Agents looking for an extra revenue stream need look no further than their client’s backyard.
Accessory dwelling units (ADUs) are secondary housing units located on a single family residential (SFR) lot. Also known as casitas or granny flats, these units may be attached or unattached to the primary residence.
ADU benefits include:
- providing a source of income for homeowners who choose to rent out their units;
- allowing extended family such as seniors or adult children to live on the same property but have their own space; and
- increasing property values.
Further, ADUs are low-risk investments. Since there is no need for extra land, significant infrastructure, additional parking or elevators, ADU construction costs less than other new residential construction.
ADUs have surged in popularity in recent years, especially in California. Here, restrictive zoning has constrained residential construction in desirable areas, making ADUs an attractive alternative for small households requiring lower-income units. Revised laws making ADUs more accessible have also streamlined the ADU creation process.
The number of ADUs permitted across California’s largest metro areas increased from 650 in 2016 to 3,130 in 2017, according to the Terner Center. Between 2018 and 2019, the number of permits rose again from 6,000 to 16,000. During a period of just three years, from 2016 to 2019, the number of ADUs increased a colossal 24 times over.
Agents with an eye for profit can take advantage of the ADU surge, while also helping their community add much-needed units. Agents can collect fees working on ADU properties.
The steps an agent can take to earn their fee include:
- bringing to homeowners’ attention the investment opportunity the ADU will bring; and
- coordinating all the builders, planners, engineers, architects, as well as the mortgage originators and title companies.
Under the Real Estate Settlement Procedures Act (RESPA), permitted referrals need to include facilities furnished or services performed. In other words, to receive a fee, a tangible service needs to be performed. Agents who facilitate the building of an ADU on a SFR lot will lawfully receive a referral fee under RESPA since they are performing services. [Calif. Business & Professions Code §10177.4; 12 Code of Federal Regulations §1024.14]
IOU an ADU
How does an agent initiate conversations about these income-producing dwellings?
The first step is adding ADU materials to your FARMing plan.
FARMing is the process of converting neighborhoods into dedicated owners who will turn to a specific agent for their needs. The agent FARMs a neighborhood by preparing a script and door knocking around a chosen neighborhood. The agent may then hand out a FARM letter and add the client to their drip letter campaign by obtaining an email address.
In this case, when the agent refers homeowners to builders who will construct an ADU on the owner’s property, the agent needs to use a FARM letter describing ADUs and their advantages. Click here for a customizable FARM letter about ADUs.
As an agent specializing in ADU creation, you will need to know the local laws in your area. Becoming knowledgeable about local grants and financial incentives for ADUs will help drive your expertise home. More information is available at the California Department of Housing and Community Development.
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