Home Truths, a quarterly report on the state of the Berkeley real estate market, is brought to you by Red Oak Realty.
Back in 2011, Lisa Cain was looking to buy a duplex in Berkeley. A renter at the time, Cain wanted a space that could accommodate both her family and her mother, but allow them to have separate, private living quarters. But when she came across a listing for a home with a particularly large lot, Cain thought of another possible solution to her family’s housing needs: an in-law unit.
In May 2012 she bought a 3-bedroom, 2-bath house in North Berkeley on a lot that was big enough to build on. To help her navigate the city’s bureaucratic process, Cain enlisted the help of Kevin Casey, founder of New Avenue, a local business of 30 architects and contractors who use a project-management software to help homeowners through the often complicated process of a custom build. The company was founded in Berkeley in 2009 and has managed 60 projects in the city in the past five years, most of them being accessory dwellings.
The architect Cain worked with designed the structure and helped her apply for all the necessary permits and other requirements from the city. A year and half, and about $300,000 later, Cain and her mother got a fully landscaped, 610-square-foot, one-bedroom, one-bath cottage, known formally as an Accessory Dwelling Unit, or ADU. Cain says the setup has allowed her to see her mom every day, and her mom to be able to walk to nearby Shattuck Avenue. “She’s got more independence now,” Cain said in a phone interview.
Last July, the City of Berkeley eased its rules on ADUs in order to create more in-fill housing near public transit. The changes eliminate the need for a planning permit and ease parking requirements (and, for units within a half mile of BART, or a quarter mile of a rapid-bus stop, eliminate them entirely). According to New Avenue’s Casey, the changes shave off about four months from the permitting process, and about $4,000 in fees. He notes the total process takes an average of 18 months.
Besides helping with the Bay Area’s housing shortage, there are all sorts of reasons to add an accessory dwelling unit to your property. Perhaps, like Cain, you’ve got an older family member you want to be closer to. Or maybe you’re considering a home for your grown children, because they can’t afford to pay the market’s astronomical rental prices. Or maybe you’d like to generate some extra income with the space currently being used by your junk-filled garage.
Casey said a homeowner could recoup the cost of a one-bedroom ADU, estimated at about $170,000, in about four and a half years if rented at $3,000 per month. (Forget about Airbnb, however, as last year Berkeley adopted strict rules forbidding ADUs from being used for short-term rentals.) Casey said funding can come through a home equity line of credit, or a mortgage, with payments being less than $1,000 per month. “It should be the same as any other type of home improvement loan,” he said.
Determining how much value an ADU can add to your property value is trickier, however, because it’s a notoriously difficult thing to study. But a report published in 2012 in The Appraisal Journal, Understanding and Appraising Properties with Accessory Dwelling Units, looked at 14 properties with ADUs in Portland, OR, and found that ADUs contributed, on average, between 25% and 34% of each property’s assessed value. Additionally, the study found that adding an ADU to a single-unit property “could reasonably add 51% to longer-term measures of value or return.”
And, because of Prop 13, your property taxes won’t rise astronomically. Casey said building an ADU does not trigger a reassessment; homeowners can expect to pay roughly $1,000 extra per year in taxes.
“Almost everyone has the right to build an ADU”
So who should consider an ADU? Casey said homeowners shouldn’t be deterred by misconceptions that they need their neighbors’ permission, or a giant plot of land, to build an ADU.
“Almost everyone has a right to put in an ADU,” said Casey. That could mean converting a basement or attic, building an addition, remodeling an existing space, or building a backyard cottage. “It could be a playroom or an apartment,” he added.
ADUs can be as small as 250 square feet, and just 450 square feet is needed for a one-bedroom cottage. A very comfortable two-bedroom is between 650 and 700 square feet.
With the median home price in Berkeley now topping $1.1 million, according to Red Oak Realty, it’s clear that the city is in desperate need of more housing. So why aren’t more people building ADUs?
“It’s very expensive, but think of it as you’re creating a house in the most expensive real-estate market in the country,” said Casey.
While Cain admits that the price tag was higher and the timeline was longer than she anticipated, she said it has all been worth it.
“I would definitely recommend it to other people,” she said. “For us it’s been great to have [my mom] here. I know other people who have done ADUs who have tenants, and they’ve been happy.”
Home Truths is written and sponsored by Red Oak Realty, one of the largest independent real estate brokers in the East Bay, serving the community since 1976. Read more in this series. If you are interested in learning more about the local real estate market, or are considering buying or selling a home, contact Red Oak at email@example.com, tel: 510-250 8780.