unpermitted addition

[danieljohanson]

Working on an assignment where subject has an unpermitted addition of a bedroom about 300 SF. Does the report need to be made subject to permits? Or does it not qualify for FHA financing due to the addition.

 

[AnonApprsr]

Subject to what permits? The permits that should have been pulled when the addition was built?

 

[Charlie]

Daniel-

There is no clear answer to either of your questions in my opinion. The most correct answers will be different in various parts of the country. The appraiser's role regarding permits is unclear and debated over and over on this forum by knowledgeable appraisers. Many say we are not the "permit police"- but you may decide that not at least disclosing this known to be unpermitted addition and trying to research and figure out how to handle it correctly could expose you to liability.

When was the addition built? How do you know that permits were not obtained for the addition? If you have not already, you need to call your municipality and get some info regarding the situation- find out what the lack of permits means and what possible problems it could cause. In one of the areas that I cover - the city government considers all unpermitted work that has been completed for over 2 years to be grandfathered and will provide no retrospective permits or inspections. If an appraiser in that area was to make an appraisal subject to permits being obtained for an unpermitted addition that was over 2 years old - that would be incorrect - the subject to requirement could never be satisfied.

The effect on marketability and value of unpermitted work in the market area should be discussed in the report.

I suggest contacting both your client and FHA and describing the situation to them. You can ask FHA directly if it qualifies. Ask both parties how they suggest that you proceed. Make sure to reference the various names, titles, and conversations in your report.

Post what you find out so others can learn.

 

[danieljohanson]

re

The lender said to proceed with appraisal "as is" as FHA doesn't require permits on additions. The local city planning dept states that if there is an unpermitted area they must apply for a permit and that it will be inspected based on local code. In this market generally agents market properties with these unpermitted rooms under the permitted GLA. The subject is then compared to homes with similar permitted GLA.

Here is my problem. Say I do what the lender is asking and make the appraisal "subject to" and they complete the loan. Then 3 years later there is a fire from the addition due to electrical not being made to code, or the structure colapses somehow due to it not being built to code. Then I could be liable right? Isn't this a possible safety issue if I can't confirm the area is built correctly?

 

[Lloyd Bonafide]

How you handle it can depend on what city the property is in, since some cities do inspections at the time of sale, but for an FHA report with a room addition that was not done with permits, I would probably give it little value and not include it in the GLA. I would be very clear that the room was not done with permits, and comment on the overall quality and workmanship of the addition, when it was done, if there were any health or safety concerns noted, and whether there is any adverse affect on marketability. Depending on the lender and the UW, they may loan on the property as-is.

 

[Charlie]

The lender said to proceed with appraisal "as is" as FHA doesn't require permits on additions. The local city planning dept states that if there is an unpermitted area they must apply for a permit and that it will be inspected based on local code. In this market generally agents market properties with these unpermitted rooms under the permitted GLA. The subject is then compared to homes with similar permitted GLA.

Here is my problem. Say I do what the lender is asking and make the appraisal "subject to" and they complete the loan. Then 3 years later there is a fire from the addition due to electrical not being made to code, or the structure colapses somehow due to it not being built to code. Then I could be liable right? Isn't this a possible safety issue if I can't confirm the area is built correctly?

Hello Daniel,

Hopefully some of the FHA experts on the forum will also offer their opinions. Regarding the lenders comment to "complete the appraisal 'as-is' as FHA doesn't require permits on additions" - I would again encourage you call FHA and get information directly from them on what they do and do not require. Do not just believe what the lender is stating. You can call 1-800-Call-FHA ; they have been providing good customer service recently in my opinion- they typically answer quickly- you will first be connected with someone in the call center and usually if they can not determine the answer (they are not typically appraisal experts)- then often they will connect you directly with someone from your Home Ownership Center (HOC) that can give you better advice. You might hear some information like "HUD will not insure any loan with unpermitted improvements if permits are required in that area" that will suprise you- although the 4150.2 handbook does not really address permit issues as I recall. You can ask them directly if the report should be made subject to or as-is and reference that in the report.

I would say that your concerns about liability are justified. There is no way to know if the work was built to code at this point or if there are any safety issues involoving the addition area. Could the unpermitted work invalidate the home insurance? At the very least, the report needs to contain the information that the addition is unpermitted, that permits are required in that particular jurisdiction, and that there has been no verification to you knowledge that the unpermitted area was built in accordance with the applicable building codes.

Hope this helps- again please post what you hear so that it can help others with similar problems.

 

[CANative]

Appraisal is a business and there's always some risk in business.

You can avoid this risk by conditioning your appraisal on inspection by the building department. You will probably loose the client. You can probably disclose the condition and keep the client but have a little risk that something might happen to cause you liability at some point in the future.

The choice is yours.

 

[LI-Appr]

Disclose and explain. Leave the call to the UW. Also is this situation commom.? Can you document it? I do not know your market.

 

[Joyce Potts]

How does one consider an unpermitted addition as LEGAL?

You can certainly give it a value AS IS and ignore the unpermitted addition, but how can you say the property AS IS is legal as long as that addition is non-compliant with zoning and/or permitting?

 

[PropertyEconomics]

How does one consider an unpermitted addition as LEGAL?

You can certainly give it a value AS IS and ignore the unpermitted addition, but how can you say the property AS IS is legal as long as that addition is non-compliant with zoning and/or permitting?

Joyce .. I have always pondered this exact issue. The USE of the property is legal (it is used for single family residential purposes which are the only uses allowable under zoning) thus the use is permitted ... the problem is that a portion of the permitted use is not paper PERMITTED. In this case the word permitted has two separate meanings. One is allowable and one is a paper license, if you will.

I believe this is an instance where one should report, report, report, and explain, explain and explain. I always worry somewhat that older additions may have been permitted and the permits lost by the government and I would not personally say that a permit was not issued ... I do not have any personal knowledge of that being true.

Inspection by the buliding department could be required or such inspection could be left to the discretion of the underwriter ... or you could check box four and appraise the property under the hypothetical condition that such inspection would not require correction or repair.
In any event it is beyond the scope of work of the appraiser to determine whether the permit was issued many years ago or whether the improvements were constructed to code at the time they were built.

As for me .. I kinda like the CB4 option myself (especially if you have similar sales within the market you have used as comparables and have measured the market reaction to the same or very similar condition (permit status) of other properties). The underwriter can deal with it.