What to Do About Unpermitted Work When Buying a Home
Buyers—Risks Associated with Unpermitted Work
A home that has unpermitted work is a home with baggage, and those homes could end up selling cheaper than their permitted equivalents. Buyers should know what they are getting into before agreeing to purchase a home with no permits for work that requires them.
Buyer will take over responsibility for the work with no permits.
All unpermitted work must be disclosed to any buyers even if it didn't occur during your ownership. That means that your clients will need to disclose this unpermitted work when it comes time for them to sell.
Buyers can still be penalized for the unpermitted work.
It is not common, but from time to time city inspectors do come down on homeowners with unpermitted work. The difficulties could include being required to get the work permitted—which may consist of hiring an architect, making changes to meet codes, etc.
The locality may also require the property owner to pay taxes based on the difference in square footage.
It is generally best for buyers to research the cost of the required permits and then have them completed properly. This way the client can rest easy at night.
Homeowner’s policy may not cover the unpermitted additions.
The insurance policy your client will rely on to protect them may not do so if something happens in a nonpermitted part of the home. For instance, if someone falls and gets hurt in an unpermitted addition, trying to collect on the insurance policy could prove difficult.
Buyers have a few options when encountering a home for sale with unpermitted work.
1. Buyers may decide to move forward. A buyer may request price reductions or similar concessions due to the unpermitted work but depending on how competitive of a market currently being experienced, it may not be feasible to do so while remaining in contention for the property.
2. Buyers may ask the seller to fix the issue.
3. Buyers may decide to walk-away and find a new home.
Beyond providing this information, agents may not assist clients with pulling permits or other permit matters due to this being outside the area of expertise of a real estate practitioner and the increased risk of liability.