A building permit is necessary for many remodeling projects. Unfortunately, many homeowners forego this legal requirement to reduce cost and get the job done quicker. And there’s no shortage of homeowners who’ve done a little updating, made an addition, or completed some type of remodeling. In fact, if you were to poll 100 local homeowners, you’d probably find that upwards of 60 percent have done work without a building permit.
But that lower cost and time saving might be all for naught when it comes time to sell the home. And homeowners that want to sell their properties with work done without building permits will likely face some unpleasant challenges and equally as likely to incur some additional expenses.
How Permits Work
New home buyers are supposed to receive the information they need to decide whether or not a home is right for them. If the previous owner had worked on the property, they should ideally supply receipts, permits, and official documentation to assure the new buyer everything was legally completed.
But some sellers either neglect to tell a buyer or they simply never realized they were supposed to get notarized approval. Some neighborhoods allow homeowners to do practically every kind of DIY renovation or improvement to their house without a permit, some allow certain DIY repairs to be completed with a permit, and some neighborhoods require licensed contractors to complete home repair work.
Doing the Work
Sellers who want to have all the facts before putting their home on the market will usually have to do some research. Even though it wasn’t the seller’s fault, they may need to pay for additional work or spend time gathering historical documents to find out more about the nature of the work. In certain cases, the seller may find open permits that were never closed by the previous homeowners.
Public records for properties are typically housed at city/town hall, the county courthouse, or county recorder – going in person can be more effective than calling, but responses vary from place to place. Look for the Certificate of Occupancy inspector’s report, as they will have records of finished or outstanding permits. This inspection will typically question any improvements made that appear to require a permit but do not at the time of inspection. If the home seller is unaware of previous improvements all-together, they may need to enlist the help of a home inspector to identify anything that does not look up-to-code. While inspectors cannot necessarily tell a seller or buyer exactly what to do next, they are able to refer to the correct specialists.
Sellers may also want to check the original blueprints of the home to identify the changes that were made to the original structure. If there were major renovations completed on the property, they may need an architect to draw up new plans for the home. However, even with all this extra effort, sellers may not be able to get all the facts they need.
Knowing the Unknown
Not only can it be difficult to decipher the laws of each neighborhood, but the laws will fluctuate from year-to-year.
Sellers often can’t tell which rules were broken when it comes to the unpermitted work they find because there’s no documentation behind them. They may find specific hard-and-fast facts (e.g., the previous homeowner used the incorrect screws to secure a fixture), but they won’t be able to verify the safety of the worker or whether or not the work violated previous laws during the year of completion. Sellers may not be able to even understand the full extent of the job if they’re unwilling to dig deep into the walls or floors. They have two options to take if they know (or suspect) illegal work was completed.
Option 1: How Retroactive Permits Work
Sellers who want to assure their buyers that the home is up to code have the option to obtain a retroactive permit (certificate of compliance). Like traditional permits, the laws for retroactive permits vary depending on the location of the home. To get a retroactive permit, a homeowner will have to invite local government inspectors to come to the home and sign off on the work. Inspectors will either do so outright or suggest additional improvements to the work (with the required permits, of course.) Retroactive permits are usually recommended for sellers who find unpermitted work on their property because it allows them to sell the home in total confidence.
Option 2: Selling the Property As-Is
It’s possible for sellers who find unpermitted construction work to sell the home as-is. Sellers do not have to admit to a buyer or the city that there’s unpermitted work done on the home, but they are required to answer buyer’s questions honestly. In other words, a buyer would have to point blank ask if there’s unpermitted work on the home before the seller has to say anything.
Regardless of whether or not a buyer asks these questions though, a home labeled ‘as-is’ is a huge tip-off to potential buyers that they may be buying a substandard structure. This option is only recommended for sellers who need to sell their home as quickly as possible (and who don’t have time negotiate with city officials.)
How Local Officials React
For the most part, neighborhood authorities understand that homeowners aren’t always going to read every building code before they decide to renovate their kitchen. This means that owning up to unpermitted work may be easier than the seller thinks. As long as they have some information to present after doing their due diligence, authorities may be more than willing to cut a deal.
Who Should Pay
Sellers are required to take financial responsibility for the home, but they’re understandably unhappy when they have to pay for someone else’s mistakes. Sellers are encouraged to carefully read through their original buyer disclosure statement. If the work was never disclosed, they can request funds from the previous owner. The real estate agent and home inspector may share legal responsibility as well if they failed to catch the unpermitted work.
Finally, if the seller purchased a premium title insurance policy that covered unpermitted construction, then they can go through their title insurance company. But as sellers might imagine, it may be more hassle than it’s worth to prove what people knew and what they should have known at the time.
The rules for permits can be frustrating, but they do serve a very valuable purpose. Homeowners may own their own property, but they don’t live on an island. They have to ensure their plumbing, tree roots, and gas lines don’t end up inadvertently harming their home or their neighbor’s homes. While sellers can choose to sell their property as-is, they’re taking a very big risk by doing so. Not only are they likely to attract bargain-hunters who will drive the price down, but they could also potentially endanger people’s safety if the work poses a threat to either the future homeowners or the neighbors.
Bottom Line
If your home has unpermitted work and you’re looking to sell it, the best way to go about it is by working with a local real estate agency, like the Jones Hollow Realty Group, who knows exactly what to do, has experience dealing with the local municipalities, is familiar with their process, and most importantly – knows how to sell these houses.