No Permits? That Could Bust Your Deal

By
Real Estate Agent with Alain Pinel Realtors, Pleasanton, CA BRE#01732313
http://actvra.in/GYK

Oops on KeyboardDo-it yourselfers assume that they are saving money by skipping the permits for  room additions or modifications.  Another motivation is the assumption that improvements will trigger a tax increase.What many people find out the hard way is this:

  •  Unpermitted rooms may have no value from an appraiser’s point of view
  • A buyer may be spooked by the lack of permits, even if the quality of improvements were done in a workman like manner
  • Inspections may cast light on the fact that the property was not done up to code and cause a buyer to pull out of contract
  • A buyer may decide to proceed, providing the seller makes the appropriate corrections to defects in workmanship or code, ALONG WITH proper permits. These after-the-fact corrections may be much more costly and wipe out any perceived savings.

What’s more, when the property falls out of contract, the seller has to make those needed repairs anyway OR disclose those material facts to the next buyer.  That costs time on market, often leading to a reduction in price, or a stigma that there is something wrong with the property.

The fact of the matter is simple – it is what it is. If you don’t have a permit and you plan on selling your house, do some investigative work.  Prior to selling you could:

  • Get a home inspection and find out if there are any defects or code violations. Then fix them.
  • Get an appraisal and see what you’re actually dealing with
  • Consider obtaining a permit after the fact and making any necessary corrections .
  • Was the workmanship of subpar quality where this ‘added space’ is actually a deterrent to the sale? It’s possible a tear down might be less objectionable. If an appraiser can’t give value to unpermitted square footage, how will it help you sell your house?

Often times I see sellers turn a blind eye and hope that the problem will just go away. Well, that’s rarely the case.  Talk to the City, find out what is permitted and what is not, and take measures to rectify the issue, or at the very least, disclose it to the buyer upfront. Then when a buyer makes an offer on your property, you’ll know it is with a full understanding of what is permitted and what is not.

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Show All Comments
Ambassador
1,124,459
Michelle Carr-Crowe-Selling Silicon Valley Homes in Top Schools San Jose, Cupertino, Saratoga, Palo Alto-Just Call 408-252-8900
Just Call (408) 252-8900! - San Jose, CA
Family Helping Families Buy & Sell Homes 40+ Years

In a hot sellers market, it may not matter, but in a buyers market or tight lending scenario, 

No Permits? That Could Bust Your Deal.

Aug 28, 2012 10:47 PM #1
Ambassador
672,676
Karen Crowson
Alain Pinel Realtors, Pleasanton, CA - Livermore, CA
Livermore Wine Country Homes

Michelle, it busted a deal today for my buyer's, but that was a good thing. The appraisal came in $80,000 UNDER list price, and the lender deemed it unacceptable. Can you imagine how he would have felt had his over asking offer made it to the finish line?  Dodged a bullet I'd say.

Aug 28, 2012 10:51 PM #2
Rainmaker
580,054
DeeDee Riley
Lyon Real Estate - El Dorado Hills CA - El Dorado Hills, CA
Realtor - El Dorado Hills & the Surrounding Areas

Karen,

Well said!!!  The little they save in taxes and fees could end up costing them a lot!

Aug 28, 2012 11:43 PM #3
Rainmaker
1,271,614
Tom Arstingstall, General Contractor, Dry Rot, Water Damage Sacramento, El Dorado County - (916) 765-5366
Dry Rot and Water Damage www.tromlerconstruction.com Mobile - 916-765-5366 - Placerville, CA
General Contractor, Dry Rot and Water Damage

Suggested!

It is very short-sighted to not get a building permit for improvements Karen.

Thanks for the well written post.

Aug 29, 2012 12:31 AM #4
Rainmaker
1,484,350
Lawrence "Larry" & Sheila Agranoff. Call 631-805-4400 (c)
Charles Rutenberg Realty 255 Executive Dr, Plainview NY 11803 - Plainview, NY
Long Island Condo & Home Sale Specialists

It's so much better to get everything in place at the beginning instead of holding up closing and having disappointments along the way...

Aug 29, 2012 05:01 AM #5
Rainer
276,890
Kathryn Maguire
GreatNorfolkHomes.com (757) 560-0881 - Chesapeake, VA
Serving Chesapeake, Norfolk, VA Beach

I once had a contractor who tried to disuade me from getting a permit for a new deck.  I did not hire him!

Aug 29, 2012 06:07 AM #6
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Karen Crowson
Alain Pinel Realtors, Pleasanton, CA - Livermore, CA
Livermore Wine Country Homes

DeeDee, yes indeed. I had other clients have to tear out an re-do an unpermitted bathroom update. And the buyers still walked.

Tom - you probably see this all the time.

Larry & Sheila - sometimes sellers and their agents get spooked by it, but if the sellers aren't willing to change it, be prepared for the possible consequences in terms of valuation.

Kathryn - he probably wasn't licensed, or he would have insisted.

Aug 29, 2012 07:07 AM #7
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Ralph Gorgoglione
John Aaroe Group - Los Angeles, CA
California Real Estate (800) 591-6121

I hear ya.

The biggest culprit is unpermitted square footage.

I can't tell you how many times that has thrown a wrench into the transaction.  Especially with FHA/VA loans.

Great post!  Suggested

Aug 29, 2012 07:35 AM #8
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Karen Crowson
Alain Pinel Realtors, Pleasanton, CA - Livermore, CA
Livermore Wine Country Homes

You bet Ralph. One of my clients had three funky rooms added to her house. Her ex had done a do-it-yourself job, and botched it up royally. Buyers loved the house till they got to that part. And no one wanted to buy it - she's still stuck with it!

Aug 29, 2012 07:42 AM #9
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Dick Greenberg
New Paradigm Partners LLC - Fort Collins, CO
Northern Colorado Residential Real Estate

Hi Karen - Excellent post! One of our checklist items for any new listing or any home our buyers put under contract is an open permit check with the city or county. And if we see any obvious improvements, we research permits on those as well. We learned that lesson the hard way a long time ago.

Aug 29, 2012 09:03 AM #10
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Karen Crowson
Alain Pinel Realtors, Pleasanton, CA - Livermore, CA
Livermore Wine Country Homes
Dick - lessons learned the hard way really stick don't they?
Aug 30, 2012 06:35 AM #11
Rainmaker
426,367
Jim Patton
Century 21 M&M - 209-633-2839 - Turlock, CA
Realtor - Stanislaus & Merced county Realtor.

Good advice Karen.   You never know what other corners the sellers may have cut besides the permits.

Aug 30, 2012 03:41 PM #12
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Karen Crowson

Livermore Wine Country Homes
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