Illegal Basement Kitchen

[Tom4value]

Appraised a home for a purchase. The house has numerous condition issues, holes in walls, peeling/stained/missing flooring, exterior peeling paint, etc. There is also a partially finished basement, RR, HB and kitchen. There is no c of o for the basement finish and the subject is zoned SF Residential. I conditioned the appraisal for removal of the stove in the basement and I am getting asked by the lender to explain why. I also valued the basement as unfinished. The lender seems to be fixated on the stove removal issue and I cannot figure out why? Any insights?

Did you contact the regulating authority, I.e. here in MA, the Building Inspector? With these issues, I ALWAYS ask the Building Inspector what needs to be done. They run the gamut from, “I can’t see it from my house” (I.e., nothing) to removal of the stove and sink. I let the BI determine what goes in my report. That way, 1. I cover myself and 2. If the lender asks, “why did you condition for its removal?” I can say, “because that is what the BI said”.

 

[sputnam]

Appraisers are not the permit police.

 

[Tom4value]

Appraisers are not the permit police.

No, but we are the "eyes and ears" for our client and are expected to give our expert opinion on anything and everything that may or may not affect market value AND marketability. A property does not have a permit for an item. As noted in my previous post, every community's regulation authority is different. Will the lack of the permit cause a problem for the new buyer.....that if significant enough for the buyer to abandon the property and become a market value and/or marketability problem for the lender? You have to find out. Maybe it will, maybe it won't. Either way, we have to find out and report EITHER way.

 

[Damienvball]

Appraised a home for a purchase. The house has numerous condition issues, holes in walls, peeling/stained/missing flooring, exterior peeling paint, etc. There is also a partially finished basement, RR, HB and kitchen. There is no c of o for the basement finish and the subject is zoned SF Residential. I conditioned the appraisal for removal of the stove in the basement and I am getting asked by the lender to explain why. I also valued the basement as unfinished. The lender seems to be fixated on the stove removal issue and I cannot figure out why? Any insights?

Lender is just concerned about illegal use. I had one once the kept hammering me about where the stove had gone (owner removed it) Told them it was removed by the current owner after they moved into the house. Finished or unfinished...it still in the basement (below grade) so does it matter? without a stove its a "kitchenette" right?

 

[Terrel L. Shields]

without a stove its a "kitchenette" right?

not really...
As for "illegal" how about out of compliance with city ordinance. It is not without an official making the judgment "illegal". As for moving the stove out, they just move it back in after the re-inspect. So let the lender decide. Point out the issue and do not require anyone to move anything.

 

[Artemis Fowl]

Ya never understood the whole appraiser requiring anything. Underwriters require stuff before they approve the loan collateral. It's their job to require stuff. Appraisers just report the situation so others can make informed decisions about requiring stuff. Everytime I hear an appraiser "requiring" something I have to cringe...so out of your lane. "Recommending" an inspection is not the same as requiring some repair or other. You actually open yourself up to more liability when you act as anything other than an observer/reporter/value opinioner.

 

[Mike Ault]

No, but we are the "eyes and ears" for our client and are expected to give our expert opinion on anything and everything that may or may not affect market value AND marketability. A property does not have a permit for an item. As noted in my previous post, every community's regulation authority is different. Will the lack of the permit cause a problem for the new buyer.....that if significant enough for the buyer to abandon the property and become a market value and/or marketability problem for the lender? You have to find out. Maybe it will, maybe it won't. Either way, we have to find out and report EITHER way.

You need to know what's "legally permitted" (an entirely different concept than "permits in place") and what's not when you're appraising a piece of property, however, you take tremendous liability upon yourself if you call the building inspector and inform them of possible illegalities involved with a "specific address". When you call them, make sure you're not generating an investigation for the homeowner and opening your client and yourself up for a subsequent lawsuit. One of the major Wall Street lenders sent out an email to that effect long ago.

 

[Tom4value]

You need to know what's "legally permitted" (an entirely different concept than "permits in place") and what's not when you're appraising a piece of property, however, you take tremendous liability upon yourself if you call the building inspector and inform them of possible illegalities involved with a "specific address". When you call them, make sure you're not generating an investigation for the homeowner and opening your client and yourself up for a subsequent lawsuit. One of the major Wall Street lenders sent out an email to that effect long ago.

A lender said we shouldn’t “open a can of worms”? I don’t think so.

I am doing due diligence to find out anything that may or may not affect market value and/or marketability. Contacting a public entity about a property I was asked to inspect by the homeowner, buyer and client is not only perfectly fine, it is my job. No appraiser has lost their license because of, “why did you look into that?”. The industry is littered with ex-appraisers who were sued by clients who didn’t do their due diligence and opened their clients to liability.

 

[Mike Ault]

A lender said we shouldn’t “open a can of worms”? I don’t think so.

I am doing due diligence to find out anything that may or may not affect market value and/or marketability. Contacting a public entity about a property I was asked to inspect by the homeowner, buyer and client is not only perfectly fine, it is my job. No appraiser has lost their license because of, “why did you look into that?”. The industry is littered with ex-appraisers who were sued by clients who didn’t do their due diligence and opened their clients to liability.

Sounds like you are an exceptionally diligent appraiser, and keep on doing you! However, appraisers are not responsible for verifying that permits from the local authority are in place for every modification ever made to a structure. That is an impossible "standard of care" to meet, and I would not be giving my clients the impression that I did any such thing. You have been doing this a long time. Have you always gone down to the building department and used the microfiche machine to examine the permit history of every subject you ever appraised? In every little burg of your service area? How far back do they go? Even in the the most data rich environment I operate in, the permit history stops in the early 80s. Any modification done prior to that, there is no record of. When FHA was training us in the early 90s, that question was asked and answered with "FHA does not require the appraiser to verify permits". They still don't. Nobody believes in getting permits for "any modifications" in most of the markets I appraise in, they concentrate on trying to shortchange the assessor instead. When I run into one of those situations, I place the client on notice whether floor plan modifications are reflected in public records, and if they aren't, whether the modifications are functional & "appear" commensurate in quality with the rest of the dwelling. That is the extent of our responsibility, being "the permit police" is not. I have never (in 30 years) had a client who demanded that I verify that permits were in place after placing them on notice that the subject had modifications which weren't reflected in public records, a scenario which has occurred innumerable times. I do not ensure that the owner obtained a permit for their kitchen or bath remodel, water heater or roof replacement, nor do I place the lender on notice regarding such issues. Neither does any other appraiser operating in my market. Speaking collectively for all my peers, however, I can safely say that we would love to operate in a market where "permits" are internet searchable, they would greatly assist documenting exactly "why" we the make the condition/quality adjustments to the comparables which we do.

 

[Fernando]

Certain towns I check for permits not only for subject but for comps. I doubt buyers and agents do that.
If with permit, I give it more value than without permits.
That doesn't mean inlaw units without permits have no value.
The market gives value to well built unpermitted inlaw units. Appraisers should see that in the market.
No easy answer since each town is different. That's why competent appraisers are important.