Selling or buying a home where construction was done without required building permits can be a prickly problem that is difficult and expensive to resolve. Here’s what to consider when a home has unpermitted space.
Problems for the homeowner
Homeowners may be tempted to remodel without getting a building permit and related inspections. But this decision can come back to haunt you.
If unpermitted work ends up causing damage to the home, your homeowner’s insurance may not provide coverage. If governing authorities discover you’ve done unpermitted space, you’ll face fines, not to mention back property taxes that could be assessed for unpermitted work that improves your home’s value. The authorities could even require you to tear out the work and restore your home to its original condition.
How about when you want to sell?
When it comes time to sell, the seller’s disclosure form that many states require you to complete regarding the property’s condition may ask if unpermitted work has been done. You must answer truthfully or face legal liability. Even in states where seller’s disclosure forms are not required, concealing the unpermitted space puts you at risk of a lawsuit from the eventual buyer.
Once you’ve got a contract, your buyer’s inspector will likely notice the work and ask about permits. If the work was unpermitted, a loan appraiser may not include the value of the improvements, thus under-appraising the house for the buyer’s mortgage loan.
If you’ve got unpermitted work in your home, you have two options when it’s time to sell.
- Contact the governing entity and apply for inspection and permit approval after the fact. This could involve considerable time and expense depending on how strictly your local authorities treat code compliance issues. The authorities may approve the work, but charge fines on top of the unpaid permit fees.
- Offer the buyer a significant discount from the selling price based on his assumption of the risk.
Keep in mind that some interested buyers may simply walk away once they learn of unpermitted work.
As a buyer of a home with unpermitted space
If you learn that a house you are interested in has unpermitted work, you have three choices.
- You can walk away.
- You can ask the seller to disclose the work to the governing authority and get the required permits and inspections. The seller, however, may not be willing to undergo this protracted and expensive process.
- You can accept the property as is and ask for a significant discount for taking on the responsibility of getting the work permitted after the fact.
Consider the fact that it can be difficult to get a mortgage loan on a home with unpermitted work. And if the unpermitted work is not disclosed to the lender but discovered later, the lender may be able to call the loan, which will make it payable in full immediately.
In a nutshell, work that has been done unpermitted should be reconciled with the governing authorities to eliminate the unacceptable risks associated with it for both sellers and buyers.