So Who Is Repsonsible To Verify Permits?

[George Hatch]

The level of inspection of a property and the verification of permits both fall under the category of "Identify the characteristics of the property that are relevant to the type and definition of value and intended use of the appraisal, including: it's location and physical, legal and economic attributes..."

There is no such thing as an appraisal assignment that doesn't rely on assumption. Some assignments include more assumptions than others. Making assumptions is not necessarily the problem. The problem is whether it's reasonable to make such an assumption when considering the other elements of the Scope of Work, like the needs dictated by the intended users and intended use of the workproduct.

The question here is whether this assumption - the legal status or permissibility of an addition - can be considered reasonable within the context of the intended use and intended users.

Different areas have different levels of access to these records. What represents typical practice in one area may not be feasible in another. I would refrain from saying that there is one true way to handle this situation that is applicable everywhere. Assignment conditions and user expectations can also have a significant effect on what represents due diligence.

I agree with those who say that if an appraiser is relying on an additional (extraordinary) assumption that an addition is permitted or permissible that they should be communicating that assumption and it's effect on the appraisal - if found to be incorrect - in the report. As long as the appraiser is not being misleading about what they are or aren't doing, I think that's the main thing.

 

[SmilingDog]

While my example is extreme (1500 vs 4400 sq ft house) it is in fact a real world situation. In my area (as I hope in most areas) there is tax assessor's records which provide some facts about the properties we look at (i.e., sq ft of living area, year built, room counts, etc). When this data is unavailable through online services or MLS records, typically an appraiser will go to the city hall and pull this data. I know this for a fact happens in many areas of the country. IMO, this is a good example of due diligence in gathering data.

Back to my example... had the appraiser gone to the city, he/she would have discovered (at no great expense in time or money) that the property's highest and best use IS NOT an SFR, since it is subdividable, and the city is wanting to encourage this transition. IN addition, the appraiser would have verified that there were permits, but that about 400 sq ft were added as workshop and NOT INTENDED for occupancy.

Because the variance from tax records to actual inspection was so HUGE, it makes even more sense that the appraiser should have done more research, due diligence, etc. In this case, it is not even a question IMO of whether peers do the same, or what the market expects. It is a matter of verification of data for which you are placing a value, for which a bank or private investor is going to dish out money.

The last part of the equation is that the property is on an acre (rare in these parts where almost all properties are on less than 6000 sq ft lots). Furthermore, the sales used for comparison are from as different an area as you can possibly get (gated community, million dollar homes with views, equestrian estates, etc). The appraiser made no comments, adjustments or distinctions between these very different types of properties.

So good points made in the reponses...see this has not been beaten to death. In fact, the very reason that there is so much disagreement is a testament of the complexity of our profession.

 

[Tom Wilson]

I require the seller or agent to provide written evidence to the lender for 2 reasons.

1. I would think the lender would want something official in writing in the file. .

2. Liability. Maybe there are 2 additions, but I think it's only one. they have one permit - I'm in deep doo doo. Also - I have been burned on stuff like this in the past. Recently called the City Engineer's office to see if a lot in a new addition that doesn't show on the flood map was in the flood zone. Told it was not. Survey came back with the back yard in zone A. The lender asked me if I checked. Of course, but how can you prove you made a call? I could tell from her tone of voice she didn’t believe me.

 

[Farm Gal]

Phil:

If I KNOW based on perusal of county records, that an addition is unrecorded by the taxing authority, and a quick call to the building department indicates no recent permits pulled (or if I become aware through any means that an addition was unpermitted) I think it is incumbent on me to point this out to the lender/cleint!

Particularly in jurisdictions where the addition can *at any time* be removed through police power... the lender needs to know that their collateral is at risk, market acceptance aside... :idea:

Regardless of what the market may ignore, if the police power includes the abilty to demand and/or effect removal of a 'valued' portion of the property, I had best apprise the lender of that potential!

_I_ don't want to pay for 'damages'.

True example: A "illegal" but "grandfathered" property which is the result of an 'illegal' lot split, which is currently legally inhabited and exists with no problems at present. It was acquired by the current owner WHO KNEW OF THE SITUATION at a 'discounted' price of 10K less than the county appraised 'value'. All is well and good, we have proven market acceptance, right?

However in the event of 'major damage' defined as 55% of improvement value... this property will NOT be permitted to be rebuilt. Further it would then be remanded to county officals for demand of complete removal, as an attractive nuisance!

The property has verified value to at least that owner. The property would have some probable value to some other optimist owners.

However: a truely well-informed buyer AND LENDER might not want to accept a mere 10K discounting for the potential for loss inherent in the FACT that the county building department has red-flagged the property for no additions, and no permitted repairs in hte event of 'major damage'.

So here we have a case of market acceptance, with some discounting for the known defect... but NOT to disclose the defect and potential to a cleint would be a grave disservice!

 

[Artemis Fowl]

We estimate MARKET VALUE as of an effective date, not insurable value, rebuildable value, or whatever else. How many of you have complained about insurance companies using your reports? That is not their intended use...neither is this.

We report...they decide. Jeez...this job is hard enough already.

My $0.02

 

[moh malekpour]

I would suggest that most appraisers IN MY MARKET are not qualified to determine whether or not an addition is done to code or completed per the permit. They can; however, observe whether or not it is in conformity with the rest of the improvement and what the market reaction is to this feature.

Mike,
When you appraising an existing home with no addition, do you check for the permit? Of course not because this is an existing home which is recorded and obviously has a permit. However, if there is an addition to that existing home, you observe the addition and you would say that it was built in workman like manner and it conforms to the rest of structure but you don’t want to say that it is permitted or built to code because you are not builder, inspector and so on. You are contradicting yourself here because you have assumed and rightly so that the existing structure was built with permit and to the code and you are also saying that the addition conforms with the existing structure that was built with permit and to the code but you don’t want to say that the addition was built with permit or to the code. What does conformity means to you? Just the appearance and may be the construction material alone or also the manner that it was built?. After all you say it was built in workman like manner. What does workman like manner means to you? Doesn’t it mean to be built in standard and code? So if you say that the addition was built in workman like manner and it conforms to the rest of existing structure and you saying the existing structure was built with permit and to the code, you are indirectly saying that the addition is also permitted and built to the code.

 

[Farm Gal]

John:

What IS the current market value of a property, as of the effective date, on which 75% of the structure is an illegal addition subject to immediate teardown (at owner expense ) upon direction of jurisdictional police power...

Remember, we define the buyer as "knowlegable, well-informed and acting in his/her own best interest"!

The fact that a property 'exists' and has 'some definable value' is as provable as the value of a declared Superfund site.

Problem is that Market value, may be positive or could be negative...
but it probably isn't the same as a "similar property lacking the defect"!

 

[DTB]

I assume the permit pullers are doing so on every appraisal and every comp for consistancy.

After all almost every property has either a fence, garage, basement finish, deck or driveway which may or may not have been done without a permit.

On sales don't your contracts have boiler plate regarding code violations?? Should cover it.

 

[Artemis Fowl]

Originally posted by Lee Ann@Jun 1 2005, 12:38 PM
John:

but it probably isn't the same as a "similar property lacking the defect"!

My Market.

Sale listings in my MLS do not disclose whether permits exist for improvements or not. Researching permits for comparable sales would be considered outside outside the scope of work, by me at least. I would disclose any issues I find with the subject and if they wanted further research it would be added complexity with added fees and an expanded scope.

They can either accept my estimate under the conditions I have given or not. If they choose to lend under my estimate conditions...they should not hold me responsible for any issues that arise that are not contemplated.

"The purpose of the final value reconciliation is to develop a rational, defensible conclusion of the most probable market value for the subject property subject to the assumptions, limitations and conditions specified for this assignment."

Somebody in underwriting has to approve and sign off on the loan. I assume they have read my report and accepted the estimate of market value I have provided as I have provided it.

Normal course of business would not require me to pull permits unless there is an obvious reason to do so. Obvious being defined as something which could have a percieved effect on the market. I recently had a case where an attic was finished by the previous owner, obviously not to code. No permits, no inspection. I disclosed my findings, did NOT include square footage, and submitted report. UW stip came back but it was unrelated to this issue. Loan closed. They knew and lent the money anyway...NOT my problem anymore.

I'm not saying it should never be contemplated...I think it should only be considered if it has an obvious effect on the MARKET.

Your example: If the structure appeared to be similar to other structures in the market area, I would probably not contemplate permits. I would have no reason to do so as a typical buyer would probably not question whether it was permitted. A home inspection should disclose any defects...but I am not a home inspector.

Realistically, why would a police power destroy a home that is no different from similar homes in the area for no reason other than that "they can"? Obviously deficient structures will be valued as such by the market anyway. Many cities require a certificate of occupancy (or similar document) before a sale is allowed to take place. This requires inspections. Failure to get this cert. will kill the sale until everything is brought up to code.

Finally, I was always curious how a knowledgable buyer is defined. As knowledgable as some experts on this site or just a typical schmoe who uses a realtor and gets a home inspection?

 

[Farm Gal]

John:

I use similar boilerplate. The contracts in my area do NOT specify who is to blame (or pay) for unpermitted or illegal situations/code violations. Like I said 'I don wanna be the ONE' .

I also assume that comparable sales are 'legal'... but this is a question of SUBJECT!

The issue seldom arises unless a property is damaged and needs repair, or a susequent owner decides to get a permit for other reasons... Having seen rebuild/repair permits denied hundreds of times, I am a true believer that it CAN happen. And that the homeowners get real REAL mad about it... I don't like getting hit by shotgun "sue everyone" blasts!

I want CYA language in my reports, as well as applying reasonable due dilligence in discovery to prevent my entrapment in a problem not of my making.

Development of Highest and Best Use involves questions of legal permissibility, and zoning, no? Do you assume all properties are automatically at their highest and best use without considering other options? How else does one determine if a property is appropriate, or if it is under (or over)built for the area than knowing what is/is not permitted?

Finding that a property is impermissible 'as-built' opens a can of worms.

Finding that a property does not match the tax record, or zoning, in MY opinion should result in further basic inquiry (to whatever extent will 'do no harm' to the homeowner), and disclosure to your client of what you did discover, or were unable to discover. Then the ball's in their court.

In my geographic area, the occasional illegal lot split occurs. A county may not babysit ALL recordations of splits. Occasionally a property gets made 'sub-standard' due to splitting off land required for egress or frontage minimums. The resultant habitable property may then be "illegal". If whacked by a tornado, fire or flood, it CAN be "ineligible" for building/repair permit! There are ongoing lawsuits addressing this issue in one area I work in.

I research minimum lot requirements, zoning and 'general' structure compliance pretty thoroughly!