Pay Now or Pay Later- Building Permits and Selling your Home

As a real estate agents that has been in thousands and thousands of home and been involved in hundreds and hundreds of real estate transactions, I see many levels of home renovations that may or may not require a building permit.  Now, more than ever, between the high cost of homes, home inspections and buyers working with buyers agents, home buyers want to know the work was done properly and will quite often check on building permits or ask the seller to provide the completed building permits for the work done.

Now its one thing if you had a minor renovation done and you did not pull a building permit.  Most home buyers will let that slide.  It is another thing if as a homeowner you are trying to charge for a completely renovated kitchen or an in-law apartment in your basement but did the work with out permits.

This especially becomes a problem if a home inspector picks up on some renovations that may not be done to building code.  It puts in question whether the entire job may be of inferior work.

Several concerns of home buyer of work done with out building permits

• Is the work done safely and to industry standards? Remember, building permits are required to make sure that home renovations conform to local standards and the work has been performed to provide on going safety for the occupants.
• Am I really getting what I am paying for?  Are you calling some or all of the renovations an inlaw suite or maybe a bedroom?  If you are an 4th bedroom or in-law suite can drastically impact the price of a home.  The big question you need to ask yourself is can you legally call something a bedroom or an in-law if permits were not pulled? Maybe not! You could be misrepresenting your property and opening up yourself to a future lawsuit.  In Massachusetts there are certain egress requirements for fire safety, as well as light requirements to legally call something a bedroom or a in-law. There can be a myriad of problems for home buyers that purchase a home thinking they have one thing but to find out its not.
• Is the work encroaching on a neighbors property?   Decks, additions, pools etc… are costly additions that must conform to the towns zoning laws and add to the foot print of the house.  During the permitting process you may be required to get permission from zoning to add to the property.  Many such renovations can change the foot print of a property and require minimum set backs from your neighbors.
• Home owners insurance may not cover and issue arising from an un-permitted defect.  If an insurance company finds out that your looking for coverage on an issue for a defect that was created do to un-permitted work, they could deny the claim.
• An appraiser might not account for work done with out a building permit.  Things like that extra bedroom or the in-law suite or the big sunroom addition that you are trying to get tens of thousands of dollars extra for may be discounted by appraisers if they find out there was not a building permit pulled for that renovation.

Why do home owners not pull the required building permits?

• • Building permits permits can add a significant cost to the project.  Permits are usually based on a percentage of the cost of a job.  It also may require you to get permission from several departments to complete the work.
  • Building permits can trigger additional work or unreasonable requests.  Once you apply for the permit your at the mercy of the powers to be.  You may see a project one way but the inspectors want the work completed a different way than you envisioned.
  • Building permits cause delay.  The permitting process can get quite involved if all of a sudden you have to submit engineering plans and go in front of multiple boards for approval.  All of a sudden the building approval can take much longer than the project itself.
  • Building permits are too much trouble to obtain.  True, its going to be a hassle, the town will be up in your business, it will increase the cost of the work and it will delay.

Taxes will go up. 

Its quite possible that now the town has a record of improved home it may trigger a tax increase.

Pay now or pay later

While it is certainly up to you whether you want to go through the permitting process or skip it,  I can tell you that if you skip it it your are probably going to pay for it when you try to sell your home.   It usually doesn’t become an issue until after your home is under agreement and then you have to rush around and try to make things right on top of spending money you did not think you had to.  Here are two recent scenarios of transactions I have been involved in where the seller did not bother pulling the required building permits:

Scenario One

A seller did extensive renovations on a home they purchased a few years ago including adding 2 bedrooms, renovating the kitchens and bath, finishing the basement and converting a sunroom into a living room as well as system updates.  This particular seller is a general contractor and he did the work himself.

When the home inspection came around several issues arose that called into question the lack of building permits.  This home was beautifully done and the seller did get off pretty easy.  But, it did cost home owner thousands of dollars having specialists verifying the work was done properly and in a safe manner.   It also dragged out the inspection period and almost caused the buyer to back out several times.

Scenario Two

A seller had bought a home with an inlaw suite several years ago, paying a premium for a nicely done in-law suite so the mother could live there and help pay the mortgage.

Fast forward several years and now its time to sell.  Now bear in mind the in-law was professionally done and it was gorgeous, but no building permits were pulled.  Get a great offer on the property, everyone is happy, the buyer are in full understanding the work was done with out permits.  BUT!!  The fire inspector doing the smoke certificate notified the town of an “illegal” inlaw.  The town revoked the occupancy permit on the house.

To get the town to reissue the permit, the seller had to dismantle most of the kitchen, cap plumbing for sinks and appliances in the wall and take out a closet in a bedroom to the tune of several thousand dollars.  On top of that the home buyer wanted a reduction in sale price as they did not want to pay for suite that was not legal as well as it caused appraisal issues as we were charging a premium for the suite.

This seller did not get off so easy.

If you are thinking of doing renovations that require a building permit, do it.  Don’t skip the permit, it will end up costing you down the road if you decide to sell.  Here is an article from the LA Times on Bypassing the Building Permit.

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This article, Pay Now or Pay Later-  Building Permits and Selling your Home, was provided by Kevin Vitali of EXIT Group One Real Estate.  Thinking of buying or selling?  Experience counts.  Call me at 978-360-0422

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