When you’re on a search for your dream home, it’s easy enough to fall in love with any renovated features, such as a remodeled kitchen or bathroom, a finished basement, or a newly-installed deck, that can make your life more comfortable once you take over as the owner. However, those lovable features can quickly turn into expensive nightmares when they turn out to be unpermitted work with no paper trail showing proper authorizations on the improvements made.
To save yourself from any trouble as early as you can in the process, we’ve laid out the risks associated with buying a home with work done without a permit and how you can protect yourself as a buyer. Your potential home might be your most significant financial investment, after all.
What is “unpermitted work” on a home?
Unpermitted work is a term that applies to any modifications or construction on a home that does not carry the necessary permits to make it legal. Building codes and permit requirements vary with every city or town, so what might require a license in one place may not be in another.
When buying a home, you can check on the property disclosure statement provided by the seller and see the list of things the current owners have done to the property during ownership, including any work done without a permit.
You can also call or visit the local building department for more information and see if the owners pulled permits. In some municipalities, checking permits can be done online. Many HOAs or homeowners’ associations often like to have permits on file as well, so you can try asking them to see permit records on the property of your interest.
Getting permits for any home improvement that requires it is vital, especially if it involves any electrical, plumbing, or structural work. And yet, many homeowners forgo the permitting process for various reasons, such as:
- They want to save time and money. Getting the proper permits can be tedious and complicated, depending on your city or county. And, of course, there’s the corresponding filing fee that can cost hundreds of dollars.
- They thought they’d be staying in their homes forever. When you think you’re never going to sell your home, unpermitted work becomes even more appealing.
- They want to keep their assessed real estate value low. This way, they can save money on property taxes.
Here are some of the potential pitfalls of buying a home with unpermitted work:
1. You may be liable for retroactive permitting and paying penalties.
If the city inspectors in your area discover that your home has unpermitted renovations, you become liable for obtaining a retroactive permit on the already completed projects. The cost associated with retroactive permitting will depend on the scope and value of the construction.
And since the cat will also be out of the bag, you may also be responsible for paying back taxes on the increased value of the home. You could also be on the hook for associated interest and penalties.
2. You will be responsible for fixing the problem or even removing it.
You’ve fallen in love with a home that has a finished basement, only to discover that it was unpermitted work. In some towns, they can ask you to remove the entire project. In others, they might simply require you to tear down and rebuild portions of the remodeled work based on their feedback.
It might be best to hire a contractor to examine the existing work when fixing the issue. They can estimate the cost of bringing it up to code and give you an idea of how much is built according to current regulations.
3. Your homeowners’ insurance policy may not cover the unpermitted renovations.
Worst-case scenario: the home addition done without a permit included faulty electrical work, which caused a minor fire after you’ve already purchased the home. Your homeowners’ insurance company may refuse to cover the damages from that fire when they discover that it was from unpermitted work.
The same goes if something happens in a non-permitted part of your home. The insurance company may deny the claim if someone falls and gets hurt in an unpermitted deck or a tree falls on any unpermitted renovation. Trying to collect your insurance policy could also see you going through a complicated lawsuit.
How to protect yourself as a buyer
Work with a trusted real estate agent.
The last thing you want to do as a home buyer is to take the matter of pulling out permits or paying fees into your own hands, especially if you can avoid it. Make sure you work with a local and experienced buyer’s agent who can guide you through the home buying process, especially on the impact of unpermitted remodeling works. They can also help you account for it when creating an offer. They can also help you put language on the purchase agreement before signing, where the seller will be held accountable.
Get a thorough home inspection.
Make sure you don’t forgo the home inspection since it can identify unpermitted construction, work not completed to code, and other potential red flags. Hence, you know what to expect before committing to buy the property. The home inspector can also check with the local permitting department to see pulled permits.
Ask the seller to fix the problem.
The good news is that if you haven’t signed the purchase agreement yet, the seller can be held accountable for obtaining and closing out permits. However, keep in mind that it could take weeks or even months to close out permits, delaying the closing or even putting off the sale.
Your best bet is to have an attorney put a clause in the contract stating that the seller, at their cost, will have to take care of obtaining any necessary permits and even resolve any code violations before closing.
However, suppose the seller is not interested in fixing the problem. In that case, they could give you a discount and sell as-is, meaning they’re selling the property in its current state and will not assume responsibility for any work done without permits.