Definition
An accessory dwelling unit, or ADU, is a smaller secondary residence located on the same lot as a main home — common examples include a converted garage, a finished basement apartment, or a detached backyard cottage. Whether the ADU is officially permitted makes an enormous difference to its value, because a legally permitted unit adds both usable square footage and potential rental income, while an unpermitted conversion can create real problems during a sale. Appraisers generally won't count unpermitted space toward a home's official square footage, which means it doesn't add to the appraised value even though it exists physically. Lenders can also require that unpermitted features, like a second kitchen, be removed before they'll approve financing for a buyer, which can derail a traditional sale entirely. For a homeowner with an unpermitted ADU, disclosing its status honestly is essential, since problems discovered later can create legal liability. Selling directly to a cash buyer sidesteps this issue completely, since cash buyers purchase the property as it exists without requiring lender-driven permit compliance first.
Example
Priya converted her basement into a rental unit years ago but never pulled the necessary permits from the city, mostly because she didn't realize at the time how much it might matter when she eventually sold. When she lists her house for sale, the appraiser doesn't count the basement's square footage toward the home's official size, which comes in lower than Priya expected. A financed buyer's lender then requires the basement kitchen to be removed before they'll approve the loan, since an unpermitted second kitchen violates the lender's occupancy guidelines. Priya doesn't want to spend money ripping out a functioning kitchen just to satisfy a lender, especially with no guarantee the buyer will still want the house afterward. Priya instead sells to a cash buyer who takes the property exactly as it is, unpermitted basement kitchen included, with no requirement to remove or alter anything before closing. She says disclosing the unpermitted work honestly upfront made the whole process far less stressful than trying to hide it and risk problems later.