Buying a home that was remodeled without permits can have repercussions. If you're really interested in the property, it pays to go into negotiations with your eyes wide open.
- Homeowners may have skipped getting permits due to the cost or issues with the city codes, or because it can cause delays.
- Without a permit, there’s no guarantee that the remodeling was done to code or that homeowner’s insurance will cover issues.
- Additions without a permit might not be counted toward the home’s value by appraisers.
- Getting a permit after the fact may be possible, but it varies by municipality and may be expensive.
A Common Scenario
Suppose you're thinking about buying a home with a sunroom addition at the back. The sellers disclose that the work was done without a permit.
The sellers might have also replaced the kitchen cabinets and counters and might have completed various other projects over time that they have failed to mention. As a buyer, you likely don't know what needs a permit and what doesn't, but you love the house and want to buy it. How much trouble can you get into by buying this home that was remodeled without a permit?
It would be prudent to first find out what your agent has to say, because most laws regarding permits are local and vary from city to city and state to state. Your agent might know what kind of problems you can encounter by buying a home that has had improvements done without a permit in this locale.
Reasons Homeowners Remodel Without Permits
If you were to poll 100 people who had recently remodeled their home and asked how many pulled a permit, it wouldn't be unusual or uncommon for more than 80% to admit that they had not applied for one. Several reasons exist for homeowners to skip out on getting permits for their home improvements.
- Remodeling permits can cost too much: Permits are typically based on the price of the project. Say you've built a new garage, estimated the cost to be about $6,000, and although your permit was only about $100, all the costs added up, and you decided to skip getting it. Unfortunately, it's not a good idea to try to build a structure that your neighbors can see without obtaining a permit, because your neighbors could end up reporting you to the city.
- Possible additional and unreasonable requirements: Some say they've never met two city inspectors who agree on anything. Sometimes, the city code is open to interpretation. For example, if a homeowner is planning to remodel a kitchen, city code might require that the homeowner replace an electrical box or make some other type of improvement that could add thousands of dollars to the job. One inspector might want an 18-inch trench for electrical work on a garage, while the re-inspector says 24 inches is needed, or else a shut-off switch is required. This can add time, money, and effort.
- Remodeling permits can cause delays: Suppose you're working on your new garage project, and you can't finish building it until the city inspector comes out to sign off on the permit. If the city is running behind and becomes backlogged by several weeks, all of your work must come to a halt while you wait. Partly for this reason, inspectors often sign off on work in stages.
- Permits are too much trouble to obtain: True, you have to go to the city hall and apply, bring your building plans, and get them approved. It's a hassle for some people, and many homeowners prefer to just do the work and forget about a permit.
- Homeowners think they won't get caught: Out of sight, out of mind. But what happens when you decide to get a permit for your next project? The city inspector might spot a previous improvement, check the city's records, and find out that there was no permit issued. City inspectors have been said to drive down alleys looking for discarded packing materials from home improvement projects done with no permit.
Problems With Not Getting Required Permits
In defense of pulling house permits for a remodeling job, if you're flexible with your time and don't mind spending a few hundred more dollars, it's generally a good idea to get a permit. Here are some of the problems that could come back to haunt a homeowner who moves forward on a do-it-yourself project without a permit:
- Non-permitted work might not be done correctly or according to code: Just because a homeowner hires a contractor doesn't mean the contractor will do the job correctly. In addition, there is typically more than one way to do a job, and all three of those could be wrong.
- Homeowner's insurance might not cover a defect: If a remodel was done incorrectly, something could happen—maybe a hot wire slips out of a wire nut, and a fire breaks out. The damage caused by that fire might not be covered by a homeowner's insurance policy if the improvement was finished without a permit.
- The city might require you to tear it out: City code often requires that framing be inspected by the city prior to hanging drywall. To determine whether studs were installed in a bathroom 16-inches on center, for example, a city inspector might make a homeowner tear out the walls. All the ceramic wall tiles would go with it, too, requiring replacement.
- The city might assess penalties: If a permit seems expensive, wait until you get a bill for the fines and penalties for failure to obtain a permit. That could cost you triple or quadruple the amount of the original permit fee.
- A home appraiser might not include an addition in the square footage: If the appraiser does not include the added square footage in the appraisal, the home will probably appraise for much less, which means that a seller might be turned down for a mortgage refinance. A buyer might not be able to get a loan to buy the home. For example, if a 10x10 room is not permitted, that's 100 square feet. At $200 per square foot, you could lose $20,000.
Getting a Building Permit After the Fact
A home seller in California who had paid a contractor to obtain a permit for their addition insisted there was a permit for the work, even though the records obtained by the realtor did not show any permits.
The buyer ended up canceling the transaction because of the missing permit. The unpermitted square footage was also not included in the home appraisal, which meant that the sellers could not sell their home at the amount they wanted as the appraisal now came in at a lower amount.
Unfortunately, in this scenario, the contractor had long since gone out of business. The sellers had to obtain an "as-built" permit from the county, which involved hiring an architect to draw the plans, with the county conducting many reviews. It cost the sellers about $8,000 but allowed the appraisal to include the footage.
The best way to protect yourself when buying a home is to verify with the city that permits have been issued and that the square footage matches the city records, and to get a home inspection.