Read more to learn why building an ADU is a home and property value no-brainer for any homeowner with a backyard space or garage to convert.
Updated Sep 03, 2021
Because California’s new set of Accessory Dwelling Unit laws only came into effect in January 2020, it’s still the early days of gathering data around ADUs and their value to properties across the Bay Area. However, the Cottage team has combed through property records to find over 200 San Francisco Bay Area homes with ADUs that have sold or are pending closed in the first half of 2021 alone.
The results speak for themselves.
As we dove deeper into these recent home-plus-ADU sales, we uncovered a secret hiding in plain sight: building an ADU can instantly unlock hundreds of thousands of dollars of property value, above and beyond the cost of construction.
The equation is simple: if the cost to build an ADU is a fraction of the market value for the ADU, then building the ADU is a no-brainer. Across the San Francisco Bay Area and Los Angeles, this is becoming more and more common.
As one South Bay realtor told one of Cottage's homeowners who was considering building an ADU, "‘This is a no brainer. It’s like printing money - go ahead and build it.'" Another Southern California real estate broker and investor Cottage spoke with asserted that "ADU’s allow you to cash flow real estate.”
Don’t take our word for it—let’s dive into a few local examples that show how you can build your ADU for less than its completed value. With all-in design-build costs in the $350-500 per square foot range and home sale prices often stretching to $800/sq. ft. and beyond, adding an ADU can have a 50%+ return on investment or more!
One note before we continue—with the limited number of properties with ADUs that have hit the market thus far, this is an early attempt to assess how much adding an ADU can impact the potential sale price. While this does not guarantee the ultimate value* for your ADU project, we will be eagerly following this trend as more and more California homes are sold with an ADU.
Like much of the Peninsula, San Carlos has seen home values continue to skyrocket in 2021. This home was no different, selling at $1,960,000 in June 2021.
Before ADU size: 1,190 sqft (3BR/2.5BA)
ADU size: 910 sqft (2BR/1BA)
Avg. comparable sale price of main home: $1,430,380 at $1,202 / sqft
Actual sale price: $1,960,000
Estimated ADU value: $529,000
Comparing this property to ones also sold nearby in mid-2021 shows that the 910 sq. ft. second unit on this property added significantly to the purchase price. With other houses in the area at a similar size selling for $1,300,000 to $1,400,000, the detached ADU added $500,000 or more in value to this property.
Broadmoor Beauty in San Leandro: $200,000+ ADU Garage Conversion Value
Sold less than a week after listing in June 2021, this San Leandro craftsman home and detached ADU garage conversion demonstrates how converting your two car garage space can immediately boost the value of your property. In this case, this ADU increased the value of the home by more than $200,000, making for a tidy return on the garage conversion investment. Cottage has seen garage conversion ADUs that can use the existing garage structure cost anywhere from $130K-160K, resulting in instant value for homeowners.
The ADU itself is simple, with a gabled roof and stucco exterior built on a slab-on-grade foundation. Larger sliding windows and doors allow more light in the space, making the former two-car garage feel larger than it is on paper.
Before ADU size: 998 sqft (2BD/1BA)
ADU size: 392 sqft (1BD/1BA)
Avg. comparable sale price of main home: $745,506 at $747 / sqft
This Berkeley 3 bedroom home plus detached studio ADU was listed at $1.495MM, but then sold for almost 50% over the asking price at $2.2MM after entering into contract just 4 days after the initial listing. Cottage’s estimate puts the ADU’s value at over $600k—and that’s even with generous price per square foot costs for comparable main houses in the 94703 zipcode.
While the detached ADU was once a two-car garage, the new ADU has an airy, craftsman style with a beautiful vaulted ceiling and exposed rafter beams on the interior. Originally built for the homeowners to age-in-place, the 430 sqft ADU features a loft and skylights for a luxurious feel.
Before ADU size: 1,681 sqft (3BD/1.5BA)
ADU size: 430 sqft (1BD/1BA)
Avg. comparable sale price of main home: $1,576,778 at $938 / sqft
Actual sale price: $2,200,000
Estimated ADU value: $623,000
Like many other San Francisco Bay Area cities, Berkeley is facing a housing crunch that continues to drive home prices up. Adding an ADU is a win-win for everyone: it's a huge boost to your property value and rental income potential, and a new housing unit for a state that sorely needs it.
Avg. comparable sale price of main home: $999,262 at $857 / sqft
Actual sale price: $1,200,000
Estimated ADU value: $201,000
Despite the small lot at 3,200 sqft. and existing house at 1,166 sqft., this property also sports a separate 299 sqft. studio ADU, complete with in-unit washer and dryer and Murphy bed. The key? Having the main house and backyard cottage feel separate yet seamless on the property, with a shared outdoor space to unite the compound-like home.
San Jose Detached ADU Adds $500K in Value
Right off the bat, the numbers behind this single family home plus ADU are stunning. This ADU was massive; at 1,121 sqft, it’s actually larger than the main house!
But that’s fair game in ADU-friendly San Jose, and no wonder—the ADU added almost $500K in value to the property, which was sold in June 2021.
Before ADU size: 1,008 sqft (2BR/1BA)
ADU size: 1,121 sqft (2BR/1BA)
Avg. comparable sale price for main home: $1,015,792 at $1,007 / sqft
Actual sale price: $1,512,000
Estimated ADU value: $496,000
San Jose has seen an explosion of ADU unit construction, with over 700 permitted in 2019 and 2020 alone. With homeowners unlocking value like this, we’re expecting a continued increase in ADUs permitted in San Jose.
Los Angeles Craftsman Classic Adds $240,000+ in ADU Value
Even more than the San Francisco Bay Area, Los Angeles has seen an explosion of ADU construction, with over 19,000 ADU permit applications since 2015 and over 13,600 either built or under construction as of August 2021.
This Sherman Oaks craftsman classic is representative of many San Fernando Valley homes. The main house was recently updated, putting it on the upper end of price per sqft for 2021 home sales in the area. Even with the remodel adding to its premium price, the ADU still increased the property's value by almost $250K.
Before ADU size: 1,130 sqft (3BD/2BA)
ADU size: ADU Size: 477 sqft (1BD/1BA)
Avg. comparable sale price of main home: $1,045,250 at $925 / sqft
Avg. comparable sale price of main home: $1,709,304 at $1,063 / sqft
Actual sale price: $2,000,000
Estimated ADU value: $290,000
Add Instant Value to Your Property With a Cottage ADU
There has never been a better time to build an ADU for homeowners that have the backyard area or a convertible space and can finance an ADU with a loan or savings on hand. And with Cottage’s A-to-Z process of eligibility, design, permits, and construction of your custom, stick-built ADU, it’s never been easier to build your ADU now.