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CA SB9 vs. AB1033: Sell Backyard Land or Sell an ADU?

California real estate has been making fortunes for hundreds of years.  In fact, in just the past 20 years, the average California home value has increased over 775%, according to the St. Louis Fed, significantly outperforming the S&P 500. With the average single-family home value in major cities like San Diego and Los Angeles hitting $1.1mm, and $1.6mm in San Francisco (see Redfin), it’s no surprise homeowners across the state are sitting on record amounts of home equity – despite the Fed’s push to control prices with higher interest rates.  California homeowners are richer than ever, and should be feeling flush; there’s just one problem – they’re all asking themselves: What good is home equity if I can’t sell my house (or don’t want to), and can’t get (or don’t want) a home equity loan at today’s crazy-high interest rates? It’s an enviable but tough situation.  Homeowners across the state are equity-rich, sitting on potentially hundreds of thousands of paper gains, but also potentially cash-poor.  Now that mortgage rates crossed 8% for the first time since 2000, who wants to give up their ~3% mortgage to sell their home and buy a new one?  Who wants a HELOC at today’s rates (BofA is at 10%)?  Who can even get a home equity loan (Wells Fargo has suspended HELOCs “due to current market conditions”)? Fortunately, California’s legislators have created a new way to access home equity that has the potential to help hundreds of thousands of homeowners across the state: You can now subdivide your lot, and sell a piece of your backyard. It’s certainly new and novel, and it might sound a bit out there, but it is a way to tap $100,000+ of home equity without debt and without selling your home.  And it might just be what Californians need in today’s interest rate environment.  So how does it work?

Subdividing your home’s lot and selling part of your yard – a look at California’s two backyard monetization laws, SB-9 and AB-1033.

California SB-9 (the “HOME Act”) went into effect on January 1st, 2022 and Governor Newsome signed AB-1033 into law on October 11th, 2023.  Both laws allow homeowners to subdivide their lots and build (and sell) extra units, or even a portion of their land.  They have the potential to unlock billions of dollars of value in CA.  According to our analysis here at Yardsworth, this is a 750 billion dollar opportunity: Approximately 65,000 ADUs have been built to date in CA.  Of course, each home’s value varies greatly depending on size, quality, and city/neighborhood (location, location, location!), but assuming $700,000 of potential sale value each, on average, AB1033 is potentially a $45.5 billion stimulus program for CA homeowners. SB9 can be even more impactful – Berkeley’s Terner Center estimates 700,000 homes in California are SB9 eligible – assuming a $1mm average value (SB9 is more valuable on a per-deal basis given lot dynamics and build potential), and SB-9 represents a $700bn+ stimulus program. Together SB9 and AB1033 create a market for approximately $750 billion of backyard value — land value that had been locked up for 80-100 years due to restrictive zoning. That all sounds good, but if you’re not an experienced real estate developer, or even better, an accomplished real estate lawyer, it’s hard to understand the differences between AB1033 and SB9.  Which law creates more value for homeowners?  Which one should you use to split your lot, and sell a piece of your backyard?

Let’s examine the pros and cons of SB-9 vs. AB-1033:

The Common Ground

  • Both laws allow you to subdivide your home’s lot, build additional units, and sell a piece of your land while keeping your home
  • Both laws require compliance with the Subdivision Map Act:
    • AB-1033 and SB-9 require homeowners to adhere to the Subdivision Map Act, necessitating the hiring of a surveyor to create a new parcel map. This process is complex and expensive and involves obtaining approval for both a tentative parcel map and a final map.

Key Differences Between AB-1033 and SB-9:

  • Number of Units & Unit Type Flexibility – Winner: SB-9
      • SB-9 allows homeowners to subdivide their lot and build up to two units on each parcel, for a total of four units.  So each side of the lot can have a) an SFR, b) an SFR + an ADU; or, c) a two-unit duplex.
      • AB-1033 follows the existing ADU laws, which allow a given lot to have one SFR + an ADU and/or JADU, for a max of three units.
  • Unit Size – Winner: SB-9 
      • SB-9 requires municipalities to allow at least 800 sq ft per unit, but many allow uncapped sizes (limited only by lot size and typical setback-type requirements) So you can potentially build a 2,000+ sq ft house in your yard, if you have the space.
      • AB-1033 follows the existing ADU laws, which cap ADUs at 1,200 sq ft and 500 sqft for a JADU.
  • Statewide Implementation Consistency – Winner: SB-9 
      • SB-9 is a statewide mandate that requires every municipality to follow its basic guidelines (though they have some leeway around the edges, making some more homeowner-friendly than others).
      • AB-1033 is more of a recommendation than requirement – it remains to be seen which municipalities will even implement AB-1033.
  • Implementation cost – Winner: SB-9 
      • SB-9 is expensive, costing $50-75k in fees and expenses just to subdivide a lot (before building anything).
      • AB-1033 is even more expensive.  It costs the same $50-75k in fees and expenses to split a lot (same process required under the Subdivision Map Act) plus the extra expense to hire legal counsel to create and maintain a homeowners association (yes, AB-1033 requires an HOA).
  • Property Valuation / Profit Potential – Winner: SB-9 
      • SB-9 allows you to create R-1, single-family homes (or duplexes), which are the gold-standard for home values.
      • AB-1033 turns ADUs and single-family homes into condominium units.  This is critical to understand.  According to Redfin data, single-family residences in Los Angeles command a premium of around 12.5% over condominiums.  So turning your SFR into a condo will devalue your house and cost you money, at the same time you’re trying to make money in your backyard by being able to sell your ADU.
  • What if I already have an ADU? – Winner: AB-1033 
      • SB-9 lets you split a lot with an ADU on it, but the truth is, there often isn’t space to build anything new post lot split, providing limited upside.
      • AB-1033, on the other hand, is built for existing ADU owners.  It’s a way to sell that ADU and realize some cash from your home equity.
  • What if I’ve been thinking about building an ADU, but haven’t built it yet?  – Winner: SB-9 
      • SB-9 gives you the ultimate optionality in your yard.  You can build first and then split your lot, you can split first and then build, you can split your lot and sell the newly created land parcel without building… or you can have Yardsworth do all the work for you, cover the costs to split the lot, and we’ll purchase your yard with you never having to lift a finger or build anything.
      • AB-1033 is only useful if you have an ADU in your yard – but ADUs are expensive, costing $280-300,000 on average (source).  So if you don’t have an ADU yet, you’ll have to first spend up to $300,000 out of your pocket to build an ADU before you then use AB-1033 to create a condominium project, and then sell your former ADU / new condo… AB-1033 doesn’t make economic sense unless you already have a completed ADU on your property.This may take 2-3 years.
  • Zoning Flexibility – Winner: AB-1033 (potentially)
      • SB-9 only works with single-family-zoned lots (e.g., R-1).  Full-stop.  If you have an R-1.5, R-2, or R-3 lot, SB-9 isn’t for you.  Fortunately, there are estimated to be 700,000+ eligible SB-9 lots across California (Terner Center).
      • AB-1033 gives municipalities the flexibility to allow other lot types (e.g., R2/R3) – though it remains to be seen how it is ultimately implemented.

    Conclusion – A Land Grab / Gold Rush / Once-in-a-Lifetime Opportunity (choose your metaphor!)

    Both AB-1033 and SB-9 offer distinct opportunities for California homeowners looking to subdivide their properties and monetize equity – and welcome relief in today’s high-interest-rate mortgage environment.  As we’ve seen above though, while AB-1033 may be suitable for those who have already invested in ADUs or own multi-family-zoned properties, it comes with the complexities of HOA formation and significant potential property value considerations. In contrast, SB-9 provides the clearest path toward maximizing property value for homeowners with single-family properties at a lower cost, and with universal implementation across the state. Ultimately, the choice between these two laws depends on your specific circumstances and objectives. Before making a decision, it is advisable to consult with legal and real estate professionals to ensure you choose the path that best aligns with your goals and resources. As the real estate landscape continues to evolve, AB-1033 and SB-9 represent promising options for Californians seeking to maximize the value of their properties while maintaining their current residences. If you’re a California homeowner interested in selling part of your yard or simply want to find out what your yard’s worth, give us a call or visit us at www.yardsworth.com.  We’re happy to help.