AB 1033 San Diego County: Sell ADUs Separately Starting April 4, 2026

What AB 1033 Means for San Diego County Homeowners

AB 1033, signed by Governor Gavin Newsom on October 11, 2023, authorizes California cities and counties to adopt local ordinances allowing the separate sale of ADUs through a condominium conversion process under the Davis-Stirling Common Interest Development Act. The law became available statewide on January 1, 2024, but it operates on an opt-in basis—meaning each jurisdiction must affirmatively pass its own ordinance to activate the provisions.

San Diego County became only the third California jurisdiction to adopt AB 1033, following San Jose (which completed California's first transaction in August 2025) and Santa Monica. The county's ordinance applies exclusively to unincorporated areas, which include popular communities such as Alpine, Bonita, Fallbrook, Jamul, Lakeside, Ramona, Rancho Santa Fe, Spring Valley, and Valley Center. Notably, most of Pacific Beach, La Jolla, and other coastal neighborhoods fall within City of San Diego limits and are not covered by this county ordinance—though unincorporated pockets near these areas may qualify.

The practical impact is significant: a homeowner in Ramona who built an 800-square-foot ADU for $320,000 can now legally subdivide their property through a condominium conversion, creating two separately-owned units. The ADU can then be sold to a first-time buyer, investor, or family member for $450,000-$500,000, while the homeowner retains ownership of the primary residence. This unlocks equity without selling the entire property, provides liquidity for retirement or reinvestment, and creates an affordable entry point for buyers priced out of San Diego's $850,000 median home price.

Under AB 1033, the conversion process requires compliance with the Subdivision Map Act, formation of a homeowners association (HOA), separate utility metering for water, gas, electricity, and sewer, and recordation of Covenants, Conditions & Restrictions (CC&Rs) with the county recorder. All mortgage lienholders must provide written consent before the subdivision can proceed. The county has published an ADU Condo Guidance & Checklist to help property owners determine whether their projects meet eligibility requirements.

The Condominium Conversion Process and Costs

Converting an ADU into a separately-saleable condominium unit is not a simple administrative task—it requires navigating California's subdivision laws, engaging real estate attorneys, and coordinating with multiple county departments. The process involves four major steps: (1) surveying and mapping, (2) legal documentation, (3) HOA formation, and (4) county recordation.

Step 1: Surveying and Condominium Mapping

A licensed surveyor must prepare a condominium map showing the precise boundaries of each unit, shared common areas (such as driveways, walkways, and landscaping), and exclusive-use areas (such as patios or parking spaces). This map must comply with the Subdivision Map Act and be approved by the county surveyor's office. Costs typically range from $5,000 to $10,000 depending on property complexity.

Step 2: Legal Drafting of CC&Rs and Condominium Plan

A real estate attorney must draft the CC&Rs, which govern how the condominium association operates, including maintenance responsibilities, shared expense allocation, voting rights, and architectural restrictions. The attorney also prepares the condominium plan, a legal document that defines each unit's boundaries and the percentage interest in common areas. Legal fees typically range from $8,000 to $15,000.

Step 3: HOA Formation

Every condominium in California must be governed by a homeowners association under the Davis-Stirling Act. This requires filing Articles of Incorporation with the California Secretary of State, adopting corporate bylaws, appointing a board of directors, and establishing financial accounts. HOA formation costs run $2,000 to $5,000, plus ongoing annual obligations including meetings, financial reporting, insurance, and reserve studies. Monthly HOA dues typically range from $200 to $400 for two-unit condominiums.

Step 4: County Recordation and Approvals

Once the map, CC&Rs, and condominium plan are complete, the package must be submitted to San Diego County Planning & Development Services for review. The county checks for compliance with zoning ordinances, building codes, and the ADU ordinance. After approval, the condominium plan is recorded with the county recorder, officially creating two separate legal parcels. County filing fees typically range from $1,000 to $3,000.

The timeline for completion varies based on county workload and project complexity, but most conversions take 6 to 9 months from initial application to final recordation. During this period, the ADU cannot be sold, though it can continue generating rental income if occupied. Property owners who built their ADUs with separate utilities from the outset can save $10,000-$25,000 in retrofitting expenses.

Market Opportunities: $450K-$500K ADU Investment in San Diego County

The separate sale of ADUs creates a new asset class in San Diego County's real estate market—standalone homes priced between $450,000 and $500,000 in areas where traditional single-family homes command $800,000 to $2.4 million. This pricing gap represents a unique opportunity for three key buyer segments: first-time homebuyers, cash investors, and multigenerational families.

First-Time Homebuyers

With San Diego County's median home price reaching $850,000 in 2026, entry-level buyers face significant barriers to homeownership. A 20% down payment on a median-priced home requires $170,000 in cash savings—a nearly impossible target for most households earning the county's median income of $94,000. By contrast, a $475,000 ADU requires just $95,000 down (20%) or as little as $14,250 with FHA financing (3% down on properties under $500,000). Monthly payments on a $460,750 loan at 6.5% interest run approximately $2,912—comparable to current rental rates for two-bedroom apartments in Alpine, Lakeside, and Ramona.

ADU condominiums in unincorporated areas offer deeded ownership, equity accumulation, and the ability to build generational wealth at roughly one-third the cost of traditional homes. Buyers gain access to neighborhoods like Rancho Santa Fe (where primary homes average $2.4 million) for under $500,000, provided they're willing to accept 600-800 square feet instead of 2,500+ square feet.

Cash Investors

For real estate investors, separately-sold ADUs present attractive cash-on-cash returns in a market where rental yields on traditional homes have compressed. A $475,000 ADU purchased with cash generates $2,500-$3,500 in monthly rental income in coastal-adjacent unincorporated areas, producing gross annual returns of 6.3% to 8.8%—significantly higher than the 4-5% yields typical of single-family rentals.

Investors can also benefit from lower property taxes (based on the ADU's purchase price rather than the combined property value), reduced maintenance costs compared to larger homes, and simplified property management. The smaller square footage attracts long-term tenants such as young professionals, retirees downsizing, and remote workers seeking affordability near San Diego's high-cost urban core.

Multigenerational Families

AB 1033 enables innovative family wealth-transfer strategies that were previously impossible. A parent in Ramona can build an ADU on their property, convert it to a condominium, and sell it to an adult child at fair market value—creating deeded homeownership for the next generation while unlocking liquidity for retirement. Alternatively, siblings inheriting a family property can subdivide the ADU, allowing one sibling to buy out the other's interest without forcing a full property sale. This approach preserves family homesteads, provides affordable entry points for younger generations, and facilitates aging-in-place scenarios where seniors move into the smaller ADU and sell the larger primary home.

Critical Timeline: Summer 2026 Policy Changes Ahead

While AB 1033 took effect April 4, 2026, the current regulatory framework may be short-lived. During the March 4 Board of Supervisors meeting, supervisors directed county staff to develop additional policy options and return for consideration during summer 2026. The proposed policies focus on two key areas: tenant protections and first-time homebuyer preferences.

Tenant First Right of Refusal

One option under consideration would grant existing ADU tenants a first right of refusal to purchase the unit before it's offered on the open market. This policy, already implemented in some California cities for condominium conversions of rental apartments, would require property owners to provide sitting tenants with written notice of the intended sale price and terms, giving them 30-60 days to match the offer.

Such a requirement would protect long-term renters from displacement but could complicate sales for property owners and potentially reduce market liquidity. Tenants would need to secure mortgage financing quickly, and sellers might face delays if tenants exercise their right to purchase but fail to complete the transaction. Real estate attorneys suggest that first-right-of-refusal policies typically reduce sale prices by 3-7% due to the added complexity and carrying costs during the notification period.

First-Time Homebuyer Preferences

The Board also directed staff to explore mechanisms to prioritize first-time homebuyers over investors when ADUs are sold separately. Options could include requiring sellers to market properties to owner-occupant buyers for 30-90 days before accepting investor offers, or implementing income restrictions that limit purchases to households earning below 120% of Area Median Income ($112,800 for a family of four in San Diego County).

Such policies would advance the county's affordable housing goals but might reduce property values if investor demand—often the most liquid segment of the market—is restricted. Property owners considering AB 1033 conversions should closely monitor the summer 2026 policy discussions, as changes could affect sale timelines, pricing, and buyer pools.

Owner Occupancy Requirements

Interestingly, the county's adopted ordinance made permanent the prohibition on owner occupancy requirements for ADUs, meaning neither the primary home nor the ADU requires owner occupancy after conversion. This contrasts with Junior ADUs (JADUs), which continue to require owner occupancy of either the main home or the JADU. The summer 2026 policy review could revisit this decision, potentially requiring that either the primary home or the ADU be owner-occupied for a specified period after subdivision.

Which San Diego County Communities Qualify?

AB 1033 applies exclusively to unincorporated areas of San Diego County—properties that fall outside the boundaries of the county's 18 incorporated cities. This distinction is critical because many well-known San Diego neighborhoods are actually within city limits and do not qualify under the county ordinance.

San Diego County includes 107 unincorporated communities representing over 500,000 residents, making the unincorporated area the second-largest "community" in the county after the City of San Diego itself. The largest unincorporated communities include:

Notably, most of Pacific Beach, La Jolla, Mission Beach, Ocean Beach, and other popular coastal neighborhoods are within the City of San Diego and are not covered by the county's AB 1033 ordinance. However, small unincorporated pockets exist throughout the county, and property owners should verify their jurisdiction by checking their property tax bills (which list the jurisdictional agency) or contacting the county assessor's office.

The City of San Diego has not yet adopted its own AB 1033 ordinance, meaning ADUs within city limits cannot currently be sold separately. Other incorporated cities in San Diego County—including Chula Vista, Oceanside, Escondido, Carlsbad, El Cajon, Vista, San Marcos, Encinitas, National City, La Mesa, Santee, Poway, Coronado, Imperial Beach, Lemon Grove, Solana Beach, Del Mar, and San Diego—also have not adopted AB 1033 as of May 2026. Property owners in unincorporated areas can verify their eligibility by reviewing the ADU Condo Guidance & Checklist published by the county Planning & Development Services department.

Risks and Considerations Before Converting Your ADU

While AB 1033 creates exciting financial opportunities, the condominium conversion process carries significant costs, ongoing obligations, and potential complications that property owners must carefully evaluate before proceeding.

High Upfront Costs with No Guarantee of Sale

As detailed earlier, the conversion process costs $50,000-$75,000 and takes 6-9 months to complete. These expenses must be paid upfront, with no certainty that the ADU will sell at the desired price once converted. If market conditions deteriorate or the property requires unexpected repairs to pass inspections, owners could find themselves carrying $75,000 in conversion costs plus construction debt with no immediate path to liquidity. Property owners should ensure they have adequate financial reserves and a realistic understanding of local market demand before initiating the conversion.

HOA Formation Creates Perpetual Obligations

Creating a condominium requires forming a homeowners association that will govern the property in perpetuity. Even for a simple two-unit development (primary home + ADU), the HOA must hold annual meetings, maintain financial records, file annual corporate reports with the California Secretary of State, purchase insurance covering common areas, conduct reserve studies, and coordinate maintenance of shared elements like driveways, roofs (if shared), and landscaping.

These obligations continue whether or not the ADU is sold. If the property owner retains ownership of both units, they still must maintain HOA compliance, including holding formal meetings and keeping minutes—even if they're the only participant. This administrative burden costs $1,000-$3,000 annually in accounting, legal, and filing expenses.

Lender Approval May Be Difficult

AB 1033 requires written consent from all lienholders before a condominium conversion can proceed. Mortgage lenders are often reluctant to subordinate their existing liens or may charge substantial fees ($2,000-$5,000) for subordination agreements. Some lenders may refuse entirely, effectively blocking the conversion unless the property owner pays off the existing mortgage first.

Property owners with significant mortgage debt should contact their lender before investing in conversion plans to determine whether approval is likely and what conditions might apply.

Limited Buyer Pool for Small, Unconventional Properties

While ADUs priced at $450,000-$500,000 are affordable compared to traditional homes, they're still substantial financial commitments for what are typically 400-800 square foot properties with limited outdoor space and potential privacy concerns due to proximity to the primary residence. The buyer pool consists primarily of first-time buyers, investors, and downsizers—meaning resale could take longer than traditional single-family homes.

Uncertain Regulatory Landscape

As discussed, the Board of Supervisors is expected to consider additional restrictions during summer 2026, including tenant protections and first-time buyer preferences that could affect marketability and pricing. Property owners initiating conversions in May-June 2026 face uncertainty about what rules will apply when their units are ready for sale in late 2026 or early 2027.

Property Tax Reassessment for Remaining Unit

When an ADU is sold separately, San Diego County Assessor's Office conducts a partial property tax reassessment based on the sale price, which establishes the new taxable value for the ADU unit. However, the primary residence's assessed value typically remains unchanged unless substantial improvements were made. Property owners should consult with a property tax advisor to understand how the split will affect overall property tax obligations.

How AB 1033 Compares to Other California Jurisdictions

San Diego County's adoption of AB 1033 places it in exclusive company—as of May 2026, only three California jurisdictions have activated the law: San Jose, Santa Monica, and unincorporated San Diego County. This limited adoption reflects the controversial nature of the policy, which requires balancing housing affordability goals against neighborhood concerns about density, parking, and community character.

San Jose: California's AB 1033 Pioneer

San Jose became the first city to adopt AB 1033 in July 2024, and completed California's first transaction in August 2025 when a property owner on Joséfa Street near downtown San Jose received approval to sell their ADU separately. Early sales data shows significant price variability: one three-bedroom, two-bath, 1,200-square-foot ADU on Lantz Avenue was listed at just under $1.6 million pending condominium map approval—reflecting San Jose's extraordinarily high land values where even ADUs command luxury pricing.

San Jose's experience provides limited precedent for San Diego County, as the Bay Area market operates under fundamentally different supply-demand dynamics. However, the transaction timeline (approximately 8 months from initial application to listing) offers a realistic benchmark for San Diego County property owners.

Santa Monica: Second to Adopt, No Public Transactions Yet

Santa Monica adopted AB 1033 in early 2025, but no completed transactions have been publicly reported as of May 2026. The city's extremely high land costs (median home price: $2.1 million) and limited availability of buildable ADU sites suggest the policy may have minimal impact in the near term.

Los Angeles: Still Considering Adoption

Neither the City of Los Angeles nor unincorporated Los Angeles County has adopted AB 1033 as of May 2026, despite ongoing discussions at the city council and county board levels. Some state legislators are pushing to make AB 1033 mandatory rather than opt-in, which would force all California jurisdictions to allow ADU condominium conversions. This potential legislative change could accelerate adoption across the state in 2027-2028.

City of San Diego: No Ordinance Yet

The City of San Diego has not indicated whether it will adopt an AB 1033 ordinance. Given the city's aggressive ADU promotion policies over the past five years—including elimination of ADU permit fees and streamlined approvals—adoption seems likely but faces political hurdles related to neighborhood input and infrastructure concerns.

Property owners in unincorporated San Diego County currently enjoy a first-mover advantage in a market with minimal competition and no comparable sales data to anchor pricing negotiations. As more jurisdictions adopt AB 1033 and supply increases, pricing power may shift toward buyers.

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