As communities across the country seek to solve the problem of affordable housing, many are championing Accessory Dwelling Unit (ADU) development as one of a variety of solutions.
The growth of ADU sites has escalated most rapidly in states that have enacted legislation streamlining approvals and permitting, with Oregon and Washington pioneering the concept two decades ago, while California, Texas and Florida have risen to the forefront of the trend in recent years.
This new complexity in the buying and selling of real estate puts added responsibility on the shoulders of real estate agents representing both sides of the transaction to ensure their clients are in compliance and protected.
In addition, your title agent will require supplementary information when an ADU is involved and will have specific requirements that must be met under their own due diligence for providing title insurance.
Real Estate Agents Representing the Seller
Agents representing the seller of a property containing an ADU have a heightened responsibility to ensure the ADU was constructed with the appropriate zoning approval and building permits, and that a certificate of occupancy was procured. This documentation then becomes part of the disclosure process, to ensure the buyer has accurate information upon which to make their buying decision.
Valuation of a property with an ADU is quite complex and agents should ensure that the chosen appraiser has some experience and knowledge of the unique elements that must be taken into consideration.
For instance, appraisers often must establish whether the ADU has independent utility connections, for purposes of renting out the ADU, and assess the income potential of the unit in making its value determination. These unique elements make an apples-to-apples comparison difficult when looking for comparable properties.
And finally, if the ADU is occupied by a tenant, the agent should review the lease terms, rents and deposit amount and secure a tenant signed estoppel certificate confirming the details of the lease.
Real Estate Agents Representing the Buyer
Buyer’s agents face much of the same responsibility to verify the details, including reviewing local municipal codes to ensure the ADU is permitted correctly and meets all zoning law regulations. If the ADU does not meet the requirements, the buyer could be on the hook later for any violations, even to the extreme result of being forced to demolish a structure on the property that was built without the necessary permits.
ADU rental income can be a plus for buyers who are trying to qualify for a mortgage, and this added income can play in their favor when getting the mortgage approved, especially if the unit is currently occupied. Encouraging buyers to find a mortgage lender who has experience funding these properties will be key.
It is also critically important that buyers’ agents understand any restrictions that may apply to the usage of the property, so going through the local regulations with a fine-tooth comb is a necessity. It may be advisable for your client to meet with an attorney experienced in real estate law to ensure there are no surprises once the transaction is finalized.
At FAN, we maintain the highest standards in providing title, escrow and closing services throughout Florida. We offer a wide range of experience in managing complex transactions to ensure your clients are informed and prepared to bring the transaction to a successful close. Contact us today to learn how we can help you with your next transaction.
