Missing Bedroom?

[Vanesa]

Hello!

We are in a bit of a pickle and could use some advice. My husband and I bought our first home in South Florida about two years ago. At the time we thought we were purchasing an 1100 sq. ft., 3 bd/1 bath home, with one of the bedrooms being a converted garage. It looked like it was well done and this sort of thing is very typical for the neighborhood so I didn't think anything of it. (I should also mention that I grew up in this neighborhood and am very familiar with the homes in the area.) Everything went through both my agent and the seller's agent, the appraiser, and the title company with no red flags. The appraisal came in at what we offered and we closed on the home.

Recently, we had an appraisal done to remove the PMI. We are just a few thousand short of reaching the 80% LTV and felt that this was a slam dunk. Since we bought the home, we've invested about $15,000. We put in new impact and Low E windows, replaced old doors that did not meet the hurricane code, updated flooring, installed privacy fencing...etc. Plus, the market has gone up in the area. A house down the street with the exact floor plan as our home sold for $35,000 more than we had paid two years ago. You can imagine my surprise when the new appraisal came in with only 2 bedrooms! When I asked the appraiser about this he told me that the converted garage had been done without a permit. Because of this, he could only legally count it as a garage. There had been absolutely no indication before this that the converted garage was done without a permit. So now we are on the hook for bringing it up to code, which could potentially be thousands of dollars. Any advice on where to go from here?

Thanks in advance!

 

[Ken B]

Angie's List in search of a general contractor? Not sure what the question really is here...

 

[chad hampton]

It could be a lender requirement that additions must be permitted. It is not (or should not be) the appraiser's. What I typically do is state - "I measured the home to be 1400 sf of GLA, public records indicates 1000 sf of GLA. It appears that the subject's finished/enclosed garage was not accounted for in public records". It's up to the lender to decide if that is an issue for them or not.

Appraisers report what is there. I used to appraise in FL, and in many neighborhoods, converted garages are very common. I've seen them with both the garage door still in place (tracks removed) and blocked in. When they were under central heat & air and finished to the quality of the rest of the home, I'd count it for what it is. When it wasn't, I'd call it a partially finished garage.

The appraiser could not possibly count it as a garage unless you can currently use it as a garage. Can you lift the garage door and pull a car in?

 

[Vanesa]

It could be a lender requirement that additions must be permitted. It is not (or should not be) the appraiser's. What I typically do is state - "I measured the home to be 1400 sf of GLA, public records indicates 1000 sf of GLA. It appears that the subject's finished/enclosed garage was not accounted for in public records". It's up to the lender to decide if that is an issue for them or not.

Appraisers report what is there. I used to appraise in FL, and in many neighborhoods, converted garages are very common. I've seen them with both the garage door still in place (tracks removed) and blocked in. When they were under central heat & air and finished to the quality of the rest of the home, I'd count it for what it is. When it wasn't, I'd call it a partially finished garage.

The appraiser could not possibly count it as a garage unless you can currently use it as a garage. Can you lift the garage door and pull a car in?

Thank you for your response. No, a car would definitely not fit. The garage door is still in place, though, and behind that is a small storage area. The converted bedroom space has central air, electrical outlets, a closet, and is level to the rest of the home (I was told that is also important). It was functioning as the master bedroom when we purchased the home and looks quite nice. I was kind of surprised that it was not considered living space as it obviously adds market value.

 

[Mike Kennedy]

http://aboutfloridalaw.com/2012/03/...sks-of-buying-home-with-illegal-improvements/

 

[hastalavista]

Question #1: Who engaged the appraiser? (lender, PMI company, you?)

When I asked the appraiser about this he told me that the converted garage had been done without a permit. Because of this, he could only legally count it as a garage. There had been absolutely no indication before this that the converted garage was done without a permit. So now we are on the hook for bringing it up to code, which could potentially be thousands of dollars. Any advice on where to go from here?

I agree with Chad: the property and its configuration is what it is. How it is accepted by the market determines what the market value is of the home. However, a lender or PMI company may have a policy to require permits for any non-permitted alterations (what they cannot require is for the appraiser to ignore it; its part of the real property and if it has an impact on value, that needs to be considered in an as-is valuation).

Question #2: Are you sure it wasn't permitted? Have you gone to the jurisdiction who is responsible for such things and verified the permit status?

Good luck!

 

[Vanesa]

Question #1: Who engaged the appraiser? (lender, PMI company, you?)



I agree with Chad: the property and its configuration is what it is. How it is accepted by the market determines what the market value is of the home. However, a lender or PMI company may have a policy to require permits for any non-permitted alterations (what they cannot require is for the appraiser to ignore it; its part of the real property and if it has an impact on value, that needs to be considered in an as-is valuation).

Question #2: Are you sure it wasn't permitted? Have you gone to the jurisdiction who is responsible for such things and verified the permit status?

Good luck!

Hi Denis!

Both appraisals were done through Wells Fargo. The initial was to obtain the mortgage and the second was at my request to remove PMI. However, since I am under mortgage I have to go through their contracted appraisers. One of my concerns is that the initial appraisal did not have a qualifying statement (like Chad had mentioned) to indicate that the addition could be unpermitted. This led me to believe that permits were checked and we were good to go.

And I did confirm with the city that it is, in fact, not permitted. Hence my worry now that it is on their radar. I'm hoping they'll be nice enough to "forget," but I can't count on that since the neighborhood is strict about non-compliance.

Thank you!

 

[Tim The Enchanter]

The garage door is still in place, though, and behind that is a small storage area.

That's a give away. If it was permitted, they would not likely leave the garage door in place.

 

[Mr Rex]

Wells Fargo. Offer up your first born and hope that satisfies the beast. The epitome of the too big too fail and the epitome of why TBTF should be eliminated.

 

[hastalavista]

Hmmm.....

It does sound like you are in a pickle. It is doubtful that the bank/appraiser will reconsider his/her value (regardless if they should or not) and you are left with the choice of going through the permit process retroactively or paying for PMI which might not be necessary if the appraisal considered whatever contributory value the garage conversion has in the market rather than just as a garage.

The "prudent" thing to do is to investigate the jurisdiction's process in obtaining a retroactive permit. That is a local issue so unless an appraiser is familiar with your specific market, there's not much more to add on that point (but I will anyway below!).

My general experience is this: If garage conversions are permissible and one can get a permit, the jurisdiction is usually amenable to retro-permitting the conversion. You can find out what the requirements are without giving away your address; compare what they are vs. what you have and decide where to go from there.
I also work in markets where the requirements are to provide an alternative covered parking structure if the primary garage is converted. In those markets, if one converts without permits and does not provide for the additional covered parking, the city will require the garage to revert back to its original configuration.
You can see how the value of a non-permitted conversion would be different in the two different scenarios:
In the one where it isn't a big deal, the value (in the market) may be similar to GLA.
In the one where it is a big deal, the value could be negative: build the second structure (if there is room on the site) and get the conversion permitted, or lose the living area the conversion offers and pay for converting it back to the original garage.

Hopefully, you'll have an option that allows you to keep the converted area with a minimal fuss and get your home valued to remove the PMI!

Best of luck to you!