Are we required to obtain permits?

[Lee Lansford]

Mike, if the market (i.e., buyers & sellers, governmental agencies which oversee housing) is "blind" (i.e., no enforcement, buyers and sellers pay no heed, etc.) to whether or not (for example) the finish in the subject's basement was via the permit process or not--and you cannot find a permit for the finish--may I ask what your approach would be to offering an opinion of Market Value for the subject?

Mike, how would you consider the above in forming the opinion of Market Value?

 

[Scott R Marshall]

Here's another problem with the whole thing. In 1 municipality I appraise in, it is illegal to not have a garage. A 1 bedroom home requires a 1 car garage, a 2-3 bedroom home requires a 2 car garage and a 4+ bedroom home requires a 3 car garage. Nevermind that this caused a bunch of legal-nonconforming homes as there were a ton of 3 bedroom 1 car garage homes built in the 1970's and 1980's in this municipality.

There are hundreds, if not thousands of homes within this market that have converted garages. Some are deceptive and have the garage door in place. Some it is blatantly obvious there is no garage, including the home I currently reside in. This municipality has no permit records prior to the first business day of 1999. In talking to them at length they will say with some certainty that a home without a garage is illegal. But in the same breath they will say that if the conversion was done prior to 1999, they will never require the owner to reconvert and/or build a conforming garage on the site.

Could they? Yes. But until they actively do so, the market seems far less concerned. I have been told by the local municipality that they will not issue any additional permits on such properties until they are conforming but cannot cite one instance where I know this has occured. So either they are issuing permits regardless of whether or not the current use in this instance is legal or people are continuing the Wild West tradition and contiuing to improve these homes without permits into perpetuity. Are there functional obsolescence issues because the home has no garage? Primarily yes but the market continually buys these homes, finances these homes, resell these homes, rinse and repeat.

So, as appraisers in the area know, this causes a quandry. The appropriate course of action is to check the illegal box and more than likely crush any hope of purchasing a home like this unless one has cash. That is until the next appraiser down the line checks legal, which is more than likely what happened the first time around when the homeowner financed the home and now you have been hired to perform an appraisal on their refinance. While legal nonconforming works for those properties with inadequate car storage based on their bedroom count, it never applies for homes with no garages. You can opt to state that if there is the possibility that the conversion was done before 1999 that maybe there was a permit which is now lost in a warehouse or landfill somewhere and assume it was permitted. The problem with that is the extraordinary assumption made there would require you to check "subject to" and inspection, with it being almost a certainty that the conditions will never be able to be satisfied as the permit data cannot be verified.

Of course if the conversion was clearly done in 1999 or later, that becomes an entirely different scenario. But for some strange reason I have yet to run into a 1999+ home with a conversion in this municipality. And I am certain others can cite similar scenarios in the markets they appraise in.

On a separate note, the argument being raised regarding verifciation of all permits is, in my opinion, a non-issue. If the verification of permits is a client requirement or a necessary requirement based on the improvements and local municipalities reaction to said improvements, then I perform the research necessary to satisfy my and/or my clients concerns. Whether every last item had a permit issued is, in my opinion, way beyond what an appraiser can do. And ultimately, the question of legality falls on the local municipaliteis shoulders. I guess I could make reports on 75% of homes more than 10 years old, 85% on those more than 20 years old and 95% on those more than 30 years old "subject to" verification that all permits for updating, remodeling, additions, removals, etc had all necessary permits issued and that there is no work within the home that was done without necessary permits or were "tweaked" a little after the fact.

Those arguing that every last permit must be researched are either trying to justify why the verify no permits as a result. Those stating they are doing just that are deluding themselves into thinking they have the final say on whether everything within the home was legally done. Of course, they can always fall back on only those things which became apparent during the normal course of business. To which I will say that even that permit you found is not sufficient enough to determine that whatever item it pertains to is legal, as you are not the final authority on what is legal, the local municipality is. Unless of course you wear 2 hats and your second job is with the local municipalities building department and you handle all permit issues within the local area.

 

[Mike Kennedy]

Mike, if the market (i.e., buyers & sellers, governmental agencies which oversee housing) is "blind" (i.e., no enforcement, buyers and sellers pay no heed, etc.) to whether or not (for example) the finish in the subject's basement was via the permit process or not--and you cannot find a permit for the finish--may I ask what your approach would be to offering an opinion of Market Value for the subject?

Whether "Blindness" is typical or not, the requisite "Legally Permissible" Use leg of HABU does not magically vanish. When Muncipal ordinance/local Laws exist governing site use and site improvements (Zoning / Building ordinances):

1. identify and confirm whether a BP and C.O. (via the Building ordinance and or generic inquiry with the Bldg Dept. re property type, dwelling type, improvement type) is/was required by the Municipality as of the Effective Date of appraisal.

2. review property records for the subject property that exist/existed as of the Effective Date of Appraisal (in person, via online municipal assessment and building dept. records, via phone confirmation with identified municipal personnel by name, position and date of contact - retained in workfile).

3. IF required by the Municipality, either the requisite C.O. exists or not. Depending on the SOW (including assignment conditions), utilization of either an EA or HC conditioning the market-extracted contributory value of actual improvements that exist upon Owner, or Client, confirmed legally permissible use of the site "as-improved".

As of an Effective Date of appraisal a subject's site improvements which exist, "as-is", are or are not Legally Permissible.

According to The Uniform Standards of Professional Appraisal Practice, highest and best use is defined as “The reasonably probable and legal use of property that is physically possible, appropriately supported, and financially feasible, and that results in the highest value”. (It may also be defined as the legal use to which a property can logically be put or adapted, for which there is a current market, and which may reasonably be expected to produce the greatest net return to land over a given period of time, or to yield to land it’s highest present value.)

In order to determine Highest and Best Use, the property must meet the following tests. These four tests are applied in their corresponding order, in other words the test of legally permissible must be met before the test of physically possible may be applied, and so forth.
1) Be legally permissible
2) Be physically possible
3) Be financially feasible, and
4) Be maximally productive

The first test involves a determination of what uses are legally permissible. Existing leases, existing or proposed improvements, deed
restrictions, zoning, building codes and environmental regulations may all influence potential use.

 

[Mike Kennedy]

Mike, how would you consider the above in forming the opinion of Market Value?

Lee, my approach is above. Kindly post yours? TIA.

 

[Lee Lansford]

Mike, in my example, how would you--would you?--incorporate the finished area in the basement of the subject if you could not verify whether the finish was legally permitted or not? Again, a situation where the market is rather oblivious to "permit or no permit".

 

[Mike Kennedy]

Mike, in my example, how would you--would you?--incorporate the finished area in the basement of the subject if you could not verify whether the finish was legally permitted or not? Again, a situation where the market is rather oblivious to "permit or no permit".

see #3 in post 113 above.

your turn

 

[normando]

I finished an appraisal with a converted garage which is not common in area. I thought it was odd client asked me if it was acceptable and would city enforce the unpermitted work. I'm not the city. How would I know if city enforces city code? I thought it was obvious that you can't really live in a garage (no heating system). I forgot some areas are common to have converted garages.

 

[Lee Lansford]

Mike, this is much too simple.

To bring us current with the scenario which I proposed for our consideration and expanding a wee bit:

The subject's basement is finished.

The appraiser, searching for a recorded permit for the finish, does not find any such permit.

The appraiser is aware that the market does not distinguish, as to price paid or accepted, for basement finishes based upon whether the finished areas were permitted or not. The market pays $10k for a finished basement, permit or no permit.

The market (i.e., buyers, sellers, agents, et al) is aware that there is essentially no penalty (by the governing agency) for having a finished basement without having gone through the permit process.

THUS, if the question to me is "Will my opinion of Market Value reflect the market?" The answer is most certainly, yes.

Let's say that a dwelling with a finished basement has a MV of $100k.
The same dwelling with an unfinished basement has a MV of $90k.
The subject's basement is finished--but the appraiser cannot not find proof of a permit for the finish.
You're appraising the subject for MV--Mike, what's your opinion of the MV of this property?

Mine would be $100k.

 

[Lee Lansford]

see #3 in post 113 above.

your turn

Your turn (see my post above)...

 

[Vermonter]

Interesting responses here.....and a clear indication there are differences in each market. You need to know yours.