Unpermitted Additions

[CANative]

Mike (Kennedy). Let's all simmer down. Can you articulate exactly what you're trying to say in context with the appraiser and assignments?

 

[hastalavista]

Let us assume the following:
A house exists in an zoning district where only houses can exist. This house happens to have an addition (family room) that was added on in a style/quality that conforms to the market tastes. When it was added, no permits were pulled. As-is, the improvements contribute value to the site, and the estimated remaining economic life is 40-45 years.

As-vacant, the H&BU of the site is residential and there is demand for newly constructed homes in this market. To build one is financially feasible. The ideal improvement on this site would call for a house with a family room. In fact, except for the physical deterioration, the subject matches the ideal improvement in terms of size, floor plan configuration, design and appeal. Therefore, H&BU as vacant is to build a new home that matches what exists on site; this use reasonably probable and legally permissible use, and it is financially feasible; there are no competing uses, so it is maximally productive.

• Highest and best use. The reasonably probable and legal use of vacant land or an improved property, which is physically possible, appropriately supported, financially feasible, and that results in the highest value. The four criteria the highest and best use must meet are legal permissibility, physical possibility, financial feasibility, and maximum profitability.4
4 Appraisal Institute, The Dictionary of Real Estate Appraisal, 4th ed. (Chicago: Appraisal Institute, 2002), 135. 5 Ibid. 6 Ibid., 135-136.

(my underscore for emphasis)

As-is, the site has a home on it with a design and appeal that matches the ideal improvement. The family room does not have a permit.
H&BU as-improved...

In analyzing highest and best use, consider legally permissible uses, then physically possible uses, then financially feasible uses. Finally, of those, determine which use is maximally productive (that is, brings the highest economic return). Another way of analyzing highest and best use is to examine which of the three following possibilities makes the most sense for the subject property:

1. Demolish the existing improvements and redevelop
2. Remodel, add on, or otherwise modify the existing improvements ( MEK *which would include modifications if any to comply with local, county, or state Building Ordinances)
3. Keep the improvements as they currently exist

The use, as-is, is legally permissible. Except for the physical deterioration, the site is improved with the ideal improvement; by definition, it would need to be legally permissible (nothing unreasonable about that) and by virtue of its existence, it is evident that it is physically possible.

So then, what is left in the as-improved analysis?

1. Should the improvement be demolished?
NO. Existing improvements contribute value and are estimated to continue to do so for the next 40-45 years.

2. Remodel, add on, or otherwise modify the existing improvements?
NO. The improvements, as-they-are, already reflect the ideal improvement configuration; the only difference is physical deterioration. Nothing needs to be added, remodeled, or modified. Mike add's his interpretation to the point #2 in his quote. That's his interpretation, not the source he cites. However, I'll agree that an unsafe condition would fail the H&BU test and modification would be necessary. But pulling a paper permit is not the same as modifying an existing improvement that somehow changes its "use". With or without the permit for the family room, if that family room is permissible (able to be permitted), than the current use is legal.

3. Keep the improvements as they currently exist?
YES.

The H&BU of the property as improved is "as is".
The lender may require permits; that's their prerogative.
The appraiser may tell the lender the only way she/he will appraise the property is to make it subject-to; that's his/her prerogative.
But neither the lender's preference for permits, nor the appraiser's insistence of permits, changes the simple fact that H&BU of the site as-improved is "as is" and in no way does the lack of a permit for a legally permissible use create an "illegal use". It simply creates a condition that needs to be evaluated in an as-is market value appraisal.

Finally, no one (except Mike, as a straw man argument, IMO) is arguing that full disclosure shouldn't be included in the appraisal regarding the permit status or the steps the appraiser took to verify the permit status.

I will add this, however: I've long argued that an appraisal reported on the GSE form should include a summary of the as-vacant and as-improved H&BU conclusions.
I'd say if there is a question of permits, a summary of the as-vacant H&BU is a necessity because it sets the foundation for making the determination that the as-improved H&BU is "as is" even if the family room is not permitted (but is legally permissible).

 

[Randolph Kinney]

There is a failure to distinguish between zoning (general plan and specific zone classification), zoning ordinances and land use versus building permits in the highest and best use analysis. The site and improvements are perfectly legal as to zoning and land use which makes the property legal for zoning and highest and best use.

If you discover, for example, that work was performed replacing the asphalt roof shingles 10 years ago because the owner told you so, and you research for building permits because the local authority requires a permit to do the work, you find no record of such a permit.

According to Mike, this is an illegal use for the highest and best use analysis and it would be illegal zoning.

 

[Randolph Kinney]

The other failure is to comprehend what building codes generally are created for: environmental, health and safety standards and a source of revenue.

 

[Randolph Kinney]

 

[Randolph Kinney]

 

[Eli]

I'm not going to change your mind, Mike, I know that.
I bolded the "legally permissible" part because this defines much of the disagreement (IMNSHO):
There is a difference between legally permissible and permitted.

-If a zoning ordinance allows for residential use, public parks, and houses of worship, and no other uses, then building a gas station in that neighborhood (non-grandfathered) would be an illegal use; it isn't permissible (is not allowed) and one permission for it. Current use? Illegal.

- If a zoning ordinance allows for residential use, public parks, and houses of worship, and there is a residential improvement that functions as a home and it has a non-permitted family room; what is that? The use is legally permissible (residential). The addition does not have permits. Current use? Legal.

If the client has a policy that all additions must be permitted, that's fine. Current use is legal; make the appraisal subject-to permits being obtained. Value the property as-if the addition was permitted.
If the client has a policy of requiring an as-is value, that's fine. Current use is legal; value the subject as-is and measure the market reaction to the non-permitted addition in that as-is value.

Again, my post won't budge you, and your posts won't budge me. I'm just posting this as an alternative viewpoint for those members who read the threads. They can evaluate the arguments and make their own judgment.
I suppose they can cite you if the decide one way, and me if they decide another!

My concern here is personal period, and if code enforcement decides to sanction in one way or another. What type of disclosure would protect me the most? I say my personal concern, but safety does have to enter the equation on electrical and plumbing, or framing, etc. I am all for putting the liability on the lender or somebody else with a license in the best way possible.

BTW, I think you gave the best answer in the whole dang thread. My dang code enforcement says truth in lending comes in to play here with lenders. I don't know how he got to be a truth in lending expert, other than he wants a permit, I understand that probably makes him an expert. LOL What if I don't have similar unpermitted additions? That increases my liability and would need a good disclosure. Somebody said just don't give it any value or value similar to storage and make a disclosure that code enforcement could sanction the property by either requiring a permit approving construction or they could deny it and require a permit for demolition. Idk. It depends on what the market shows and with FHA, VA, individual clients, I think it could vary. Do you know?

 

[Eli]

Also, what about possible repercussions from the homeowner due to safety issues? I don't know if the electrical, framing, plumbing, etc is safe. I want a really good disclosure, even if I don't give it any value due to lack of support in the market and lack of a permit.

 

[EddieB]

Not to bring up old arguments or maybe I am, but how do we show support or lack thereof with no market data. I have a very odd addition (800 sq ft) attached to main dwelling via a 5x5 enclosed walkway. Visually, very unappealing but this is a purchase so at least there is one willing buyer. Roof lines are all which-a-way. Home was marketed without this area in GLA. Workmanship is of lower quality from main structure. I am concerned about marketability and FHA acceptance. Any suggestions?

 

[Randolph Kinney]

Not to bring up old arguments or maybe I am, but how do we show support or lack thereof with no market data. I have a very odd addition (800 sq ft) attached to main dwelling via a 5x5 enclosed walkway. Visually, very unappealing but this is a purchase so at least there is one willing buyer. Roof lines are all which-a-way. Home was marketed without this area in GLA. Workmanship is of lower quality from main structure. I am concerned about marketability and FHA acceptance. Any suggestions?

Yeah, what does the market tell you? Do you have sales of properties with additions done without permit?

FHA Handbook 4000.1
Issued: August 26, 2015



FHA does not address permits directly. FHA does address marketability and valuation of additions and conversions whether done with or without permits.