If done without permits, the appraiser won't add value, and the lender won't take into consideration rents for qualification purposes.
How about your family? What are you letting them fly in?
I don't know why home buyers don't understand this. If it isn't permitted, then it isn't inspected, which means it is a liability, both now and in the future.
Obvious liability is that it falls or burns down hurting or killing someone. Your liable. Just your statements here indicate that you see it as a concern (if at the outset only financial), so you can't claim that you did not know the structure was un-permitted. I myself could not live with myself if someone was hurt or killed because I failed to provide a safe permitted dwelling.
The second liability may hit you months or years down the line. All it takes is a new neighbor to make it an issue with code enforcement. Then, boom. It has to be demoed at your expense, but hey, welcome to a nice backyard.
So, offer nothing more for it, because it won't come in at the higher appraised price.
One last thought. If you have an FHA loan, there might be some raised eyebrows around some of these un-permitted units/additions as well.
Sometimes you can get past the restrictions, most times you just end up spending a lot of money brining it up to code or removing the building at your expense. Towns have the right and ability to demand a tear down of illegal structures. If they choose to enact that right is up to them.
hence, if I was to buy an unpermitted building I would offer nothing for it AND include demolition costs. maybe I could keep the building. Maybe I would have to tear it down and pay a lot of fines. It is a big gamble. I want the answers before I buy the place from those who will punish me or allow it to stay.
I don't know Dan Chase but I will say that he is right on the money. You do need to know, and I would also plan on demo costs as a worst case scenario. Its pretty solid advice.
No I really mean zero value, at least for an appraiser. Why? What if the setbacks are off and you would have to bring it to code (basically moving the entire house) just to avoid demo costs? Sounds like a liability my friend, not necessarily an asset.
They are not all this way and the home could be perfectly to code ok. I can't tell you that though for certain and very few people, even contractors for that matter, have such a memory for intricate city building code. It'll take work on behalf of the owner (or potential buyer) to call out the city to inspect. He has a risk though because he'd basically be whisle blowing on himself. My question is why didn't they just pay the extra dough to permit it in the first place,
"Have you had any escrows with a similar situation?"
"did the appraiser just ignore the back house? If thats just how its done, fine, I would just like to hear if youve had first hand experience with the matter."
Yes they treat it like what it is...illegal. They can't add value for an illegal building any more than they can a backyard moonshine "buisiness opp" (despite the income). :)
Just the way it works
1100 Amerige was a 2bed 1 bath in nice condition, 850 sq ft, that recently sold for $350,000.
It's possible that an investor is looking at the rental income, and does not care about the appraised value. If they can pay all-cash, or put a lot of money down, then they may waive the appraisal contingency.
Have you driven by the home? You can write an offer, tie up the property, do your inspections, and then proceed or not. You do have rights to cancel the agreement and get your deposit returned.
So knowing what I know now, I have to ask how can a seller justify $450,000 for the property at 712 W amerige? Essentially from what you are all telling me, according to a reasonable appraiser, this should be comped to something like the 2/1 at 438 W Amerige in escrow for $308,000??
What I meant by that question is are you planning on the property going up in value based on having a rental that will bring income in your future. A lender will not consider the income as income if it is not permitted. And yes Todd is correct, the appraiser is prohibitted from adding value if it is not permitted! Doesn't hardly seem fair does it? If you are going to live in one and make some income from the other that is a good thing. Just go in knowing that at some point you may need to permit it. I know many of the homes in DTF have income additions and I love that area! it is so quaint. Love the old homes!
Best of Luck to you
It's normal that un-permitted additions do not add value for appraisal purposes. Yes, a 1,200 sq ft home with a 400 sq ft un-permitted addition will get appraised as if it is a 1,200 sq ft home. Appraisers are being very very conservative. the same will occur with an un-permitted rental unit.
Yes, I have run into situations where rental income was not considered, and where total sq footage was not considered. email me for further information.
Connie - Don't see why it matters but I am buying for the tax benefits and stability of home ownership & yes I intend to live in the main house & rent out the back house. In fact its already rented out. so I am not concerned with the neighbors complaining, as nothing is changing. I don't think I will instantly gain equity as the home is already priced as if the back house was permitted.
Todd Foust - Im struggling as to why it needs permits to add value? certainly a 2/1 house with an unpermitted 2nd house is worth more than an identical 2/1 assuming all things else being equal. No? Have you had any escrows with a similar situation? did the appraiser just ignore the back house? If thats just how its done, fine, I would just like to hear if youve had first hand experience with the matter.
Dan - you do not seem like you know what you are talking about. Thanks anyway.
David Wright - Why would I pay $60 for a public record that is free at the county recorders office?
Greg - You are right, that's the property. But I guess I'm confused as to why the appraiser wont consider a newer structure on the property into the value, regardless of its permit status. Have you had an escrow(s) with similar circumstance? what happened?
Why are you buying the property? Is it for investment or personal use? Are you going to live in one and rent the other? If it is strictly investment; and there are no permits you will not be able to have that additional footage added to your property value. In Fullerton, as with many cities in North Orange County, it is legal to add a guest house, under the terms and conditions the city specifies. One thing I know for sure, you can't have a kitchen! That I think is the biggest reason why most people do not permit the guest area. They know this and don't care as they are looking for what serves their purpose. The thing you do need to consider is if you are thinking of renting it out you may not be in an area where that is legal. If the neighbors complain you could be in trouble. And as for the owner saying it is to code, being built well and built to code can be two entirely different things. I would not go into it thinking you will permit it and gain equity! Best thing to do, I think, is require the seller get a permit for you. If he really built it to code it can be done. Otherwise you are taking your chances with the city!
Prudential CA Realty
Seriously though, its true. So much of our pre ww2 homes have something that is no longer to code and impossible to find permits for. Guest houses, illegal units, garages, etc.
The deal is this. If it was built in the 20's most likely it has been grandfathered in to be what they call legal non-conforming use. I live there and my garage is this way. It crosses way over onto my neighbors lot. I don't have to move it because it is grandfathered in but if I tore down and rebuilt, I'd have to comply with current regs.
If its a recent rebuild like your example, you really need permits to add value. You can get permits after the fact but you better hope its perfect, otherwise its gonna be an issue. Not sometihng for your buyer to assess so no I don't think it sounds like a great idea for most (unless you don't mind if the city tells you to tear it down).
You'll need to watch the zoning as well. 2nd unit in Fullerton requires r2 or r2P zoning. Talk to the city they can catch you up on all this stuff.
If it was me I would not buy an unpermitted anything without taking off all money for the structure AND adding more for demolition. If you find out a permit can be easily obtained (before buying it) that could change my opinion.
I would spend a couple hours and visit with the building inspectors and take a few of the listings with you that you have questions on. Some of the homeowner builder work that is built to code can still be permitted. Keep in mind that the health and safety of a home is not the only reason for permits. The cities want the revenue. hope this helps and would gladly dig deeper to help you.