BIGGEST ADU TREND IN 2022 - DADU'S SOLD AS CONDOS

Most existing lots with a DADU are too small to be sub-divided under Seattle's land-use code.  However, while the city of Seattle may restrict ownership of that lot to one entity if that entity is a condo association, the DADU and the primary residence can be owned separately and sold separately.  It is in the words of one developer a "game changer" in residential development allowing up to three separate units on a single family zoned lot.   

Attorney Terrance Wilson and UW Real Estate instructor Jeff McCann discuss the topic of Accessory Dwelling Units (ADUs & DADUs) in the latest episode of Real Leaders in Real Estate.  With his wealth of knowledge of the City's code, Terrance describes how the condo process can be overlaied, and an owner (or investor) can tap into this opportunity to sell off parts of their property to increase equity or profits. 

 How to sell a DADU as a condo.

https://youtu.be/5TXLk13thW4 .

Tiny House Podcast - Talking DADU's with microhouse's Bruce Parker

DADU podcast

As members of the tiny house community struggle to legalize tiny house around the country, many cities are already making it easier to build smaller homes in the back yards of existing houses. Bruce Parker is the founder and lead designer of MicroHouse, a company that designs backyard cottages and small houses in Seattle, Washington. These can take multiple forms, but are usually referred to as ADU's or DADU’s in Seattle. Bruce is here to tell us about what it takes to build a DADU in Seattle. Warning: the sticker shock may be… well.. shocking. Plus, we'll talk what design elements and choices lend themselves to a beautiful and functional small space.

DADUs - Resiliency and Planning

Thinking about the long-term use of a home and designing for flexibility is an important part of preparing for an uncertain future. Adding a DADU or ADU to an existing home is an important consideration. ADUs allow people more flexibility to accommodate a growing family, changing work requirements, and to provide supplemental rental income.

Building a DADU starts with planning and we are here to help

The first questions we usually answer for people planning to build a backyard cottage are about feasibility, cost, and design which are all interrelated. A preliminary site assessment, which we can do over the phone or via email, is the first part. At that time, we can discuss budget ranges for recently completed backyard cottages.

To get started, contact us with your address and the goals for your cottage. We’ll be in touch a schedule a phone meeting from there. 

backyard cottage rules eased

The Seattle City Council has voted on a host of rules predicted to increase the number of ADUs and DADUs

* Increases the allowed size of backyard cottages (DADUs) from 800 square feet to 1,000 square feet.

* Adds an additional 1-2 feet in height, allowing for more usable space in the units' interiors.

* Allows up to two attached accessory dwelling units (AADUs) or one AADU plus one DADU on a property.

* Limits the floor area ratio of new homes, while excluding the area of ADUs. Thereby encouraging homeowners to build an ADU when building a new home or remodeling.

* Eliminates the owner occupancy requirement.

* Removes the off-street parking requirement.

DADU proposed code change amendments

city council is debating which of the proposed code changes will go into effect and offering their own amendments

a DADU used as a short term rental prior to grandfather's retirement

As city council prepares to vote on the proposed code changes to Seattle's single family zones, even amendments have been proposed.  These include owner occupancy restrictions for short term rentals and allowance for bike parking. 

Here is what we think is important.

• The proposed code changes would remove the owner occupancy requirement. An amendment would add a 1 year requirement for the 2nd ADU. We believe that owner occupancy should be required for all properties with ADUS for a period of time (3 years).

The impact to removing the occupancy requirement is unknown. The environmental impact statement (EIS) prepared as part of the lawsuit doesn't appear to adequately predict the impact from removing this requirement. Detractors note that the EIS does not take into account the increasing trend to sell ADUs and their primary residence separately using a condominium or land-lease agreement. Owner occupancy for a period of time (3 years) is good and should minimize the destruction of naturally occurring affordable housing by speculative developers.  

• Owner occupancy should be required for all properties used as short-term rentals.

A proposed amendment by Lisa Herbold would prohibit short term rental use for new ADUs. It would be far better to maintain the owner occupancy requirement. Allowing owner's flexibility is crucial to long term planning for those contemplating building an ADU.  The higher rate of return for a short term rental (STR) allows more ADU's and DADUs to be built.  A majority of the homeowner's we work with plan to use their cottages as short term rental at some point.  The magnolia cottage pictured above was rented out as a STR for a few years, which paid for construction, prior to the owner's father moving in.

• SDCI should closely monitor ADU construction and report annually to City Council. 

Two proposed amendment would monitor ADU permitting and use this seems like a good idea.

• Garage Space should be included in FAR calculations. 

The current proposal would allow the exclusion of up to 1,000 sq. ft. of garage space for ADUs. This is effectively a parking subsidy. A better solution would be limiting the exempted area to 200 sq. ft. or enough space for one car. One proposed amendment would allow 25 sq. ft. to be excluded for bike parking, seems unnecessary.  

Comments may be submitted to Lisa Herbold lisa.herbold@seattle.gov

Childhood Home Creates Options for the Future in Eastlake

In 2010 Colette and her family purchased her childhood Craftsman home in Seattle’s Eastlake neighborhood.  As Colette and Chris noticed similar houses nearby being replaced by rows of apartment buildings, they considered ways to preserve their own home and history. That meant improving and maintaining the original house, and also creating an income stream to secure their options for the future. A backyard cottage turned out to be just what they were looking for.

How did the idea of building a backyard cottage come about?

Colette: My husband Chris and I moved back to Seattle in 2010 with our two children and were able to buy my childhood home from my family. The home needed extensive work so we did it at a very slow pace. Once the main house was close to being finished we noticed that many houses on our block were being sold to developers. What was once a quiet Craftsman lined street was turning into rows of apartment buildings.

That got us thinking about how to preserve my childhood home and invest and grow with the neighborhood. It was simple: build a backyard cottage and use it as a short-term rental to pay off the new debt, and later have a guest house. We also began to see it as a great investment into our retirement and something we can leave to our kids. We can live in the cottage when the kids are gone, or perhaps we can fly off to Italy and let the cottage and house support us in our next stage of life. The cottage suddenly gave us positive options for the future. 

What did you enjoy most about the process?

Colette: I loved every part of the process. Because our lot was small and there were only a certain number of ways to build our structure, the design part became quite easy. Bruce and Stefan [of microhouse] were great at listening to what we wanted and were always willing to change things to get them right. 

At one point in the build we had some large joists delivered that were used as our entryway ceiling and our loft floor. Garrick, our builder, set them up for me and loaned me his sander so I could work on them before they were installed. I really enjoyed that they allowed me access to work on projects for the cottage.

I was also able to design the inside of the cottage to fit furniture I was buying along the way. Walls were made to fit vanities and all the lighting was installed to my specifications for the fixtures I had bought. 

What challenges did you face during the process?

Colette: My biggest challenge in this process was my neighbor. They didn’t like what we were doing. They objected to noise, dust, and anything that needed to go over their property line. It became quite ugly and it was a sad break to a 30-year friendship.

For me, living through construction was pretty fun. It was great to look out the kitchen window and watch walls go up. Garrick and I became friends and it was easy to have him around. He was missed when the project ended. 

How long did the process take?

Colette: It took about a year to get the plans down just right. The build began just before fall of 2017 and ended in the spring of 2018.

Is there anything you would do differently if you had to do it over?

Colette: If we ever decide to build again I would work with Bruce, Stefan and Garrick again. It was truly a pleasure. 

What’s your favorite thing about your cottage?

Colette: I love the size of our cottage. It looks narrow and small from the outside, but when you enter it seems much, much larger. It feels like a trick of the eye. I love the shiplap wall we built as a focal point. I love that the appliances all fit into the kitchen I assembled. I love that I was very much a part of the build and that my ideas and creativity were used throughout. 

Understanding Seattle's Proposed Land-Use Code Changes

City council has proposed significant changes to the Seattle Land-Use Code with the aim of increasing the construction of backyard cottages (DADUs) and attached accessory dwelling units (ADUs). These changes, in the making for years now, have been delayed by a lawsuit and appeal brought about under SEPA regulations. Seattle City Council held a public hearing to discuss the proposed code changes Tuesday, June 11th at 5:30pm in council chambers. Discussion and possible vote on amendments and the proposed legislation will be held on June 28th at 2:00pm.

What do these changes really mean for Seattle and for ADUs?

The proposed code changes include many items that are minor and could have been completed years ago. These include modest increases in size and height of allowed cottages, details about dormers, and the location of entries. The more significant changes proposed are as follows:

• Allowing two ADUs on one lot

• Removing the off-street parking requirement

• Removing the owner-occupancy requirement

• Increasing the household size limit for a lot with two ADUs

• Establishing a new limit on the maximum size of single-family dwellings equal to one half of the lot size (FAR = 0.5)

This DADU was built for a grandparent in the Bryant neighborhood

Owner Occupancy

Of these we believe the owner-occupancy requirement is most important. Currently the owner is required to live on the property for a minimum of six months of the year.

The impact to removing the occupancy requirement is unknown. The environmental impact statement (EIS) prepared as part of the lawsuit doesn't appear to adequately predict the impact from removing this requirement. Detractors believe that it will lead to the destruction of large numbers of existing homes and their replacement with duplexes and triplexes. They also note an increasing trend to sell ADUs and their primary residence separately using a condominium or land-lease agreement.

Our Recommendations:

• The original proposal to sunset owner occupancy after a period of time (3 years) is good and should minimize the destruction of naturally occurring affordable housing by speculative developers.

• Owner occupancy should be required for all properties used as short-term rentals.  

• SDCI should closely monitor ADU construction and report annually to City Council.

The builder plans to maintain ownership of this DADU and sell the primary residence using a condominium agreement

Floor Area Ratio Limits

The EIS finds that the most significant way to reduce tear-downs (i.e the removal of naturally occurring affordable housing) will occur by introducing a floor area ratio (FAR) limit. Currently the size of new houses is limited by setbacks and height limits. The trend in new construction is for very large houses (with correspondingly large price tags), which are typically beyond the means of median income earners. The FAR limit would reduce the size of what can be built but exclude ADUs and DADUs from the restriction. The goal being to prevent tear-downs and to encourage rather the construction of ADUs and DADUs.

Our Recommendations:

• Approve a FAR limit of 0.5 for new construction.

• Exemption of ADUs and DADUs from the FAR limit.

The City Council held a public hearing to discuss these proposed changes on Tuesday, June 11th at 5:30pm in council chambers. Discussion and potential vote on the amendments and proposed legislation will be held on June 28th at 2:00pm.

We encourage you to voice your opinion with your council members and look forward to moving ahead with sensible legislation.

Seattle DADU code changes - finally a decision

The Seattle Hearing Examiner has ruled that the final environmental impact statement (FEIS) in regards to the proposed code changes for backyard cottages ( DADUs) and attached accessory dwelling units is adequate. Now the proposed code changes will go to city council for debate.

backyard cottages top $100,000 views and walkability as most desirable amenity

Everyone knows that a home’s price is affected by such things as its size and condition and the quality of nearby schools. There’s also the $50,000 walkable cup of coffee, the $100,000 view and the $200,000 backyard cottage.

broadview backyard cottage - rental and family occupied

As in Seattle, backyard cottages are being built in Berkley in increasing numbers. In a recent berkleyside article, bay area real estate agents discussed the relative merits of various home amenities. 

Pricewise, an in-law unit or a tiny home can boost a home’s value more than any other element, agents said. 

“People love it when the house has a little separate cottage or in-law unit so they can accommodate friends and family who are visiting from out of state,” said Victoria Lynn Curtis, an agent with Better Homes and Gardens. 

"Workers who telecommute can use such quarters as offices, and artists can use them as studios; double-income professionals can use them to house nannies or au pairs. Or homeowners can rent them out, generating a tidy income".
 

However real estate appraisers struggle with how to value backyard cottages and other ADUs primarily because there are simply not enough comparable sales to serve as a guide. Bruce Parker from microhouse and Stefan Hansmire were recently invited to participate in a panel discussion about backyard cottages during the Appraisers Coalition of Washington State conference. One topic of discussion was the use of backyard cottages as rentals. This trend has only increased in recent years as more people have become aware of and begun to use their cottages as short term rentals. Short term rentals provide a relatively high rate of return and cottage owners would like the rental income to be considered in the appraised value of their homes when seeking financing. However, most municipalities have owner occupancy requirements. In these cases, a lender or underwriter must asses the value of the home without income from an ADU because in the case of foreclosure the ADU must be removed before the house could be rented by the loan holder. That takes us back to the use of comparable sales to establish an appraised value. The contribution of an ADU to these valuations tend to be less than the cost of construction. This in turn makes construction loans harder to obtain for DADU construction. As a result, most home owners use cash or home equity to finance construction.

Value vs Cost

The cost of construction varies depending on a number of market factors including the cost of materials and labor. The cost of building a backyard cottage has been increasing since the recession. Assessing the value of a cottage for those planning to build one, involves consideration of the many possible uses of a cottage over the long term.  As discussed, many people use cottages as rentals. In this case,  a careful consideration of the rents in your area and anticipated costs and expected rate of return can help you establish a working budget.  
 

magnolia backyard cottage - short term rental/long term family occupied

Even when cottages are used as rentals, that is often only one of many planned uses. Ben and January's cottage in Magnolia is one example. They originally rented their cottage on AirBNB.  Now that the cottage has been paid off, January's recently retired father has moved in and is enjoying being closer to his grandchildren and urban amenities. 

While it may be hard to put a value to how a well designed home makes you feel or the value of having a family member living nearby, some qualities are easier to asses. If that family member is an aging parent who would otherwise be living in an assisted living facility, it is relatively easy to look at the costs of local facilities.  For others building a new cottage may be less expensive than remodeling their existing house to more closely meet their needs. For example, new cottages can incorporate universal design components to assist those with mobility impairments. Having established a realistic budget based on your needs and values will guide the many decisions that make up design process.

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