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Unpermitted Work/alternations Causing Appraisal Issues

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The owner of the home who made all of these modifications was a general contractor, and according to the inspector, did a pretty good job. The issue that I'm running into is the appraiser is giving us a "conditional" appraisal (not sure of the correct term here) for the sale price based on resolving all of the unpermitted work on the property. My agent is claiming that this is very strange, and the appraiser should indicate the value of the property as-is without any modifications. The lender is saying that unpermitted work causes issues per some sort of regulation that's been in place since 2010, and this is not a strange appraisal.

Here is the snippet from the appraiser that is causing issues:

https://dl.dropboxusercontent.com/u/3125772/Mortga...

I'd love some second opinions on the situation and any help the community here can offer! Here are a couple questions I have, although I'm open to any feedback on the general situation.

1. Is unpermitted work very problematic? Is seems like if there's "big" unpermitted work, that can cause appraisal issues, but finishing over a basement is fine. Is that correct?

2. It is sounding like the only resolution path is getting the town to come out and permit all of the work that was done. Is this correct, or is there a way to value the home as-is at a possibly lower value?

3. The town doesn't currently allow additional ADUs. What constitutes an ADU vs a detached room?

Thanks so much!

My Bold; Most important I don't know your market area or PZC regs., The "Permits" are required by the Lender (answers your Question) in regards to As Is. #1) The Lender cannot obtain Permits Unless they "Own" the property, which won't happen until You fail to make timely payments. #2) May require changing Loan / Lender or both. #3) Permits may not be the only issue.
It would appear your in search of a renovation project, this may not be what you seek (lots of work/corrections, before you get off the ground) you may wish to continue to search or get all your ducks in a row for this project. Either way the "Lender" sets the Terms of the Loan.
Good Luck
 
Colorado

Construction done without being inspected, or without a permit, can result in the owner being required to remove improvements, or structure, to allow inspection. A foundation might have to be dug up to determine if the footing were dug to the proper specifications. Walls might be required to be opened so that structural, plumbing, or electrical work can be seen.

Remodeling, or additions, done without permits may not increase the values of your property. It may actually decrease the value of your home. Appraisals done based on finished square footage figures provided by the county will not reflect the true size of the finished building. Work done without permits may not be reflected in valuation used for financing. A lender may not provide money to purchase the unpermitted areas.

Insurance companies can deny claims that involve areas of a building that were constructed, or altered, without required permits and inspections. If you buy a house that has portions where electrical wiring was installed without permits, and that house burns because of defects in the unpermitted areas, insurance may not cover it.

When work is performed without permits it must be disclosed to prospective buyers. The work is always suspect to real estate agents and prospective buyers. Work that affects the safety and livability of a property is often hidden behind finished walls. It is an unknown factor. Once the property is purchased the hidden work becomes the problem of the new buyer.

In most locations, “As Built” permits can be obtained for work that was done in the past. There are no statute of limitations on building permits. There are no grandfather clauses. “As Built” permits are a way of bringing properties that have unpermitted work into compliance. An, “As Built Certification of Observable Compliance”, may be issued. To obtain a regular, “Certificate of Occupancy”, all hidden work might be required to be revealed for inspection.

You can check with county building departments to see if permits have been issued and inspections completed. Some county websites allow this on-line. Some county websites even make it easy. For other counties you’re better off using other methods, like telephone and personal visits. Building permit reports can also be purchased for many locations. For $60 you can order a report on-line that will provide all relevant information.

http://www.inspection-perfection.com/building-permit-guide.html
 
Last edited:
iloveitaly said:
Hello!

I'm a first time home buyer, and under contract for my first home. It's a single family residence with a garage that has been converted into a studio apartment, and a shed that has been converted into an office.

The garage conversion is not a legal ADU, but it is partially permitted. There are permits for electric, plumbing, and adding a full bath. In addition to the full bath, there's a "kitchen" (sink, stovetop, and fridge; no stove) and washer + dryer hookups. These additions/modifications are not permitted.

There's also a shed on the property that was converted into a office. It's drywalled, insulated, and has a half-bath. There's a permit available from the 80s for adding a shed, but clearly that old shed has been torn town and replaced by this upgraded "office shed".

Also, the back porch has been converted into an addition on the property. There was a permit pulled for the sliding door on the addition, but not the addition itself.

The owner of the home who made all of these modifications was a general contractor, and according to the inspector, did a pretty good job. The issue that I'm running into is the appraiser is giving us a "conditional" appraisal (not sure of the correct term here) for the sale price based on resolving all of the unpermitted work on the property. My agent is claiming that this is very strange, and the appraiser should indicate the value of the property as-is without any modifications. The lender is saying that unpermitted work causes issues per some sort of regulation that's been in place since 2010, and this is not a strange appraisal.

Here is the snippet from the appraiser that is causing issues:

https://dl.dropboxusercontent.com/u/3125772/Mortga...

I'd love some second opinions on the situation and any help the community here can offer! Here are a couple questions I have, although I'm open to any feedback on the general situation.

1. Is unpermitted work very problematic? Is seems like if there's "big" unpermitted work, that can cause appraisal issues, but finishing over a basement is fine. Is that correct?

2. It is sounding like the only resolution path is getting the town to come out and permit all of the work that was done. Is this correct, or is there a way to value the home as-is at a possibly lower value?

3. The town doesn't currently allow additional ADUs. What constitutes an ADU vs a detached room?

Thanks so much!
Click to expand...


WHICH TOWN/ WHICH COUNTY?>

example info Colorado > http://www.denverpost.com/2009/06/19/arvada-homes-haunted-by-past-due-code-violations/
 
"But if you buy a home with unpermitted renovations, it can create a financial nightmare for you, the new homeowner."

"Construction that's shoddy or not up to code obviously can create safety hazards."

How to remedy unpermitted construction
One way to avoid these problems is to stipulate that the seller must remedy all unpermitted construction as a condition of the sale, Bregman says. Some sellers will agree. Others won't, especially if other buyers are willing to purchase the property as-is.

Whether you should walk away if the seller refuses to remedy the situation depends on the nature of the problem, your resources and risk tolerance.

"If the seller won't fix it," Bregman says, "you have no idea how much un-permitted work there really is."

http://library.hsh.com/articles/fir...ing-a-home-with-unpermitted-construction.html
 
iloveitaly said:
Nope! It was actually another property (grant st).

The deal ended up not working out -- walked away, the owner did not want to bring the town out to permit the property. Thanks for the advice!
Click to expand...

That tells you everything you need to know!

The appraiser did you a favor.

PS. Fire your agent.
 
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