Garage conversion may not have permit.

[Doug in NC]

Having recently taken a CE real estate class, I learn that non-permitted household improvements may negate a homeowner insurance policy. I am working on a house that has a 1 car garage which has been converted to a rec room. Work quality looks professional, but my initial review of county records showed no evidence of the owner obtaining a permit before this was done (and work looks relatively recent and fresh).

What is the proper appraisal procedure in this instance? I read one comment about only appraising the permitted house improvements with comments on the un-permitted work. Alternatively, making the report subject to inspection by the municipal building department.

One comment that came out of my CE class was that one local building dept. was requiring ripping construction down to studs if permits had not been acquired before a building inspection was done. That could be expensive if that is what it comes down to.

Side note: House also has standing water in back yard and some of water is being pumped from under the crawl space into the back yard. Yes, there has been quite a bit of rain recently, but this property appears to have a drainage problem that is abnormal.

I won't ask how to handle the cracked foundation, as I will request a structural engineer inspection for that. Great little oddball property assignment here right? Suggestions appreciated. Thanks.

 

[HF Mudd]

The $1,000,000 question is how does the subject market react to such conversions. In some markets I cover unpermitted garage conversions are very common and the market reacts favorably to the additional square footage (I am able to prove the market reaction with the comparable sales utilized in the appraisal).

In other markets I cover permit enforcement is strict and the market reacts negatively to such conversions.

Also, some lenders have very specific requirements on how they want appraisers to handle non-permitted living areas, which might be contrary to market reactions to such conversions.

A fine mess indeed.

 

[KenAZ]

FHA will let you count it as a garage if the garage door is still attached or on the property, I only know this because I was audited and one of my reports had a garage conversion. You can count it as livable, as long as it is market acceptable, completed in a workmanship manner and the city or county is not aggressively enforcing unpermitted additions.

Worst case scenario, you just do like FHA likes, count it as a garage and provide a cost to cure.

 

[Restrain]

This has been discussed ad nausium in the Forum. The short version is Fannie rules state that it is market reaction, and you must provide similar comparables. Some lenders want no value given for such enclosures, but this is a USPAP violation as you have to reflect the market. Finally, you must be very,very careful in inquiring about permits. If the only way to check a permit is to call the permit office and inquire about a garage enclosure at such-and-so street, this can lead to code enforcement taking action against the homeowner. Tis can then lead to you being sued for disclosing confidential information (it has happened).

For more detail, search the forum for similar threads.

 

[Doug in NC]

I just want to be sure I am covering my own butt and doing the right thing by USPAP. I don't want it coming back on me if I appraise the property as legal construction, but then later someone wants to sue because their homeowner policy doesn't cover damage from a non-permitted electrical installation that caused a fire. Undoubtedly RE agents are going to be sued over something like this, are appraisers going to be held to a similar standard under the law?

 

[Mr Rex]

Doug, If I remember correctly, the NCAB gave some advice in one of the Newsletters. I don't remember which one, but I do remember it was discussed.

Here it is, I found it via search here:

Appraising a building with
an illegal addition
On occasion an appraiser will receive an assignment to appraise a
property and then discovers that there is an upgrade or addition to the
building for which a permit was never received. Often this is ascertained
by finding a discrepancy between the tax card and physical inspection of
the property. Or, the property owner may inform the appraiser of the
upgrade.
The North Carolina Real Estate Commission takes the position that
unless the upgrade is “legal,” any additional footage as a result of the illegal
addition cannot be listed in the GLA for the property on the MLS.
The North Carolina Appraisal Board takes the position that if the
additional square footage still results in zoning compliance, the square
footage may be used in the appraisal. A comment should be made on
the appraisal report that it appeared that no building permit was
received for the additional area. If the information regarding a building
permit is readily available to the appraiser in the normal course of business,
the appraiser must check the information. If not, the appraiser
does not have the obligation to make sure that the property received
proper permits.

 

[Doug in NC]

I just spoke with an investigator at the NCAB. He said to employ the use of an extraordinary assumption regarding the improvements. Apparently agents are being held to a higher standard, in that, they are prohibited from including non-permitted improvements in the square footage.

 

[Mike Kennedy]

One example (quick google)

North Carolina - read the descriptive blurb under the photos

re HUD

http://conover-northcarolina.olx.com/wow-100-down-payment-iid-441082972

 

[sputnam]

I am an appraiser. I don't care if the homeowner's insurance gets cancelled. I don't care if the lender declines the loan. My job is to develop and report an opinion of value based on the assignment conditions, scope of work, definition of value, etc, etc that are part of the particular assignment.