Unpermitted Home Renovations Hurt Home Sellers
For potential home buyers, looking for a new home is an exciting development in their lives but there are so many potential risks and rewards to consider that the process can be daunting. One of the potential potholes in the road to home ownerships can be evidence that home sellers have made minor or even major unpermitted improvements to a home—without alerting authorities by applying for a permit to make the renovations in the first place. If your clients have made changes and renovations to their home without a permit, they could pay the price later on when it comes to selling their home.
How do renovations get constructed without permits in the first place?
There are many ways that a home could wind up with unpermitted renovations. Typically, owners want to avoid paying the extra property taxes that can result from increasing the value of the home. Other times, unscrupulous sellers who “flip” houses in hot markets like Miami or San Francisco will forego permits to save time and money. More often the case is simply that homeowners with a DIY (Do It Yourself) work ethic haven’t realized they needed a permit, or they have been sold a bill of goods by a contractor who claimed to have pulled permits, but didn’t.
What are the risks of selling a home with unpermitted renovations?
City or county building inspectors are responsible for ensuring that renovations to a home meet all existing laws and regulations. The fact of the matter is that skipping a home inspection during the buying process is impossible, so unpermitted renovations will be discovered during the selling process. Building inspectors also have the authority to enforce the law.
Buyers will discover the renovations.
State laws vary from state to state when it comes to the aspects of a home that a seller must disclose to a buyer. When a potential buyer discovers that unpermitted renovations may either alter the value of a home or require major renovations, it could turn off the buyers and kill the deal instantly.
Your sellers may be responsible for fixing the problem.
If unpermitted renovations are discovered by the code enforcement authorities before the sale is closed, your sellers may be responsible for paying the permits and penalties. Fixing the issues could require your sellers to make minor changes, or it may require a partial tear-down of the home and a costly rebuild. In the worst-case scenario, your sellers may be required to remove an unpermitted renovation entirely. In any case, the process of fixing a problem with an unpermitted renovation may disrupt your home sale.
Your sellers may be liable for back taxes.
If the taxing authorities in your area discover that the home you are selling has unpermitted renovations, your sellers may suddenly be on the hook for back taxes on the increased value of the home, not to mention associated interest and penalties.
Unpermitted renovations may not be covered by home insurance.
If a tree falls on a part of the home that contains an unpermitted renovation, the insurance company may deny the claim.
How to Protect Yourself and Your Sellers
Building officials do not take this issue lightly. However, in many cases, they are willing to work with you to bring a property up to code. Avoid potential liability by working with your sellers to bring the home up to current code well before it goes on the market, and ensure that it is compliant by paying for a thorough home inspection—again, before the home is put on the market. Finally, if existence of unpermitted renovations persists by the time the home is listed for sale, be transparent by reflecting the inherent risk of the home in the sale price. Based on the perceived risk of fixing unpermitted home renovations, a buyer should have the flexibility to negotiate for a lower price to compensate for potential repairs.
A Home Warranty Service Agreement can provide comfort, especially for new buyers, because they know that they’ll be protected from any unseen problems. Visit 2-10.com to find out more!