costly Mistakes When Listing an ADU
Being a landlord is a huge responsibility, and an important part of that responsibility is understanding federal fair housing laws. Once you build your ADU or convert an already existing space, it’s time to list it for rent and begin getting a return on your investment, but before you rush off and list it, there are a few things you should know to avoid potential legal issues. When you list the unit, be sure to avoid using words or phrases in your listing description that are considered discriminatory under the Fair Housing Act (FHA). This could end up being an innocent yet costly mistake.
Common descriptions that have been used in the past to describe a back unit on a residential property or a studio apartment have been, ‘Granny Unit’, ‘In-Laws Quarters’ and ‘Bachelor Pad’. Today, these phrases can be considered discrimantory and a landlord could face large fines if they are found guilty of violating the FHA. Cases tried in court could result in penalties of up to $21,000 for a first violation and for subsequent violations, the fine increases up to a maximum penalty of $105,194. This doesn’t even count legal defense costs. In addition to the administrative penalties, you may also be liable for paying damages and attorney’s fees to someone who has experienced housing discrimination.
Fair housing laws protect everyone seeking housing from discrimination and the laws guarantee a person’s right to obtain housing regardless of race, color, religion, national origin, sex, familial status, or disability. Additionally, many state and local laws prohibit discrimination based on gender identity and sexual orientation so you want to avoid any language that could be interpreted as discriminatory.
Words You Can Use When Listing An ADU
Here are some acceptable phrases for listing an ADU:
· Guest house with private entrance
· Domestic quarters
· One bedroom one bath unit
· Studio apartment
While it is not okay to write in the advertising description anything in reference to race or ethnicity, it is acceptable to use words that describe the style of architecture and design. For example when applicable you can include phrases such as ‘Spanish tiles’, ‘Dutch door’ and ‘Plantation shutters’.
How Many Occupants Can Live in An ADU?
Another area that a landlord needs to be aware of to avoid any possible discrimination lawsuit, is knowing what the FHA deems as allowable occupancy. Here are guidelines according to the FHA for allowable occupancy:
· Studio – One person + one (adult or child)
· One Bedroom – Two people + one (adult or child)
· Two Bedroom – Four people + one (adult or child)
· Three Bedroom – Six people + one (adult or child)
If the ADU is small, you cannot write in the listing description, “Perfect home for a single person” or “Singles-only.” If it is a garage conversion which means that the property will have less on-site parking, you cannot use this as a reason to limit the number of people who are occupying the unit. You must follow the FHA guidelines, or it could be considered discrimination based on familial status.
Along these same lines, in California another violation would be to discriminate based on whether a couple is married or not, if they have kids, or if it a same-sex relationship. On the other hand, if for example one person with two kids wants to move into a studio, you can deny their application because it exceeds the number of allowable occupants IF you have a pre-written limit (that adheres to FHA guidelines) in your Tenant Qualification Form.
It is a violation of the FHA if you apply one set of standards to certain applicants, and a different set to a different group of applicants. To avoid possible discrimination claims, it is best to have the allowable limit written in your Tenant Qualification Form that is given to tenants before they apply. Following the FHA allowable occupancy guidelines will help keep you safe from any possible discrimination case.
It is important as a landlord that you familiarize yourself with federal housing laws as well as any state or local housing laws before marketing your rental property. As a general rule, be sure you are treating all applicants equally and that your business decisions are based on legal, legitimate business reasons and make sure the language in your advertising and your lease agreement is compliant with all fair housing laws. For more information and a list of words and phrases that are NOT acceptable as well as ones that ARE, you can visit my website at www.ShafferRe.com/blog.
Mercedes Shaffer is an agent with Pacific Sotheby's International Realty and specializes in investment real estate and 1031 Exchanges. For help with buying or selling investment property, Mercedes can be reached by phone at 714.330.9999, by email at InvestingInTheOC@gmail.com or visit her website at www.ShafferRE.com. DRE 02114448. This article is not intended as legal advice. If you have questions about fair housing laws, please contact a real estate attorney.