Not all improvements require permits. Many jurisdictions have value limits for the permits. An example, if the cost of the work is less than $5,000, no permit required. I can see a garage conversion being done for less than that. So, no permit pulled, none needed. Is it illegal?
We face this issue quite a bit, converted garages, room additions, etc and the answer will depend on 1) does it meet generally meet code, ie setbacks, etc. and 2) what action the city/county etc would take if they knew about it?
In the Las Vegas area, non-permitted additions, upon discovery can range form requiring the owner to process permits and pay a fine to demo of the addition if it doesn't appear to meet code.
The issue here is not just value, but your responsibility to the client, ie to inform them of this condition. We are not the "permit police" statement may be true, but we still must report the fact that it is un-permitted and provide the client with conditions under which we can value the property.
1) investigate what getting the improvement legalized would cost in terms of time, money, etc. , likely to vary from town to town.
2) this is the cost to cure the problem
3) in many cases we make the value subject to permits,
4) in others we have made an extra-ordinary assumption (after discussing with the client) and identifying the range of possibilities and let the client underwrite the risk
No set solution, but to meet the H&B use test (as improved) the use and the improvements must be legally permissible ... meet codes.
You can do that if you want to, I don't and won't. I do not research additions to see if they were built with or without a permit. I do not attempt to determine if they are up to code...that's a home inspector's job. My job is to "estimate" market value. Normally I do not see a survey or a deed. Once in awhile we might get an Improvement Location Certificate (ILC) but not often.
Mike ... I can understand your point, however if you read the Appraisal of Real Estate and many other publications, being familiar with and understanding the applicable building and zoning codes is very much a part of the appraiser's job! I would agree that we are not there to be "building inspectors" however we do have an obligation to make observations and report them.
It would seem reasonable that a building that does not meet code would likely have less value than one that does ... as appraisers we need to know the difference or at the very least be able to raise issues with our client.
Non-appraiser's comment here. The proof of the pudding is in the eating!
In a county that simply changes the assessed value when they discover undocumented sqf, a buyer would not consider it a big deal. In a county that gets a code inspector can pick it over, insist on changes, etc. then I think any prudent buyer would be concerned-- and hold back something on the offer.