House with addition/no permits

[Dee Dee]

I'm getting some conflicting opinions as to wether an appraiser should disclose in their appraisal reports if the subject property has an addition that has not had building permits pulled for it.

My mentor used to say to appraise 'as is', and that if the underwriter noticed a discrepency between square footage in public record and measurements shown on the report that THEY could pursue it.
My thinking is that if it was built illegally and is later found to have been built at less than code quality, then any future buyer (or the lender) could be stuck with some expensive problems.

How do you handle this?

 

[David Mullen]

Those expensive problems would not be limited to the lender and seller. Bet you would be on the list too.

I would disclose everything I knew about any property that I was appraising. Many appraisers have paid for connections to public water and or sewer, insulated houses and on and on because of a lack of disclosure or a failure to investigate and inspect thoroughly.

Last week, I had one that was shown in the MLS as being connected to public sewer. There are sewer cleanouts in the street, a repaired "path" towards the house that looks like it was caused by a cut for a sewer line but the sewer department said that no permits were ever pulled nor has anyone been paying for public sewer. It delayed the appraisal one day because the sewer dept. did not call back promptly but waiting sure beats paying to connect or buying a house that I do not need.

 

[George Hatch]

DD,

I'll bet you already know what I'm going to say about this...


A lot of appraisers think that our only job in writing appraisal reports is to give a value; the value opinion itself being the main product of our efforts. Many folks think that if we hedge our values we are building in a safety feature that will protect us and our clients against any appraisal deficiencies or omissions. I disagree. I think our responsibilities extend to disclosing those pertinent elements that have a bearing or influence on our opinions. I think that appraisers will be disciplined for failure to disclose and failure to pursue due diligence far more often than giving a 'bad' value. This would be consistent with an enforcement program oriented toward pursuing factual errors rather than differences of opinion.

As for your suspected unpermitted addition, there are two things that come to mind. I would assume that your client is going to require insurance on the improvements. I would bet that the insurance carrier will not cover unpermitted structural additions or improvements. If a fire or other structural failure starts in the unpermitted (illegal) addition and spreads to the permitted portions, an insurance company is going to be looking to not cover the loss. Either that, or they will be looking at going after whoever represented to them that the improvements were permitted, which may well include the appraiser. In another worst case scenario, say the borrower defaults on the loan and walks. Lender repo's the trashed property and ends up with a loss. That lender now has a 'reason' to chase the appraiser for the loss, under the grounds that 'if we knew there was an unpermitted addition, we would have never made this loan'. The appraiser has no recourse or defense, regardless of their value opinion, because they made an error or ommission of fact by not disclosing the lack of permits and/or apparent difference in workmanship.

I am not suggesting that we need to check every permit out there, nor am I suggesting we need to be competent as engineers or building inspectors (couldn't hurt, though). But we do need to be reasonably familiar with basic construction requirements and note those variances or deficiencies that are readily apparent.

Bottom line, protect yourself and protect your client. If they make the loan after you have notified them of a possible problem and recommended some follow up, then it is no longer your problem.


George Hatch

 

[RVS SanDiego]

Always comment on your report about any addition regardless if it was built with permit or not. In the first page of URAR under the comment about the improvements you can state about the trim quality of the addition and if its become integral part of the property and how the contribution or lack of it (deficiency) impact the total value of the property. If the quality of the addition is superior or inferior to the original structure you also reflect that in the cost approach section by considered the reproduction cost new and the depreciation. (In a separate row). In the SCA adjustment grid you report separately the size of the addition and adjust upward or downward to reflect the contribution or the lack of it. Let me know if you need more help (619)583-5900

Gady Amor

 

[Dee Dee]

Thanks for your comments!
There's no way that your average appraiser could look at a finished addition and be able to tell from the surface if certain elements would meet code. For instance, plumbing and electrical could be hidden by drywall and without grabbing a shovel and digging the standard 3' deep foundation footings would be buried.
Under normal circumstances I would simply state that there is a newer addition, give a description of the improvements and let it go at that. In this particular situation the homeowner disclosed to me (duh!) that no permits were pulled.
It made me wonder if it wouldn't be a good idea to make a standard addendum statement in ALL of my reports where an addition has been added that it is unknown if the addition has been approved by the county, and that the appraisal is based on the assumption that it has been.
It never would have occured to me cover my behind in this respect had it not been for the homeowner's disclosure. It made me wonder how many inspections I've done in the past that could turn out to be problems later.

 

[Nancy in Friday Harbor]

This brings up a good question.
How do you know whether or not there was a permit for the addition?
Up here, you have to walk into the permit center and fill out a request to have someone physically look up the permit. If they can find it (most records over 10 years old are really scrambled), they might call you back the next day. Believe it or not, the assessor has the best overall permit records, but they aren't required to have that information and it's unreliable at best. A local home inspector charges $100 extra to do a permit search--and then often comes back with a "couldn't find any record of the house" answer.
So what do you do and how far does your liability extend.

Would just be interested in your comments/observations.

Cheers all,
Nancy

 

[Farm Gal]

If the house footprint matches county records I ***-U-ME that there is no illegal or unpermitted work, unless I see patent evidence to the contrary.

There IS no source for old or even current permit information, particularly in surrounding counties, some areas do not require a building permit at all... In the capitol city: as long as you don't touch the electrical or plumbing, you can gut a house interior to studs, replace all the windows and doors, and even cut structural members! Put it back together quite legally without ever pulling a permit 8O This is defined as an interior remodel. :?: :!: :evil: Get caught moving or taking apart a wire or piece of pipe and you are busted :roll: .

Having knowlege of local rules and regulations and how they apply is one of those many parts of appraising they don't tell you about in beginner classes.

Sign us Collectors of Mass Quantities of Marginally Useful Data

 

[George Hatch]

I (usually) don't do permits, I let property owners do permits. They have better access and more time than I do. If I think there's a question about permits, I recommend the reader seek copies of any outstanding permits from the property owner. Put the burden of proof on them. Make the appraisal 'subject to' if you're really nervous about it, although I rarely do that, myself. Like I said before, I don't reckon due diligence requires the appraiser to dig through drywall or make comments that are beyond our technical competence. But I do reckon that if an addition really stands out from the original structure and there's no indication in the tax cards or public records data as to it's status, that the appraiser should at least comment on it and raise the flag. Sure, it doesn't make for a 'clean' report (as in, the path of least resistance), but sometimes these little quirks can really cloud a property's value and marketability.

George Hatch

 

[Dan/Fla]

I will make 2 comments on this, 1st before I got in business I had rented an home an found our when the local assessors office, that the back of my rented home which was the master bedroom, was not permited when added. Not sure what happened between owner and county but do know I had to move because the county was requiring that addition be removed, which since it was about a 300+ SqFT addition hurt the value.

I had found 2 assignments I have had had non permited additions, I addded a comment stating CONCERNING THE ADDITIONS, HAVE OWNER INSURE THAT THEY WERE LEGALLY PERFORMED AND THAT THE HOME IS FREE OF ANY FUTURE ACTIONS AND OR FINES FROM CITY/COUNTY, FOR BUILDING CODE VIOLATIONS.

 

[Dee Dee]

I've lost count of how many times I've discovered that county records show smaller square footage than the actual measurements. One can almost assume that if the county had knowledge they would have made sure to add it so that they could collect more taxes and permit fees. In my area one can call most of the county building permit departments to see if permits were pulled.

I have no doubt that most insurance companies would deny anyone insurance on the full square footage of their property, and I'd be willing to bet they don't compare the square footage to county records, but as George stated I'm certain they'd wake up quickly if any major claim was made.