Dealing with surprise permit problems

Avoid penalty fees when it's time to sell

By Inman News Feed
Add Comment Add Comment | Comments: 0 | Posted Oct. 4, 2010

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Avoid penalty fees when it's time to sell

Dian Hymer
Inman News

Having work done to your home without going through the local building department permit process saves you permit fees and the hassle of meeting city inspectors to approve and sign off on work.

If you make changes in your plans along the way, this can involve further design review. But, it can cost you money if you end up with a remodeled home that won't appraise for the price buyers are willing to pay when it's discovered that the work was done illegally.

Some planning departments won't issue a new permit if there are any outstanding permits that did not receive final approval from the city inspector. Buyers, who discover this after they've closed on the house, will have to make the corrections before they can move forward with their plans.

Sometimes buyers are issued a permit, and while a city inspector is at the property he notices something unrelated to the work that was not done with a permit. The new owner then has to have that work corrected before receiving final approval on the project. These situations can lead to legal actions that are best to avoid.

Check with your local planning department if you want to make changes to your home and find out what, if any, building permits would be needed to ensure that the renovations are legal. But, you can't stop there.

Several homeowners in Oakland and Piedmont, Calif., recently ran into problems regarding permitted work when they decided to sell their homes. They assumed that when the city inspectors visited the property and gave the OK on the job that permit requirements pertaining to their renovations were complete and approved.

One homeowner, who was planning to sell, noticed that the square footage of the home that showed on the "public record" was about 900 square feet less than the measurement an appraiser came up with. The "public record" information is accessible to real estate agents, appraisers and to buyers surfing real estate Internet sites looking for new listings.

The seller went to the local planning department and discovered that a permit for a sizable addition done by the previous owner had not received the final approval from the city. Fortunately, the previous owner had given the original permit for the addition to the current owner.

It had been given final approval by the city inspector. The issue was that the city inspector failed to document this in the city records.

This situation was resolved relatively painlessly, although the current owner had to pay additional permit fees in order to have the planning department update its records. The addition was reflected in the livable square feet so that the property sold at a price that reflected its size and there wasn't an issue with the lender's appraiser. Without the additional legal square footage, the house would have sold for much less.

HOUSE HUNTING TIP: Don't assume that the local planning department's permit history of your property is accurate. After your renovation is complete, make sure that the planning department has updated its records to reflect that all the permitted work done on your home received final approval.

Don't wait until you're getting ready to sell to find out that there are big voids that need correcting. Keep the original permits and give them to the buyers when you close.

Buyers should check the permit history during the inspection contingency time period to make sure that there aren't any red flags. Be sure to ask the sellers for copies of any building permits they have and to disclose any work they did without permit.

THE CLOSING: Just because work was approved and permits were issued does not guarantee that the work was done properly or to code. Inspectors can miss things.

Dian Hymer, a real estate broker with more than 30 years' experience, is a nationally syndicated real estate columnist and author of "House Hunting: The Take-Along Workbook for Home Buyers" and "Starting Out, The Complete Home Buyer's Guide."

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