Selling a House with Unpermitted Work: Where Do You Go From Here?

You’ve spent hours poring over the finish, tiling, or paint color for your home renovation…but did you take time to consider permits?

For many homeowners, this small detail slips through the cracks, then becomes a problem when they want to put their house on the market.

“I would say out of 10 homes at random, at least 4 of them would have some form of unpermitted work, you know, 40% to 50%,” says Shawn Engel, says a top Denver-area real estate agent. “It could be some simple stuff like a deck modification or gutters, all the way up to basement finish.”

Unpermitted work on homes happens. What matters is the actions you take next in the event of the sale. Obtaining a permit could lead to costly transactions, but unpermitted work could scare potential buyers away, or drive down the price of your home.

We talked to real estate agents and translated the legalese from real estate lawyers to bring you this guide to selling your house with unpermitted work.

A building permit for a house with unpermitted work.
Source: (Claudio Divizia/ Shutterstock)

How do permits work, and why do you need them?

Even those smaller projects you can knock out in a weekend could require a permit, explains Silicon Valley-based real estate attorney David Roberson, who’s personally been involved with hundreds of real estate transactions.

According to Roberson: “There are very few items that you can construct without legally being required to get a permit.”

Simple projects like paint, floor installation, and minor electrical repairs likely won’t need a permit, but if you want to add a fence or window to your home, there’s a good chance you do need one.

It might just sound like complicated bureaucracy, but permits are meant to serve as a safeguard for homeowners. Permits for projects ensure that the work complies with local policies like land use, zoning, and construction. That means the future structure will be safe for you and future occupants.

Many forgo the permitting process because they think it can be tedious and complicated. Depending on your city or county, the process likely looks something like this:

  1. Reach out to your local building office right off the bat. Let them know which project you’re planning. Depending on the complexity of the work you plan to do, you might need multiple permits for construction, electric, and plumbing.
  2. Fill out the permit as completely as you can. Include drawings and schematics where possible.
  3. Submit the permit and pay the filing fee. If your permit is approved, you’ll receive an official license. Depending on the complexity of your project, this permit could be approved on the spot, or need additional review.
  4. Post the permit (those bright orange signs you’ve likely seen before) on your home or close to where you’re completing your project. You’ll need to get the permit before any work is done.
  5. Depending on where you live and the particular project, you’ll need an official inspector to come check out the work. If the inspector recommends changes, they’ll need to visit again to confirm you’ve made them.
  6. After approval from the inspector and completion of the project, you can remove the permit.

How can I tell if my home has unpermitted work?

Unless you’re the first person to occupy your home, chances are you don’t know everything that’s been done to the property.

When you’re getting ready to sell your home, having a complete history is helpful—that means figuring out if any of the work in your place is unpermitted.

“An easy way to find out if some improvement was performed without the benefit of a permit is to go to the city or county and pull all records from the building department and planning departments,” explains Robertson.

From there, you can check to see if your home matches the plans of the permits. If not, chances are something was done without approval.

Going down to the city or county building might sound complicated, but “it’s very easy to pull the permits up. There’s no cost to it,” says Engel.

These records can give you the most complete history of your home in regards to permits. Pulling the records yourself also means you’re getting in front of the issue. You’re not waiting for an inspector, or potential buyer to bring it up.

“We’re finding today that the ‘buyer beware’ motto is definitely in play more so than I’ve seen of late,” Engel says. With more information online, buyers are doing their due diligence before putting offers on homes.

“And that’s when skeletons in the closet, if you will, get brought up,” adds Engel. “That catches the seller by the tail.”

A basement in a house with unpermitted work.
Source: (alabn/ Shutterstock)

My house has unpermitted work: What now?

If there’s unpermitted work on your property, you’ve got two main options when it comes to the sale of your home.

Option 1: Sell the house ‘as is’

The key to selling a house “as is” with unpermitted work is disclosure. Make sure buyers know what they’re getting into by disclosing unpermitted work in the listing.

Depending on the nature of the unpermitted work, sometimes being as upfront as possible is enough.

“I’ve found over and over in the past 33 years that I’ve practiced real estate here that disclosure really puts out any potential issues almost immediately,” says Engel. “And with buyers, it scores big points with them.”

Small unpermitted projects, as long as they’re clearly disclosed to buyers, might not affect the value of your property.

But when it comes to large-scale unpermitted work, you may have to work with your agent to decide on a discounted rate on the listing. The new buyer will now assume responsibility for that unpermitted work.

If there was a utility easement underneath the addition, the city or county could ask the new owner to tear down the addition, with no repercussions on their end. “What are the odds of that happening?” says Engel. “Pretty low. But when it does, it can get ugly real quick.”

However, it all depends on your local market, Roberson says. “If it’s a hot market, then there may be a negligible effect. If it’s a buyer’s market—and there is a big property inventory, then the buyer has way more leverage over the seller.”

Based on demand in your market, you’ll have to consider reducing the value of your property.

Some recommend when valuing a home with unpermitted work that you don’t take that work into the market value of the home. For example, if you have a two-bedroom property, but the second bedroom was built without a permit, you might choose to value the property as one-bedroom.

Depending on the amount of risk the buyers will assume with the unpermitted work, they might run into problems financing the sale through a bank.

In that case, you might decide to use Simple Sale from Homelight. With Simple Sale, you can get as-is cash offers on your property in 48 hours with just the click of a mouse.

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Option 2: Obtain retroactive permits

There is another route you can take. You can go back to the city or county and obtain a permit retroactively on already completed projects.

In some cases, inspectors will simply ask you to open the walls of some construction. In others, they might ask you to tear down and rebuild portions based on their feedback.

If you are obtaining a permit for work of a previous owner, the city or county may be more lenient with you. They won’t charge you for any penalties a retroactive permit incurs and might give you more flexible deadlines to bring the work up to code.

The cost associated with retroactive permitting will depend on the scope and value of the construction. Before going to the city to obtain a permit, you might want to hire a contractor to examine the existing work—they can ballpark the cost of bringing it up to code and have an idea of how much is already built in accordance to current code.

The decision to obtain retroactive permits should be made before you list your home, recommends Engel.

“Buyers are looking to close usually within 45 days,” he says. “And if you have a big retroactive inspection permit situation, like on a basement finish, you could be looking at several weeks to a few months to get all of those t’s crossed and i’s dotted.”

Obtaining a retroactive permit can allow you to maintain the value of the home, making for an easier sale down the line.

“I can tell you from a professional standpoint, it’s worth every dollar,” says Engel. “Every hour that you’ve spent to do it because you’re gonna pave that road ahead of you very cleanly and avoid a lot of potholes with the transaction.”

Whether you should opt to get a retroactive permit depends on your time and budget. If you’re on a tight timeline, you might decide to list your property without permits and disclose the work, understanding that the home will likely sell for less. If you have the time, getting permits means a smoother sale and higher offers from future buyers.

Books used to help sell a house with unpermitted work.
Source: (Allie Lehman/ Death to the Stock Photo)

Other considerations to keep in mind about selling your house with unpermitted work

  • Unpermitted work can affect insurance.
    “For example, if a new electrical panel was installed, but it is not to code and was not inspected there could be significant insurance ramifications,” says Roberson.
  • If unpermitted work is disclosed, the buyer will assume future responsibility.
    If unpermitted work was disclosed to the buyer before the close of escrow the buyer will be responsible for any consequences.
  • If unpermitted work causes damage to the buyer, they have options for legal recourse.
    Even if the buyer knows about the unpermitted work, they can still pursue damages. According to Roberson: “If the unpermitted work was done ‘not to code’ and those ‘not to code’ improvements end up causing damage the buyer may have a cause of action against the contractor who installed the unpermitted work.”
  • You are legally obligated to disclose all unpermitted work you are aware of, even if it’s from prior owners.
    Make sure to communicate everything you know about unpermitted work on your property. Withhold information from potential buyers, and you’ve got a potential lawsuit on your hands.

Roberson recently saw a seller lose a case in court against a buyer because they failed to disclose unpermitted work, “even though they knew it was unpermitted—and the unpermitted addition occurred prior to their ownership.”

Selling your home with unpermitted work can be time-consuming and complicated, but it’s not uncommon. The biggest decisions around permitting should be done before the property is even listed.

Ultimately, it comes down to time and money: do you have the time to obtain permits before bringing your house to market, or can you afford the price reduction that often accompanies unpermitted work? With answers to those questions in mind, work with a top local agent to decide how best to proceed with your sale.

Header Image Source: (Andrew Pons/ Unsplash)

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