How a recorded owner-occupancy covenant on an ADU can move the price down

Take a house with an existing permitted detached ADU, 560 sf, already leased at $1,725. Asking $612k, and a deal like this can close at $571k, with the discount sitting in a document the listing never mentions. When an ADU like this was permitted six years earlier, the city may have required the owner to record a covenant against the property committing to owner-occupancy of one of the two units, with the covenant running with the land. A city's ordinance can later drop the owner-occupancy requirement for new permits while the recorded covenant on the older parcel is never released, since releasing it requires an application and a fee. It sits in the title commitment as an exception, and it is easy for a buyer's agent to read past it. What it means in practice: a buyer planning to rent both units and live elsewhere is buying a problem. Two prior offers can fall through over exactly this, with the listing agent never quite understanding why. Reading the commitment is what surfaces it. A buyer planning to owner-occupy anyway pays nothing for the covenant on day one. Pricing the release process, roughly $1,400 in fees plus staff review time, and using the uncertainty as the negotiating position, works especially well against a seller who has been on market 94 days. What nearly breaks a deal like this: a lender's underwriter flagging the covenant as a potential restriction on transfer and wanting an opinion on whether it impairs marketability. That can take nineteen days and a letter from the title company, against a 45 day close. What is worth keeping: reading the full title commitment, including every exception, before writing the offer rather than during the option period. Whether a recorded covenant like this binds a later owner, and what it takes to release it, depends on the language and on state law, so that is squarely an attorney question, and a quick read by counsel before offering is cheap insurance against a much larger problem later.