How do Building permits or Lack Thereof Affect Appraised Values?

Real Estate Appraiser with Lanier Appraisal Service CR004373

Upon request of a fellow Active Rain Member, Patty Da Silva, I am passing along what I know to be the truth about Building permits and how they impact or affect the appraisal on a property.



First and foremost, local, county and state laws differ to varying degrees. I am in North Georgia. Building permits are required to be pulled whenever you are renovating a home which will include framing, plumbing or electrical work. Also required to pull permits for new or replacement decks if they are more than 30" above the ground. FENCES, no permit is required. If you plan to replace just cabinets and counters in kitchens or baths, NO permit is required. Check with your local planning and zoning departments on when permits are required.

If someone finishes their basement or encloses their garage into living space a permit is required.

NOW, how does this affect the appraisal. I can tell you for a fact that I do not routinely, nor do my peers and colleagues check building permits to see if someone did have a permit pulled for renovations noted above. This is not the responsibility or the obligation of the appraiser to do this. They report what they see and observe and the lender will decide. 

FHA says they are not in the business of policing local government codes, etc. They want appraisers to look at the property and make sure that there are no obvious structural, electrical, pluming issues as well as look for any safety, saleability issues, etc.  

There are additions that are completed in the utmost professional manner with no permit being pulled and then there are additions that are for lack of a better way to say this..... CRAP!

We report what we see to the best of our expertise and ability and if it looks like a professional job we will state this in the report. We state that there was an addition, if we know the year we will state this, if we know a permit was pulled we will state this, if we ask and there was no permit we will state this.

The question is how many appraisers will ask if a permit was pulled. That is the million dollar question.  Other appraiser's out there tell me what you do and be honest!

In our appraisal reports there is a limiting condition statement that says we are not liable for legal matters that would impact the property now or in the future. So that tells me we are not liable for additions where permits were not pulled and they become a liability later. We are not the code police and we should not be expected to be unless the lender asks us to check into it for them.  

I have had heard of lenders and Fannie Mae telling appraisers that if a permit was not pulled on an ADDITION, not so much a finiished basement, that we are not supposed to include any of that heated square footage in the report. We can give it credit but it will not get the kind of credit it would as heated square footage. 

If there is an obvious addition, I will ask if a permit was pulled, if they don't know or they say no, I note it in the appraisal but I DO GIVE IT CREDIT as heated square footage (if it is heated area and not a screen porch, etc.) Unless the addition has not been constructed in a workmanlike or professional manor. Now I am not a builder or contractor, but if the addition looks just as good as the main living area or better, I am going to give it credit.....WHY?  Because the market will give it credit and that is what we are providing Market VALUE.

Realtors out there......correct me if I am wrong here, but I do not see evidence of buyers paying anything less that is measurable for an addition that looks great where a building permit was not pulled vs. one where a permit was pulled. Unless there are legal issues getting into a home where it could bite you in the back later,  I can see where someone may decide not to buy a home on that basis. But overall this does not seem to deter most buyers, at least not in OUR market. 

FHA does not require us to pull permits and they do not state that square footage cannot be counted if a permit was not pulled. 

So the best advice I can give to Realtors, Sellers and Buyers is if you like a home with additions/renovations, etc. have it inspected thoroughly to find out if it is structurally sound and meets code for the time in which it was constructed and if you like, find out what you would need to do to make it conform to CURRENT building codes. This is certainly NOT a requirement that you bring them up to code it is just something you may want to consider.

Realtors you may want to get copies of any and all permits done on a home you are considering listing so you can have if for potential buyers and the Appraiser to foresall any issues. If no permits were pulled. SAY NOTHING! Let the buyers perform DUE DILIGENCE and let the appraisers determine on their own if they are going to research permits or not. If they ask you about permits, by all means tell them the truth, and if you can have your buyer provide records of the work performed, receipts, etc. showing who the contractor or builder was so  the buyer can check these people out if it will make them feel better about the renovations/additions.

Finished basements, I would not worry too much about that, because as I said most appraisers are not going to be checking or asking if someone pulled a permit on this work, decks the same thing,  Kitchen and Bath renovations, I really would not worry about those either. Most people do NOT pull permits on this kind of work and most appraisers are concerned with the quality of the work, how it improves the value of the home and how it compares with the other homes which it would compete with, etc.

I hope this helps and I would love to hear from Realtors and other Appraisers in different areas to see how your locations differ and how you would handle this if you were appraising a home where no permit was pulled for additions, finished basements, enclosed garages, etc. 

 "We have many garage conversions here too. If they are poorly done it is a good bet that the appraiser will 

just treat it like a garage and not include it in the heated square footage. since it was once a garage it is easy to revert it back to a garage in the eyes of the appraiser. also most lenders want at least one comparable sale that has a garage conversion if the subject has one and it may be easier to overlook a bad conversion and consider it just a garage as there are more homes to compare it to. if i come across a good conversion I treat it like a finished basement and include it in the heated space. lender will decide  if they will accept this especially if i have a good garage conversion comp" 



Have a great weekend everyone! I hope this one is FEATURED as many people I am sure have the same questions. 





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Home Improvement
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The Appraisal Process - From A to Z
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appraisals and building permits
if no permit is pulled will if affect my appraisal
how do building permits affect my appraised value

Comments 16 New Comment

Mary Thompson
Lake Lanier Appraiser in North Georgia
Lanier Appraisal Service

Mike & Eve


Yes it does appear Florida has some strick rules on building permits. But that is good for the buyers that many not be protecting themselves or the Realtors who may not be protecting their buyers. That is great that you go the extra mile and check those permits out so there are no surprises a the 9th hour. 

June 11, 2012 05:49 AM
Jesse Skolkin
Independent New York State Certified Real Estate Appraiser


While most appraisers in the markets I cover would base appraised values on whatever the local markets accept, there are some lenders which have very specific policies on how appraisers handle unpermitted additions or conversions.

June 11, 2012 05:53 AM
Richard Glesser
North Country Appraisal Services

Good overview of the permit "problem".  It provides another tier of liability which can be placed on the appraiser.  I have never searched or required building permits to validate alterations or additions.  Based upon FHA, VA, and RD appraisals, any improvements were required to meet safety and condition standards.  If it felt like you were walking on a trampoline when you crossed the porch, probably a structural problem requiring professional evaluation/certification.  It is important to remember the difference between appraisers and home inspectors.  Appraisers have basic guidelines which must be met for inclusion as livable square footage.  And I don't believe there is an appraiser out there who has not viewed improvements done by This Old House wannabes.

John's first example does bring up a more specific improvement evaluation as it relates to a manufactured home.  With the 1004C in 2003, all improvements, additions, and alterations are required to be noted.  This is based upon the fact that manufactured homes are engineered to meet HUD standards and such changes could compromise the original design and specs.

June 11, 2012 06:34 AM
Rob Spinosa
Marin Mortgage Broker
RPM Mortgage, Marin County, CA

Great, detailed post about a subject that can be a very gray area --- especially with appraised values coming in with the potential to disappoint.  Thank you.

June 11, 2012 06:54 AM
John Juarez
Prudential California Realty

I have seen many more poorly done garage conversions than good ones. Permits for garage conversions are almost never pulled. At least one community in our area will only issue a permit for a garage conversion if the owner is also able to supply covered off street parking to make up for the lost garage parking.


The existence of a permit is supposed to be an indication that work was done to code with inspections done by city or county inspectors. Having said that, I have also seen some improvements made that were very well done but without the required permit.


If we know that is the fact, we disclose, we insist the seller discloses and we let the buyer decide whether they will buy or not.

June 11, 2012 05:07 PM

Mary Thompson

Lake Lanier Appraiser in North Georgia
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