Happyhomeown…, Home Owner in Berkeley, CA

What are the trade-offs of doing some unpermitted repairs on my home? Will it compromise my ability to get future permits? Or the future sale?

Asked by Happyhomeowner, Berkeley, CA Thu Apr 19, 2012

I've lived in my home several years, and want to make some non-conforming spaces useful. Our storage area was already partially converted to a livable space when we bought it -- there was a toilet, sink, and the "rooms" had drywall and windows put in. However, this work was done without permits, and with some problems in the wiring and plumbing (discovered during our retrofit). In the process of cleaning up some of this work, we want to add an eating space and a shower, so we can have guests. We will not add a stove, since that may make it look like a second unit (there is no access from the inside of the house).
My experience with the city, is that permitting the project might make it impossible due to time constraints (add a year?) and also make it cost-prohibitive.
What are the trade-offs of doing work, to-code yet unpermitted? Is there a downside when selling the house? Or making future permitted improvements?
Want to do the right thing, but also want to use my space!

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Answers

17
I am closing escrow on a property that had unpermitted work done to add a bonus room. It was listed twice and was in escrow before (and for higher listing prices). However, when it was discovered that the room was unpermitted, buyers backed out. They didn't want the hassle nor the accompanying challenges of getting the expansion approved.

So the seller had no option. And yes, it cost him money and time to get this done right this time. But it was either that, or get trapped in an unsaleable property. He wanted to buy another house, but couldn't without funds from this property.

By the time I got the listing, it was ready....and permitted. Although I also spent money preparing it for sale so that it appeals to the biggest possible audience, the most important point is that no one questioned the 240 sq ft bonus room because it was done with permits.

Cost of getting the work done was justified by the final sale.
3 votes Thank Flag Link Fri Apr 20, 2012
As a developer and Realtor, I can say that Berkeley is probably the toughest jurisdiction for permits in the SF Bay Area. I've had better luck getting things through planning in San Francisco and that's no walk in the park. The permit records in Berkeley are also very detailed compared to many other areas. However, they only put those systems in place within the last decade so most homes don't have the kind of detailed information that you get from a new project today. Because of that I think the expectations of buyers are still below where they will be over time. You can probably do moderate remodeling without incurring much of a resale penalty. However, if there's a major addition of living space you will have an issue for appraisal. Some appraisers will give credit based on measuring your gross living area and others will choose not to. Of course, newly permitted work is given directly to the assessor and you will pay taxes on that space going forward. The only way to make sure you get the full count is to get permits on any expansion work. If the expansion is all interior and does not change the building envelope I would think you can get in and out of planning in 3-4 months. That's a long time in my book but it could be worth the wait. Finally, consider that without permits you need to be on exceptionally good terms with your neighbors because one phone call could stop your work and cause you to pay not only in time but triple the permit fees. Hopefully you can tailor these remarks to your specific needs and situation. Cheers!
2 votes Thank Flag Link Thu Apr 19, 2012
Dear Happyhomewowner,

Great question. Your future buyer is going to want to know the answers to the questions you are asking. If the permits can be obtained with a bit of work then everyone will be thrilled and it will increase the value of the house. A good local general contractor can make an assessment of what can be done, if anything, and how to work with the City of Berkeley if that becomes a route you want to go.

If you chose not to do the work you will still have buyers and plenty of them.

The reason to consider the permits is the resale price of "per square foot" selling at $300 to $500. That means there big value in the lower level. Appraisers can put the lower level in to their opinion of value if the public record recognizes the lower level. Banks will not allow it otherwise.

Either way, its great to have that lower level and buyers will see the value even if the appraiser can not.

You were smart to become a homeowner in Berkeley and you are smart to ask this question before you go to market!
0 votes Thank Flag Link Thu Jan 16, 2014
Tomi Thomas, Agent, Berkeley, CA
By "adding a bonus room", I suspect Pacita below means finishing out an existing space within the interior walls of the existing house. This is a common scenario where an owner might decide to skirt the process. Actually adding space to the house without pulling permits is an invitation for disaster.

Many buyers will walk away from a purchase based on non-permitted improvements, and it is their right to do so. Others will stretch to buy the house if the home "lives larger" than the assessed sq ft., feeling they are getting more for their money. The determining factors are how the property is priced in relation to other properties, and whether there are health and safety issues around how the work was done. And whether the seller accurately disclosed the fact that work was done without permits.

Owners think they will save time and money by doing non-permitted work, and often they are correct on the front end. But there is always a trade off, and you may lose both money and command in the negotiation on the back end when you sell the house. And of course, there is the possibility that you will create problems with the city in the interim. (Try to think of the city as your ally in making sure the work is done correctly and to code. Though it takes longer and costs more, you are getting more benefit overall.)

At the height of the market, it's true that buyers were absorbing almost everything related to non-permitted work and issues of condition, just to get an offer accepted. And appraisals were being done in a way that allowed non-permitted work to be given full value as if it was recognized by the assessor. I thought this was a bad idea at the time...and thankfully, the added oversight in the appraisal process has closed this loop. I don't think we'll see that come back as an option if and when it becomes a true sellers market again.

If you want the value of the improvement later...pull permits and have them finaled. If you don't care about the value issue, then just know that you are skirting the law, and that you are assuming a risk both in terms of penalties, and in whether the work is properly done. Make sure that the work is done to code either way, and if you elect to not pull the permits, be prepared to be very, very realistic when you sell. Find an agent who will err on the side of disclosure to protect you from a bad after-nspection negotiation process, because a nervous buyer will walk away, and a saavy buyer will...well, have their way with you.
0 votes Thank Flag Link Wed Jul 25, 2012
Anne Feste,
Banks recognize unpermitted items if it is brought to their attention in any study, red flag area of the home, electrical, plumbing, square footage of any photo or anything.

But you are correct in regards to permitted additions. This is most likely the easiest to spot since the appraiser measures the home and will disclose why the square footage differs from public record info.

The more permit history gets placed on line vs. driving down to the court house, the more the borrower will have to pay attention to this. The days of cutting holes and moving wires and plumbing around with no permit history will be short lived.

In many places, the banks can go to county or city websites and check the permit history for any residence and so can the home owner and the realtor.

I once appraised a home that offered a finished basement. No big deal, right? The bank wanted me to check the permit history for the basement. As it turns out, there was no permit s obtained to finish the basement.

The square footage or original foot print of the home was never changed. The bank just looked this up on line.

Deal breaker, you bet. In most cases, this will kill the refinance deal, or the sale of the home. The owner will have to call their county and find out the steps to take to pass the permit inspections. This will include tearing out walls and all sorts of fun, expensive stuff. This will take lots of time and lots of money to re-do. Do this by the book, you’ll be thankful. If you already have a home with unpermitted space, read my post below. This may help.
0 votes Thank Flag Link Wed Jun 27, 2012
I would have a couple of licensed contractors come and take a look. They can tell you what can be done and if it will meet building code and further explain the permiting expense & benefits. Currently banks only reconize permitted square footage in an appraisal. There is a law that allows Californian's to add a 2nd unit see this website: http://communityinnovation.berkeley.edu/reports/secondary-un… This website if full of detailed information.
0 votes Thank Flag Link Wed Jun 27, 2012
As long as the GLA or the living area has not changed and the improvements are finished to the same level of quality as the rest of the home, you might be okay, but no promises, just my experience.

Most appraisers will not have the time to dig through permit historys on every home and sometimes it is not available. They will just look into the permit history if they feel something is not correct or look for major items.

The biggest issue that I find is

1, Garage conversions

2. Additional square footage that is not accounted for and major remodels or when the basement was unfinished and now it is finished with electrial and plumbing with no permits. This is when the banks gets worried too.

Just find out if you need permit history or not. Your minor remodel projects might not even need permits. It will make it easier on you in the long run. If you disclose that it is unpermitted, it will be more difficult to sell your home.

If you have an unpermitted bonus room, the appraiser will not incluced the bonus room in the GLA. In most cases, this will pull down the value. So you'll have to base your asking price on the correct square footage.

If you have any safety issues, electrial plumbing, heating, you are back to the same issue. Get permits.

If the square footage is as it is when you purchased it, it might be okay, but each case is different. Use your best judgement for each situation. That's the best you can do.
0 votes Thank Flag Link Sun Apr 22, 2012
Thanks for more perspective. A question from the lending angle - When we are ready to sell - if we disclose that its unpermitted (as it was when we purchased) and don't include the cost of our bonus room work in the asking price, and have the work done by competent licensed folks, would this still make a lender or appraiser nervous? I considered taking photos of the work so that it would be clearer that the work was done to code. As a recent buyer, knowing what was behind the walls would have eased my mind.
We've had the house refinanced several times, and the bonus area has never been an issue. They don't count it in the square footage... it's just a storage or rec space with a bathroom.
My contractor implied it may not be possible to get permits for the work (due to stair access issue. It's considered an external studio unit and subject to stricter requirements).
0 votes Thank Flag Link Sat Apr 21, 2012
It is the exit strategy that will be the problem. What you described would push an appraiser over the edge when it comes time to sell. I am surprised you didn’t have a big problem when you bought it, if that was in the last few years.

Jim Simms
NMLS # 6395
JSimms@cmcloans.com
Financing Kentucky One Home at a Time
0 votes Thank Flag Link Sat Apr 21, 2012
I think the agents have given you great information and insight on the buyer's perception of unpermitted work on a property; however, I am a little surprised no lenders responded to your question.

In short, unpermitted work will ALWAYS be an issue with financing...the question is "How big of an issue?". On the up side, the underwriter may only require evidence and documentation that the work was done "in a workmanlike process and that all work was done to code". However, it can quickly go downhill from there. The underwriter may require permits to be pulled after the fact and anything that does not satisfy the building inspector would need to be repaired, replaced or removed. Additionally, the unpermitted work area may not be calculated in the actual square foot of the property, so would add little value to the property.

I have closed many loans with unpermitted work; however, they all had varying degrees of challenge in the process. Without a doubt I would encourage you to get permits sooner, rather than later. Best of luck to you!
0 votes Thank Flag Link Sat Apr 21, 2012
Pacita Dimacali ePRO, SRES, CDPE, MBA, REALTOR, Agent, Alameda County, CA
Dear HappyHomeowner

My clients, working with another agent, also purchased the property with the bonus space at the height of the market when people were rushing to buy and threw caution to the wind regarding permitted work. When it came time to re-sell, they found out the hard way that they couldn't sell the house unless they got the bonus room permitted.

Cities appear to be stricter with code enforcements, and buyers are more careful about purchasing homes with bonus spaces that are not permitted. Don't count on buyers not having issues or concerns with unpermitted bonus spaces because they will be, and if they are not, their agents will surely point that out.

It's one of those pay now, or pay later in terms of buyers not interested in writing offer, or backing out of the contract, or your having to sell at lower price.

Think of it this way: you're concerned now. So will the future buyers.

Good luck.
0 votes Thank Flag Link Sat Apr 21, 2012
Thanks for the thoughtful and thorough answers. My reticence on permits stemmed from the 6 month delay in getting seismic work permitted. For something so cut-and-dry (and helpful!) I balked at how long the city might take to consider the review of a more unorthodox space (variable ceiling heights. included in main house, but without real access from interior of house - only from outer stairs, the area is not currently included in the overall house square footage). We happily purchased the house with this "bonus" space, and I was hoping future sellers would feel the same.
Scared of the can of worms I will open, but maybe it has to be done.
This discussion gives me pause.
0 votes Thank Flag Link Sat Apr 21, 2012
thanks!
Flag Sat Apr 21, 2012
You will never regret having the permits, even if you do hate the process. But, do consult with a few contractors before you start. Sometimes HOW you approach the application can make the difference in getting through the process with less expense and less delays. Good luck!
Flag Sat Apr 21, 2012
Yes,get the permits. More and more banks want prove of permit history. Get the permits. If you do not get the proper permit, it may stop your refinance or the sale of your home until it is done correctly. This may cost much more than the permits.
0 votes Thank Flag Link Fri Apr 20, 2012
Tim, GREAT to hear from an appraiser on this. Thanks for weighing in.
Flag Sat Apr 21, 2012
Tomi

Please don't presume what I meant with new bonus room. It really was all-new construction of an addition.

This entailed more than "finishing out an existing space within the interior walls of the existing house."

It involved creating new space by expanding a room by 240 sq ft, pushing out walls, adding extended roof line, adding new flooring, framing new walls, putting in new electrical/heating, new windows (to take advantage of the waterview).
0 votes Thank Flag Link Fri Apr 20, 2012
Pacita, in that case the owners were just plain asking for trouble...it's rare to see anyone be so bold. It sounds like you really helped them with the best
advice to clear it up.
My "assumption" was frankly to get that question clarified, and to draw the distinction between the two types. I'm glad you responded!
Flag Fri Apr 20, 2012
You have some good information below. As a developer in addition to running my brokerage firm I can tell you that it will almost assuredly cost you money on resale - buyers don't like dealing with issues.

Additionally, if you do some work now without permits and then try to do work later with permits, if the inspectors catch it you could be forced to undo whatever work has been done. And keep in mind that if a neighbor (or anyone) calls the building department and says that unpermitted work is being done, they have to come out and you will have to deal with it.

Yes, it's more expensive. Yes, it's more time consuming. But if you do work with permits you will have the assurance that you can enjoy the fruits of your labor without having to worry about later inspections causing you trouble and you will maximize your value.
0 votes Thank Flag Link Fri Apr 20, 2012
You have got the best 2 answers already! A lot of people are in your same situation. In a seller's market unpermitted work won't matter as much and if you enjoy the house for a longer period of time then that might be your solution. You should still get a hold of the permit dept and get a clear picture of what can and cannot be done. You might surprised at how little you might need to do to get your project permitted.
Good luck,

Catherine
0 votes Thank Flag Link Fri Apr 20, 2012
Adding function to your home by developing space will definitely improve your quality of life. Doing it without permits limits the value of the house when you sell.. Quite simply, non-permitted space can not be valued in the same way by an appraiser. There are definite potential liabilities in doing non-permitted work, some health and safety, and some that may result in expensive penalties. That said, many, many homes in our market of older homes have work that was done without permits. It's a complicated issue and should be considered carefully. At minimum. if the improvements affect the safety of the home, you should err on the side of caution.

There is a distinction between work done to code and done without permits. Getting the permit and having them finaled by the city you live in are by far the best way to insure the work is done properly and that you will get the future value of it if and when you sell. Your best bet is to consult with licensed contractors familiar with working with Berkeley. Using experienced people will assure you the best option of navigating the permitting process in the most efficient way possible.

The very fact you are using the term "non-conforming" suggests you've done some of the research and know what direction you are headed. Call if you want to discuss further, and I'd be happy to put you in touch with some contractors who could offer you useful advise.
0 votes Thank Flag Link Fri Apr 20, 2012
http://www.tomithomas.com
Flag Fri Apr 20, 2012
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