Updated: Nov 26, 2020
What happens if you buy a house with unpermitted additions?
When buying a home, it is important to inspect the work that has been completed. This includes reviewing all recent work and checking if the proper permits have been pulled. These permits will ensure that a city inspector verified the work before the walls were covered up. This generally occurs during the home inspection process and a good home inspector will include pulling recent permits.
When purchasing a property, you will also inherit any risks that come with any unpermitted work from the previous owner. This can include if the city comes after you with fines or even having to open up walls for an inspector. Depending on the work that was completed, you may even be required to hire an architect that can get expensive. Remediation is when the permits are pulled after the work has been completed. The city inspector will want to tear down the walls to ensure that the plumbing or electrical is completed to meet building codes.
Homeowners Insurance Policies
Homeowner's insurance policies may also not insure any unpermitted work. It is reasonable for an insurance company to question any unpermitted electrical work, this work could increase the fire risk of the home. The insurance company has the right to drop your coverage which means that you will either have to remediate the work or find a new company that will offer to increase coverage. It would be worth verifying any questions you have with your insurance company to ensure that you are on the same page
Mortgage Note Called
Many mortgage contracts have a clause that can allow them to call the mortgage note and demand immediate repayment of the entire cost of the loan if unpermitted work is completed. This could degrade the value of the property that they have a lien against and could risk their investment. This is an unlikely but possible scenario.
Many neighbors are very aware of everything that is happening in their neighborhood including any home improvements. Especially if you have a large dumpster outside for a few days it wouldn't be uncommon for a nosy neighbor to call the city for them to investigate farther.
Buyers How to handle unpermitted work
Accepting the offer
There are risks to accepting unpermitted construction, however, you can sometimes get a great deal. If you are able to purchase the property ignoring the value of the unpermitted edition you can score a good deal. From there you may contact the city and go through the process to get the retroactive permits that are needed. If there is some additional work it should be minimal since you as the home buyer have already costed that into your purchase price.
Seller Fixes The Issue
While under contract, you may ask the home seller to solve the problem. This could include them going to the city's building department and ensuring all permits and inspections are complete before the closing. Since many homes sold without permitting are sold "as is" or the seller didn't want to get permits in the first place, it is unlikely they will get the permits during the home sale process.
If you don't feel comfortable taking on the unpermitted work or if the seller won't cut you a break on the price it can be worth it to move on from the transaction and find a new home. A good real estate agent should warn you about these hurdles and highlight the pros and cons of a transaction. If your agent is pushing you to go through a sale with a multitude of unpermitted work, it might be worth getting a second opinion or finding a new realtor®.
What happens if you do work without a permit?
Completing work without a permit can cause city fines and could backfire when you attempt to sell the property. Not only do you have to file a seller's disclosure statement which includes unpermitted work when selling the house, but many potential buyers will also check for them during the due diligence process. This may have you sell the house "as-is" which will need a steep discount for many buyers to take on the additional risk and liability.
Can I sell my home with unpermitted work?
Homes sold with unpermitted work can be sold however the unpermitted work must be disclosed and will often be sold "as-is". This can cause a major reduction of the price it is sold.
Do I need a building permit if I do the work myself?
Yes, in many cities you need a permit to complete anything that includes alterations to the existing floor plan, structure changes, new or rerouted ductwork, electrical or plumbing fixtures. Denver has a project remodel site that helps lay out the steps to complete a homeowner's exam and any other questions you may have.
Do I need a permit to renovate my basement?
Yes, many cities including Denver require a permit to renovate your basement. By doing so you are altering the existing floor plan. If you are doing it yourself (DIY) you can still take out permits and complete the process without hiring a contractor. Denver will have you complete a homeowner's exam and even easily outlines the steps to complete for a basement remodeling.
Does finishing a basement increase property taxes?
When a basement is finished, it becomes additional livable square footage and can increase its assessed value. Because of an increased assessed value, property taxes will also likely increase. This increase however is generally much less than the discount you'll take when you sell your home with unpermitted work. An unpermitted finished basement also isn't worth the risk of possible safety hazards that a building inspector would notice and stop.
Why would work be completed without a permit?
Permits may not be taken out for a variety of reasons. It can be common to be seen on flips as they may not use a licensed contractor which will have cheaper labor. The work completed might also have corners cut so that the work is not to code and therefore wouldn't be approved. There have been many flips that ignore the use of an expansion tank on the hot water heater or other code-related items to save that extra $20. These items won't immediately be noticed by the home buyer as the hot water will still work but they do not conform to code and can cause problems down the road. Some flips also have narrow margins and people can try to save money from the permit costs. These permits can cost hundreds per project and those savings could be rolled into profit.
Do Building Permits Affect Appraised Value?
In general, appraisers do not verify if building permits have been pulled. They will note what they see and use that to assess the value of the home. The exception to this is if the work is clearly not professional. Verifying permits occurs during due diligence from the home buyer, home inspector, and real estate agent to check that everything has been properly installed and permits were pulled.
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