If I buy a home in CA with a potentially illegal addition (no disclosure made by seller), what are the diff. ways I can be penalized for this later?

Asked by Alexandra S., California Sun Jul 17, 2011

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Lance King, Agent, San Francisco, CA
Sun Jul 17, 2011

First, not all lenders discount unpermitted areas. We just had an appraiser add in a value that was about 25% of normal price per sq ft for a finished basement.

With regards to potential consequences on work not done with permits they are generally as follows:

1. When going to resell the house, buyers may discount the area done without permits, and if you know it to be true you need to disclose it.

2. If the city becomes aware that you have unwarranted space - this could happen in a number of ways, but most likely it will be because you do other work or a neighbor calls the city - you will likely either be required to file a retroactive permit, do some work to bring to current code, or worst case undo the work.

If you are going to buy a home that has unwarranted work I would either make sure the price is discounted accordingly or have them get it inspected. The latter will make your offer much less attractive - talk with your agent/broker.

Best Regards,

Lance King/Owner-Managing Broker
DRE# 01384425
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John Arendsen, Agent, Leucadia, CA
Sun Jul 17, 2011
First, who or what is the seller? Is it an REO, short sale or a conventional/traditional purchase?

Second, What exactly do you mean by "potentially illegal addition" and "(no disclosure made by seller)"? Without trying to read into this too much it sounds like you may have already entered into a contract and perhaps didn't address this issue in the TDS.

Third, If you have already entered into a contract but not closed you can still demand that the current owner show proof of proper permit for the alleged addition. If you've already closed and just learned of this you have a statue of limitations to fall back on.

Fourth, As far as what to do? You may have to seek some legal advice if you've already closed the deal. If you haven't it's not to late to add it to the bucket list of contingencies.

Fifth, if it isn't permitted require an inspection to validate the workmanship and code compliance issues. If it musters up an "As Is" permit could most likely be acquired. The inspector would be able to tell you what it would take to acquire a permit and a contractor would be able to tell you how much it would cost.

This is all part of the due diligence process and should be written into the contract but if for some reason it was over looked, due to the nature of the situation you could surly request an addendum to the contingencies.

If you haven't closed the deal and really want the home I would suggest that you pay to have the home inspected by an experienced home inspector then pay for an official building inspector from the local building jurisdiction to inspect the work that was done and provide you with any related corrections and then have a licensed contractor give you an estimate for the needed corrections.

After all is said and done it really get's down to desirability and commitment. Do you really want the home? Are you willing to pay for any/all related costs to bring about a clean bill of health to the property? If you answer yes then........................pull the trigger!!!.

I'm giving this information to you as a general contractor and developer of 25 years and a RE broker and investor. I buy, rehab and sell or hold properties for a living and I can tell you that it's all about what really hits your hot button. If it's a property that really gives you warm fuzzies then step up and pay a the pump. If not...............NEXT!!!
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Ingrid Ski R…, Agent, Mission Viejo, CA
Sun Jul 17, 2011
HI Alexandra S.
Bob is correct. If there are no disclosures which there should have been in the state of California which is the SPQ Sellers Property Questionnaire form and TDS transfer Disclosure Statement, unless you bought it from a bank, then the bank would not have any knowledge of it and it would be up to you to do your buyers inspection and your appraiser if you are getting a loan, would have notice it as well.. You might be able to go back after the previous owner for not disclosing it, if its a regular sale or possible in a short sale. The buyers inspection you would pay to have done should give you some information about it.
You will at some point have to get it permitted or have it removed/torn down.
Hopefully the Realtor you decide to work with will help you with this... How else can I help you?
Ingrid Ski Realtor
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Robert Chome…, , San Diego, CA
Sun Jul 17, 2011
1. When an appraiser appraisers your property they cannot give any value for non-permitted square footage. So it would have to appraise with only the legal square footage.

2. In additional to the appraisal issue above, the lender of a buyer who buys from you will want the addition to be done in a "workmanlike manner" or they may not lend on the property at all

3. Check with your fire insurance coverage if the property burned down or was damaged where it had to be re-built, vis-a-vis the non-permitted addition
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Bob Phillips, Agent, Rancho Santa Margarita, CA
Sun Jul 17, 2011
At SOME point, if not by you, SOME subsequent buyer - or lender - will demand that the addition is inspected, and if it fails to pass muster, it could be ordered to be repaired, or removed - in order to close a transaction.

It's as simple as that. MY advice would be for you, to demand that the addition be inspected and "permitted". Hopefully, you haven't already closed escrow on the property - you MIGHT have difficulty going back after the person who sold you the house, or the agents involved.
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