No building permits obtained

[Tom4value]

I just inspected an 70 year old house, bought cheap, extensively remodeled including installation of a mini split system and the addition of an additional bath. The mini split system is inadequate, the water pressure is low and other noticeable improper work. I have verified that no permits were obtained. I am calling for an HVAC and plumbing inspection. Do I mention the lack of building permits and municipal inspections or do I require a permit to be obtained? I want to deliver the report ASAP. This is a conventional loan. Thanks

First thing I do is contact my client. They will either make it subject to obtaining permits or cancel all together. Glad to hear an appraiser actually cares about permits!

 

[sputnam]

It's not that appraisers don't care about permits. It's that the appraiser's job is to develop and report an opinion of value. We aren't the permit police. If the Client specifies that you are to check that improvements were properly permitted, and you accept the assignment, then you check. If your assignment is to determine the as-is market value of the subject property then, you are left with the daunting task of quantifying the market reaction to the lack of permits. Have you ever seen an MLS listing that stated something like 'Improvements were completed without county permits'? And, even unpermitted improvements may have contributory value.

 

[Tom D]

i don't think l&i will issue permits for work that is already done. are they then going to ask for any walls to be ripped out to see how things were done. i asked an inspector about a brick veneer wall done without a permit. he said there was nothing that he could do, he didn't see how it was done. wha? but, if they catch you doing a rehab in this city without permits they will shut you down for a year. i think the certs you are asking for probable cover you.
sorry to interrupt the topic of 'what is a conventional loan'? i didn't know there were so many flavors.

 

[J Grant]

Over half the thread was not relevant, bickering over loan terminology. Moving on-

The only loan that matters to appraiser is FHA or VA because they require certain inspection protocol. Other loans, a lender/client can put their own requirements in, and most as well as FF want a house free of health and safety defects ( if we find a repair or defect impacting health/safety/structural integrity we make subject to inspect or repair )

Permits - If lenders and Fanne/FHA will lend on non permitted work , which they do, then it is not our call to require permits. I would mention it however, as a disclosure.
As far as calling for inspection of the heat/AC and plumbing, that was the appraiser's judgement-,

Is it a refinance, or a purchase ? It would be interesting for the OP to read the sales contract if this is a purchase -while appraisers do not insert ourselves into a contract , we can get insight sometimes into a question -wrt the sheriff, the permit police is the title company, because if They find an open permit, forget about closing a loan until that is taken care of. In sales contracts here, standard verbiage is that the seller has disclosed any lack of permits /buyer is aware of any work done without permits. So that is standard in my state. though parties can cross out a clause and initial it .... What I often see in contracts is they add an addendum where seller promises to close out any open permits or liens etc (whatever the parties want to put in )

 

[ucbruin]

With the attitude "we aren't the (blank) police"....
(I'm not disagreeing the point)....
Why the need to complete an onsite/interior inspection....

The vast majority (probably over 98%) of subject properties that I have inspected have minimal to no issues that have impacted their appraised value....
Condition, quality, additions, remodeled, etc....

 

[The Warrior Monk]

The long and short of it is that when there are issues like this, contact the client and see how they want to proceed.

FWIW, there is a big difference between "not being the permit police" and "let's ignore what we already know." If something is odd or out of place, the appraiser should investigate further. Certain items needing permits may be completely missed by everybody; e.g., electric, plumbing, etc. However, major items won't, and can have significant impact on value; e.g., unpermitted additions. If the defects are not addressed in those cases, then typically they have to be cash deals or involving higher-than-average financing, and which limits the marketability and adversely affects the value of the property.

 

[J Grant]

The long and short of it is that when there are issues like this, contact the client and see how they want to proceed.

FWIW, there is a big difference between "not being the permit police" and "let's ignore what we already know." If something is odd or out of place, the appraiser should investigate further. Certain items needing permits may be completely missed by everybody; e.g., electric, plumbing, etc. However, major items won't, and can have significant impact on value; e.g., unpermitted additions. If the defects are not addressed in those cases, then typically they have to be cash deals or involving higher-than-average financing, and which limits the marketability and adversely affects the value of the property.

Fannie, freddie and FHA will loan on non permitted additions, they do not have to be cash deals ( maybe that was true in past but not any more )

The appraiser should disclose no permits were found for the recent remodel. If appraiser observes defect or inferior work that can impact safety, then call for inspection.

How not having an addition or other work having not having permits how that affects value or market acceptance is another aspect of the appraisal. While fannie and FHA allow not permitted additions or garages converted to living areas with no permits, they will ask for 2 comps having similar not permitted additions or conversions to show market acceptance.

 

[Mark K]

I think its mostly geographically specific. IN MY AREA, permits or lack thereof, is not a serious issue. Actually, they're not much of an issue at all. I've appraised probably about 10K houses in this area in the past 30+ years and checked for permits less than 20-30 times, total.

I also know that nearly any older home, 30+ years, likely has modifications/updates for which permits were never pulled. Unpermitted items like decks, fences, yard barns, pole barns, screened porches, updated kitchens/baths, new HVAC/plumbing/electrical are so common that they aren't even a blip on anyone's radar.

I appraised a house on 25 acres a couple of years back where the owner had converted the SFR to a duplex and, he built another duplex on the property, all with no permits. I know one of the building inspectors pretty well and called him. Didn't reveal the address but told him the situation and asked what he'd do if he knew about it. His reply was basically that they probably make him get a permit and inspection and fine him a few hundred $$, at worst. BTW, the Assessor had the conversion and the additional duplex on the property record card. To say they're pretty causal about permits on existing homes is an understatement. New construction is a different story.

If your engagement letter says to check permits, you should check permits. Report the lack of permits in the appraisal and let the lender decide what course of action to take, especially if you know that the absence of permits has no effect on the value.

But, if you live in an area where you know the permit police are neo-Nazis, you should always check, even if your client and engagement letter is silent on the issue.

 

[mp2277]

the definition came straight from Google. My brother was a bank VP in the loan department with a regional bank. And no, in my area, most community bankers call their loans "conventional" and FF as "secondary market". I have 2 clients who do not even make secondary market loans but they loan on houses all day long mostly either 15 year loans or ARMs.

Google sez - emphasis theirs

A conventional loan is a mortgage loan that's not backed by a government agency. Conventional loans are broken down into "conforming" and "non-conforming" loans.​

I looked on McKissock for the "google for appraising" CE class but couldn't find it

 

[mp2277]

I think its mostly geographically specific. IN MY AREA, permits or lack thereof, is not a serious issue. Actually, they're not much of an issue at all. I've appraised probably about 10K houses in this area in the past 30+ years and checked for permits less than 20-30 times, total.

I also know that nearly any older home, 30+ years, likely has modifications/updates for which permits were never pulled. Unpermitted items like decks, fences, yard barns, pole barns, screened porches, updated kitchens/baths, new HVAC/plumbing/electrical are so common that they aren't even a blip on anyone's radar.

I appraised a house on 25 acres a couple of years back where the owner had converted the SFR to a duplex and, he built another duplex on the property, all with no permits. I know one of the building inspectors pretty well and called him. Didn't reveal the address but told him the situation and asked what he'd do if he knew about it. His reply was basically that they probably make him get a permit and inspection and fine him a few hundred $$, at worst. BTW, the Assessor had the conversion and the additional duplex on the property record card. To say they're pretty causal about permits on existing homes is an understatement. New construction is a different story.

If your engagement letter says to check permits, you should check permits. Report the lack of permits in the appraisal and let the lender decide what course of action to take, especially if you know that the absence of permits has no effect on the value.

But, if you live in an area where you know the permit police are neo-Nazis, you should always check, even if your client and engagement letter is silent on the issue.

A house built/remodeled without proper permits burns down. Insurance adjuster (you are aware that the first thing they do is pull permits, right?) says read the policy, don't call us. Lender says hey get that appraiser in here because he noticed faulty work and found out it was not inspected by the county and didn't tell us. E&O company says hey appraiser, read your policy, don't call us. When I see obvious flawed new repair work you damn right I'm asking questions. I don't mind paying for my house but hell no I'm not paying for someone else's.