Are we required to obtain permits?

[Fnbpos]

Denis,

I do NOT have a specific case to bring you; however I do recall one of the attorney's at my E&O company (25 yrs at the same place) confirming it. Since I now know these people fairly well I will make a call and find out if they have had this case (I believe they have; but cant yet confirm).

Also remember, your are a "reader' of the market; in the eyes of the typical buyer. In your market, is the typical buyer calling or visiting zoning departments on a regular basis, checking out the properties they want to buy ?...not likely. Your job is to determine how this "space", "enclosure", etc., is reflected by market participants and how much value "the market" is paying for it.

You should read FNMA and HUD guidelines on permits....basically they dont care. Your job is to appraise what is there. Remember, you cant pretend something is not there when it is.

Also, dont forget the privacy issues involved here...

None of the appraisers in my "circle" are permit police, so a "case" has not been brought to my attention as it is a non-factor in my "circle".

Disclose in your appraisal that you are NOT the permit police, it has worked like a charm for 26 years. "They" can ask about permits all they want; i simply refer them to my boilerplat comment. Some boilerplate comments are mandatory... IMHO

 

[hastalavista]

Denis,

I do NOT have a specific case to bring you; however I do recall one of the attorney's at my E&O company (25 yrs at the same place) confirming it. Since I now know these people fairly well I will make a call and find out if they have had this case (I believe they have; but cant yet confirm).

If you can do that, I'd very much appreciate it; and if you do, you should start a new thread with it because that would be important news (obviously to me, but to others as well).

Thanks!

(I have the exact opposite experience. I was a consultant on a case where an apprasier was sued because the apppraiser didn't complete due diligence on a non-permissible 2nd home. I say "non-permissible" because the zoning ordinance specifically forbid a 2nd home to the specifications of what existed. A call to the planning department not only would have confirmed this, but would have also confirmed that there was an abatement proceeding in-place.
This property was valued as-if the 2nd home was permissible, the report calculated a contributory value of some $200k. In fact, when the property went into foreclosure, the 2nd home was required to be razed as a condition of the re-sale. Of course, to add insult to injury, the 2nd house was built in violation of building codes, and therefore wouldn't have been allowed even if a variance was possible, which it wasn't. The lender took a significant loss; the lender would not have lent on the property had the non-permissibility (not permits, but permissibility) been disclosed regardless of how it was valued.)

 

[23Degrees]

No, it not an automatic requirement - we are not the permit police as the slogan goes. That does not mean we can wash our hands of the situation, proceed "as is", "legal", call it workmanlike, maybe add a cost to cure in some cases and let it slide through the system with no potential future worries no matter what our boilerplate says.

In cases where my read is that I am no longer protected by Statement 1 on the GSE form (read the whole thing before you think that we are never on the hook for items of a "legal" nature) a discussion with the client needs to ensue whereby an appropriate SOW (and modified fee arrangement) can be developed that may or may not involve the appraiser doing a permit run, or proceeding on the basis of an EA or HC, or clarifying that proceeding "as is" will result in the "illegal" box being checked. By having these conversations up front it is much easier to avoid the permit arguments after the report has been written - or at least it should be.

In your specific case you completed the appraisal and properly disclosed the presence of the basement situation. For the purpose of this discussion I'm going to presume that you also prepared the report "as is" and checked "legal" as well. Having done so, the client (or AMC) is making a reasonable request to have this confirmed considering the situation. Rightly or wrongly they have a permit fixation to provide proof that the improvements "as is" are in fact "legal" in terms of zoning compliance as you indicated despite having the basement situation in place . If one can do this modification permit free and not violate building code, or the building code is not implicitly tied to zoning code and you can show this then your obligation with regard to this report is done - tell em permit shmermit if their engagement letter was void of a permit gopher requirement.

That building/zoning code situation might be in place where you are but that would not be the case where I work and if someone completed a report "as is" and "legal" without having a discussion with the client as to the SOW implications of the basement issue they would be obliged to spend the day in the permit office IMO and possibly be dealing with a modified report depending upon the outcome of that research.

As some have noted, as a courtesy at the very least it is best to gain some form of permission from the home owner prior to doing a permit pull IMO. I think Denis is correct in that there have been no successful law suits but it still might save some potential headaches.

 

[Fnbpos]

"Yes is this the Anywhere, USA zoning department ? yes, well i have this property with an enclosed porch and an add-on off the back bedroom, neither are showing on the tax roll, i would like to verify if these are premitted ? "

what is the addresss ? Its 1234 5th st

Well well, we dont show any record of those structures you speak of. We will be sending out one of our guys tomorrrow, have a GREAT Day.

1) you just released confidential information on the subject property to someone who was not your client.

2) proceed to open one giant can of worms.

Your job: disclose everything you know, describe whats there; that it is not on the tax roll etc, the markets reaction to the space and its value in the market, that its not your job to pull permits; and that if the client is concerned, that they should do the search to satisfy their concerns. Non-permitted spaces are everywhere; their value can be measured in the market .... that is your job...

IMHO

 

[normando]

If you know the area was done with permits, you can compare comps that were also done with permits. Lenders in the past got burned when they took back property and construction was built under par. Lender either took it out or sell it as is. You can see if not done with permits, appraisers will get the blame. If you state permits unknown but lender asks you directly whether done with permits, you better find out for your own protection. That's why I hate appraising houses with questionable permit work. I just looked at a house and from outside, I thought there were going to be finished rooms in garage. I was so happy there was no finished rooms but there was a toilet closet. It could have been worse.

 

[Fnbpos]

Denis,

your example is a "whole nother bird". I can call the zoning department on that one and IN GENERIC terms get my answer WITHOUT disclosing the actual property. This we do ALL time. When it comes to zoning, density and number of units allowed, this can all be handled without opening any kind of mess. YES, this should be done for EVERY property every time.

Big difference in your example (as I see it)

 

[normando]

When you go to a city building department, ask to see permits. Don't say anything else. Otherwise, you may get homeowner in trouble. Use common sense. If you have questions, call later, hopefully different person you met before.

 

[Delta85]

If the client specifically wants us to investigate and collect permits on various items of the subject I don't see how WE are opening a can of worms. Completing this task may well involve asking questions that might send the zoning officer sniffing around the home. Not my problem. I'm a professional doing a job as requested by my client. A client, by the way, the homeowner is willingly doing business with. I doubt any lawsuit would go very far. I don't have time to talk pig latin or speak in codes in the zoning office trying to do my job and not get the homeowner in hot water. If the homeowner added improvements without permits and are now looking to refinance with a client that requires permit investigation then they are dipping themselves in that hot water.

 

[Krystal Schware]

Thanks Mike. It is South Heidelberg Township, Berks County.

 

[normando]

It's easy to go and get info regardless of consequences. A good appraiser uses some finesse in not making situations worse.
As an appraiser, we investigate the whether the work is done with permits. It's easy, you look at the files available. It's when the client ask questions like "if city finds out, how strict will city enforce?" That is going too far in our knowledge. Do we have to investigate the enforcement rules? In reality, does the city really enforce? Some cities are more lax and some are not? Has city recently enforced? That's when I draw the line. I don't know what the city will do.
There's a city where a 7-11 store was allowed to open given a variance. Then the not my backyard neighborhors went to city hall and voice their complaints. The city reverse its decision. Now property owner is suing. Nothing is that simple.