Unpermitted Home Remodel Risks when Selling

Your Home has Remodel or Repair Work but it was Unpermitted

So you did the remodeling or maybe just some overdue large repairs. And, like most people, you used reputable contractors. Maybe they were friends or family members or maybe just someone you knew. Problem is, no one pulled permits for the work or told you it was necessary. If you were never going to sell your home, it may never be an issue. But, as with most homeowners, you have plans (or needs) that require you to sell your home. 

Work Done on Your Home is Public Record

If you choose to sell your house and work with a real estate agent, he or she should ask you if there is anything to disclose to potential buyers. Remodeling or renovating your home is something that has to be noted. And, without the proper permits, an unpermitted remodel is of those “problems” that you are required by law to disclose. Not doing so doesn’t remove the problem. The lack of permits may be revealed once under contract with a buyer. And, if that happens, it may be the seller’s responsibility to correct the issue or negotiate with the buyer.

Disclosing the Unpermitted Work when Selling

There can be consequences to the disclosure. The first of which is that it may cause an issue with a possible home buyer. This is a fixable situation. The fix will require approaching the town building department. The building inspector will require you to pay (at least) the permit fee that you should have paid to begin with, which is typically based on the cost of the remodel. 

Consequences to Remodeling a Home without Permits

Remodeling or renovating a home without permits may result in other consequences. Let’s say you added a bathroom or bedroom and there is damage to the work as a result of a flood, hurricane, or fire. Filing an insurance claim will be difficult as the insurer may simply deny the claim because the work is technically not legal. Since the work is not on record, the room doesn’t exist with the insurer. 

An Even Bigger Risk of Unpermitted Work

The most drastic outcome, albeit uncommon, is that the building department may require the removal of any work completed without a permit. This is almost a guarantee if the work does not conform to town building codes. 

Note: Selling the House does not Make the Work Legal

The sale of the house does not resolve the legal status of the unpermitted work. Any work done without a permit, even before your ownership, is not “cleared up” because time has passed or ownership has changed. And if you sell the house, the buyer will assume the same responsibility. Whoever is the current owner bears the responsibility to correct work that was done that was not permitted.

Insurance may not extend to unpermitted improvements.

Be prepared, the homeowner’s liability insurance is unlikely to cover the area of a property improved upon without a permit. And it does not matter when the work was done. Recently or years (even decades) back, the building department will apply the building code that is current. So if a permit is being issued, for pre-existing work, to bring the house into compliance – the building department will use the code(s) that are in effect at the time of the submission of the application.

Remove the Headache of Unpermitted Home Remodeling

In some cases, selling the house on the MLS with an “as-is” addendum will inform buyers (and their agents) that the house has known defects. This doesn’t eliminate the risk or responsibility (for either seller or buyer) but it provides an upfront warning to the buyer that diligence should be done with any offer made.

Selling to a Real Estate Investor may be Your Best Option

The alternative is to conduct an off-market sale to an investor. Real estate investors are prepared to address these issues. Not because they can wave a magic wand to remove the problem. An investor will be interested in buying the house if they believe there is an opportunity to improve upon it to create a higher resale valuation. If so, then they would work with the building department to address the pre-existing work, bring it to code and move on to the rest of their plan. Of course, this also means the homeowner is selling the house for a reduced value, but that’s the trade-off to remove the potential woes of clearing the problem for themselves.

Questions? Let me know.

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