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Should You Buy a Home That Was Remodeled Without Permits?

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Remodeling without a permit is common but problems could arise with the appraisal if the home is non-permitted.

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Question: Should You Buy a Home That Was Remodeled Without Permits?
A reader asks: "My wife and I are thinking about buying a home that was remodeled without a permit. It wasn't a big remodeling job, just a sunroom was added off the back, but the sellers said the work was done without a permit. They might have replaced the kitchen cabinets and counters, too; I don't know for sure. I don't know what needs a permit and what doesn't. But we love the house and want to buy it. How much trouble can we get into by buying a home that was remodeled without a permit?"
Answer: My first question would be what does your agent have to say about the work being done without a permit? Because most laws regarding permits are local and vary from city to city and state to state. Your agent might know what kind of problems you can encounter by buying a home that has improvements without a permit.

Why Homeowners Do Remodels Without Permits

If you polled 100 people who had recently remodeled a home and asked how many pulled a permit, it would not be unusual or uncommon for 80% to 90% to admit that they had not applied for a permit. Why don't people get a permit to remodel? Several reasons.

  • Remodeling permits can cost too much.
    Permits are typically based on the price of the project. When I built a garage, I estimated the cost to be about $6,000, and my permit was very inexpensive, around $100. It is not a good idea to try to build a structure that your neighbors can see without obtaining a permit because your neighbors might report you.

  • Possible additional and unreasonable requirements.
    I've never met two city inspectors who agreed on anything. Sometimes, city code is open to interpretation. If a homeowner is planning to remodel a kitchen, for example, city code might require that the homeowner replace an electrical box or make some other type of improvement that could add thousands of dollars to the job.

    Back to my garage. The city inspector told me to dig a trench 18-inches deep for the electrical. When they came back to inspect the finished job, the second inspector said the trench needed to be 24-feet deep or else I needed to install a shut-off switch in the basement.

  • Remodeling permits can cause delays.
    I could not finish building my garage until the city inspector came out to sign off on the permit. The city was running behind and was backlogged by several weeks. All work came to a halt while we waited. Often, inspectors sign off on work in stages.

  • Permits are too much trouble to obtain.
    True, you have to go down to the city and apply, bring your building plans and get them approved. It's a hassle for some people. Many homeowners rather would just do the work and forget about a permit.

  • Homeowners think they won't get caught.
    Out of sight, out of mind, is some people's motto. They think nobody will ever catch them. But what happens when you decide to get a permit for something else? The city inspector might spot an improvement, check the records and find out there was no permit issued. I've known city inspectors who drive down alleys looking for discarded packing materials from home improvement projects.

Problems Associated with Remodeling a Home Without a Permit

In defense of pulling permits for a remodeling job, if you're flexible with your time and don't mind spending a few hundred more, it's generally a good idea to get a permit. And here are some of the problems that could come back to haunt a homeowner who moves forward on a remodel without a permit:

  • Non-permitted work might not be done correctly or to code.
    Just because a homeowner hires a contractor doesn't mean the contractor will do the job correctly. In addition, there is typically more than one way to do a job, and all three of those could be wrong.

  • Homeowner's insurance might not cover a defect for non-permitted remodeling.
    If a remodel was done incorrectly and something happens, say a hot wire slips out of a wire nut and a fire breaks out. The damage caused by that fire might not be covered by a homeowner's insurance policy if the improvement was finished without a permit.

  • City might require you to tear it out.
    City code often requires that framing be inspected by the city prior to hanging drywall. To determine if studs were installed in a bathroom 16-inches on center, for example, a city inspector might make a homeowner tear out the walls. All the ceramic wall tiles would go with it.

  • City might assess penalties.
    If a permit seems expensive, wait until you get a bill for the fines and penalties for failure to obtain a permit. The job permit could cost you triple or quadruple the amount of the original permit fee.

  • A home appraiser might not include an addition in the square footage.
    If the appraiser does not include the added square footage in the appraisal, the home will probably appraise for much less. This means a seller might be turned down for a refinance. A buyer might not be able to get a loan to buy the home.
Tip: The best way to protect yourself when buying a home is to verify with the city that permits have been issued, that the square footage matches the city records and to get a home inspection.

At the time of writing, Elizabeth Weintraub, DRE # 00697006, is a Broker-Associate at Lyon Real Estate in Sacramento, California.

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