Buyers should never put themselves in this situation unless there is a significant reward for accepting the risk and I mean a significant reward as in no less than twice what it might cost to get permits for the work the current owners did.
In the case of Sacramento county, there's also a less known policy that if the improvements were done to code (at the time of improvement) and someone can substantiate that, they are being more lenient in permitting the area. this is because of a large number of fires, floods and lost data records where permits were lost or not recorded. ...obviously there's lot of inaccuracies in the records.
The standard procedure is that non permitted areas are not provided a value by your appraiser. Since there are so many variations of 'non-permitted areas', there's no way to tell whether it's something a buyer ought to accept or reject in considering a home for purchase. Your realtor should be able to guide you through reasonable due diligence of this, and all other issues, of a home you're considering.
First, depending on the extent of what has been done, an appraiser may or may not be able to provide any value to the non-permitted work.
Second, you should attempt comprehensively uncover all of the unpermitted work. Was a simple non-bearing stud wall constructed, or was something more complex installed/modified with electrical and plumbing? Was the person who performed the work a licensed contractor or someone who went to a weekend class at Home Depot? I think you need to quantify the level of risk you may be taking on.
Third, while investigating the non-permitted work be careful to not disclose the property address. Here's why: the standard CAR Residential Purchase Agreement, Para 10A (last sentence), states, "Without Seller’s prior written consent, Buyer shall neither make nor cause to be made: (i) invasive or destructive Buyer Investigations; or (ii) inspections by any governmental building or zoning inspector or government employee, unless required by Law."
Fourth, depending on what has been done be aware that your property insurance may exclude coverage on unpermitted work. Again, try to understand all of the unpermitted work and then pose “hypothetical questions” to your homeowners insurance agent! I have to believe in a scenario where you kept the unpermitted work and damage occurred due to that work there may be some risk coverage would not apply.
Case in point:
“New homebuyer must fix old illegal work”
Fifth, if you find yourself still interested after this exercise make sure you hire the best inspectors you can find and that have construction backgrounds.
Best of luck! -Steve
If that non-permitted improvement is a room addition, for example, an appraiser will not include the additional square footage in the appraisal. So, if you've got a 2000 square-foot home with a 500 square-foot addition, the appraiser will probably compare homes that are around 1500 square feet.
There is always the risk that the city could require removal, if the city finds out about it. But the city would have to be notified or be in your home to find out about it.
Lyon Real Estate