So Who Is Repsonsible To Verify Permits?

[The Warrior Monk]

Also, Fannie has given us an out with LC #1:
1. The appraiser will not be responsible for matters of a legal nature that affect either the property being appraised or the title to it, except for information that he or she became aware of during the research involved in performing this appraisal. The appraiser assumes that the title is good and marketable and will not render any opinions about the title.

Outside the scope of the assignment.

The cited paragraph is good advice. However, the last statement doesn't follow from the preceding paragraph, since it clearly refers to information obtained during research. Problems noted during inspection cannot simply be ignored by not doing addition research, and are thus not outside the scope of the assignment.

If something obviously appears to be wrong, it must be handled. It cannot be simply ignored by the appraiser claiming not to be the permit police. Doing so is a great way to get oneself in trouble.

 

[Ross (CO)]

When was the addition constructed ? When was the work in-question performed ? Were these tasks done BEFORE the current owner purchased the property ?.....and only now being recognized in the development of today's appraisal report ? Is the marketability of the property affected by an uncertain permit history ?

If the current owner purchased the house as-was (with possible un-permitted work already done) then THAT party has fulfilled the greater test for which today's client might take issue. The title must have been good.....then. If the current owner has Rube Goldberg'ed the place, and it is obvious that things do not appear "normal" and the house has NOT re-sold since such work was done, then one can introduce just that sort of remark in their report withOUT any focus upon the word "permits". The appraiser reporting (today) can easily describe what was seen and observed, provide any necessary extra photos, clarify possible differences between his/her measurements of the house and what other official records might show, and while letting no grossly obvious detriment (to marketability or value) go un-mentioned. One still covers themselves adequately while letting the client have all the pleasure in determining what other specifics they might need to attain to support their business decision. Our task is still to appraise the property we see there today.

In my county I am fortunate, as I have very helpful and thorough building dept. (permit) records from about the mid-1980's to today.....online.....takes mere seconds to look up......with no need to drive down-town to their office for direct review of the files. It can be a useful source for confirming certain data not only about my subject property but also my final comps selected for the grid. It is helpful to know actual dates for new furnaces, new rooves, installed AC's, added living area, some decking, attached/detached garages, conversions of former attached garages into new living area, and adds a little more credence to a realtor's mention of "newer" furnace.....only to learn that it was installed in 1988 ! I like that data resource available to me....but do not abuse it or get in-your-face over permit matters that might become apparent.......as the world turns.

 

[Mike Kennedy]

. Also, Fannie has given us an out with LC #1:
1. The appraiser will not be responsible for matters of a legal nature that affect either the property being appraised or the title to it, except for information that he or she became aware of during the research involved in performing this appraisal.

Rich, "except for info ......" during research"............USPAP trumps Fannie. If available, research of Legal, Transferrable Use, is within the Scope of the Assignment .......unless Client instructions are to the contrary and appraisal is "subject to" or EA "compliant". If Use is verifiable, should be verified in my opinion. "except for info........." appears to confirm.

 

[Mike Boyd]

For you permit pullers, what do you do if you find no permits for an addition?
Give it no value?
Cancel the appraisal request?
Demand that the borrower or owner get a permit?

Permits are not always obtainable. Sometimes they require the owner of record to appear and obtain copies. Sometimes, if the addition was made long ago, the records are archived and not available without a court order. Older records are often incomplete.....are you SURE no permit was obtained?

I'm with Mike G. Disclose and comment on workmanship. Your an appraiser. If you cannot tell good workmanship from bad you shouldn't be in the business.

 

[JeffMann]

The permit issue is very “sticky.” I have several lenders that do not want you to call (or go to the city) to check on the permits. There reasoning is that if it is not permitted and the city comes out and inspects and requires changes or opening the walls to inspect the mechanical or electrical systems they do not want to be held responsible to the borrower for the cost (and the cost to the owner can be quite extensive).

On the other hand several do want you to check out the permits.

Now comes some of the tough issues. If the work looks good and the owner was asked the “permit” question and the response is “yes,” what do you put in the report. Well, I for one, clearly state that the owner was asked about the permits for the additions and then quote the answer. Many times the response is “this is way we bought it.” Depending on the lender and how much information is available, you have to make a decision on how to handle each individual situation.

Some of the cities have permits on line and some go back to the 50’s. {Now, some of you don’t think that this is very far back, but, most of South Florida did not experience any real development till after WWII.} One of our lenders, who does not want us to call the building/zoning, has the area in question shown as a separate area on the sketch. Not only as a separate area on the sketch but adjusted for in the “grid” as a separate line item. There feeling is that depending on what they think of the item they can leave the value as is or remove the contributory value of this item from the analysis and write down the appraised value by the amount of the contributory value of this area. As the client and underwriter, they have the right to do so. They just want it reported as correctly as we can with as much information as we can supply. They make the final decision.

Taking a page from this lender, we have started to put questionable areas as a separate line item with the same or similar contributory value as the main living area. Then, explain, explain and explain some more. Sometime the records are available and sometime not. We do make sure that we ask the owner and let the lender know what was asked and said.

At this time we are a mere 7 months from the advent of hurricane Wilma (10/24/2005) and most building departments do not have the manpower to look up some of the items we request. All the building department in Broward County are 1,000’s of permits behind do the hurricane.

Permited/non-permited items and questionable zoning have always been sticky problems. Each of these situation has to be looked at as a separate event and judged on its merits. In some areas the “garage conversion” is typical and in fact would be functionally obsolete without the conversion. In other areas, garages and not conversions are preferred.

This is a very sticky question and handling it correctly requires knowledge and experience. Each occurrence is unique.

Its important that we report what we see and the market reaction to the items. We do need to apply due diligence to the checking out of the items that might not be permitted. We are suppose to be the eyes and ears of our clients.

When it comes to the comparable sales, the buyer of the property purchased the comparable with the additional area, permited or not, and is part of the purchase price.

 

[T.E. Faravelli]

This dilemma can be fraught with peril and many do not realize it. A recent case comes to mind. Home buyer purchased a custom home in the early 1990's. It had a second story addition. The appraiser included it in the GLA and made a comment that per owner building permits were obtained and the improvements appear to have been completed in a workmanlike manner. Several years later it sold, the appraiser (different one) noticed some bowing along the exterior wall. Turns out the lateral loads caused structural failure due to insufficient placement and design of braced wall line and the structural improvements were also insufficient for the dead load. Anyways, he contacted the municipal building authority and discovered that while initial permits were obtained the structural inspection failed but homeowners completed the project anyway. This alerted the building dept. whom sent an inspector who red tagged the dwelling i.e. no occupancy allowed. Now the sellers can't sell until they repair the residence. They don't have the money, can't borrow against due to its structural problems and can't make the mortgage payments. It goes into default. Civil action ensues. Named as defendants are the previous owner who did the addition, the real estate agents (selling and buyers) and the appraiser. Did the first appraiser exercise the proper due diligence and perform to a reasonable standard of care? The fact that the appraiser is not an expert in construction does not necessarily obviate his liability. It seems apparent that he should have discussed in more detail the scope of work other than one sparsely worded sentence regarding the addition. Specifically, that he asked the owners about the permits (he did) and could have asked to see the permit. If homeowners refused or could produce the document he might have stated such and then continued with the narrative statements that the verification or confirmation of requisite permits is not within the agreed upon scope of work. Furthermore, the client is advised to seek professional assistance and guidance regarding the addition from a duly licensed professional i.e. civil engineer, architect or building contractor. if the client is so compelled. Could have done it "as is" or even "subject to" if he really wants to CYA. This may be sufficient for a summary judgment to remove the appraiser as a moving party to the action.

Our firm is then asked to bid on the engagement to determine the actual damages and diminution of value caused by it. We would have to properly determine the structural calculations and provide the civil engineering calculations and designs necessary to complete the improvements correctly. The question remains however did the first appraiser perform diligently and competently. Better yet did the second appraiser exceed his scope of retention by discussing the improvement with the building dept. without first consulting with his client? The client is claiming he did. Why? Because they hold the mortgage on the residence as well.

The appraisers are considered by many as target-rich environment and are easy prey-but only because they allow themselves to be.

 

[Rich Heyn]

The cited paragraph is good advice. However, the last statement doesn't follow from the preceding paragraph, since it clearly refers to information obtained during research. Problems noted during inspection cannot simply be ignored by not doing addition research, and are thus not outside the scope of the assignment.

If something obviously appears to be wrong, it must be handled. It cannot be simply ignored by the appraiser claiming not to be the permit police. Doing so is a great way to get oneself in trouble.

David,

Apparently, I posted without a careful read. Mistake on my part. I agree, if the appraiser discovers something might be amiss, he or she is no longer off the hook. After re-reading the first post, this would seem to be the case here, given the sq.ft. differences. Generaly though, I would agree with those who say we are not the permit police. The point I was trying to make is that since we don't check on the original permit for structures that don't appear to have additions, why should we include that process in our scope just because there is an apparent addition?

 

[Craig Storm]

I think it is best to state that permits are assumed, per owner, or whatever. If the client wants to see the permits, then the home owner can fax them over. If he does not have the permits, then the borrower will probably pull out of the deal, and the appraisal goes no where anyway. This option seems a lot safer than the hornets nest created when you go down to the building department, find no permits exist, and the building inspector walks with you as you leave, you going back to your office, while he goes to the borrowers house to see what is going on.

Mike

I think this is a good way of going about it.

 

[Mike Kennedy]

Fannie for the "permit pullers"......

Section 403.01 - Zoning

The appraiser is responsible for reporting the specific zoning classification for the subject property. The appraiser must include a general statement to describe what the zoning permits--"single-family," "two-family," etc.--when he or she indicates a specific zoning such as R-I, R-2, etc. The appraiser must also include a specific statement indicating whether the improvements represent a legal use; a legal, but non-conforming (grandfathered) use; or an illegal use under the zoning regulations; or whether there is no local zoning.

We generally will not purchase or securitize a mortgage on a property if the improvements do not constitute a legally permissible use of the land.

 

[Ted Markow]

I don't know if anyone has mentioned the following or even continue to view this thread with interest.
1. If George has recieved the report for review, is it not apparent the bank has accepted the appraisers explaination? One would think that if there was doubt on the banks part they would require the appraiser verify it prior to you getting it and remove the doubt.
2. The owner stated that he infact did aquire the proper permits. Are we really responsible for proving or disproving what he stated? No we are enguaged to offer an opinion of value. We are not hired to hold court.
3. As far as the accuracey of the assessors/building dept records---- need I say any more. There is obviously a good reason that the assessors office is at one end of the building and the building dept is at the other end of the building if not in the annex.

Keep on giving them an inch and they will continue to blame you for the next mile.