Whats the best way to sell my house that has unpermitted conversions? What about selling it by-owner? Is there anything I should watch out for?

Asked by Freekquency23, Ben Lomond, CA Wed Dec 14, 2011

We did two main conversions:

1) We added a kitchen/wetbar to part of the house. The house was designed with separate (but connected) downstairs 2 bed family room and full bath with a private entrance. We hired licensed contractors to install the small kitchen in the family room, and they also added washer/dryer hookups in the bathroom. They also replaced the electric sub panel and wiring for the downstairs part of the house, replaced the ceiling joices supporting the upstairs floor (since those had rotted), and soundproofed the ceiling (which separates it from the upstairs half).

2) We converted the 2 car garage into an office by installing some walls, replacing the sub-panel/wiring, and adding some plumbing for a small sink/outdoor shower, installing heating/AC.

I do have pictures of all the wiring/plumbing work before the drywall was put up. This work makes the house an unofficial triplex (except the garage-office has no bathroom or kitchen). How could I sell this myself?

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Annette Lawrence’s answer
Annette Law…, Agent, Palm Harbor, FL
Thu Dec 15, 2011
Home Seller,
There is nothing simple about the situation you describe. As is, this is a very high risk situation.

However, the real question that needs to be asked is: "Is your choice regarding FSBO or broker representation related more to being forced into an upside down arrangement or is it truly based on the perception of lack of value provided by a professional?" Too often, people in all situations, sabotage their success by imposing invalid pre-conditions. Such invalid pre-conditions look like, "They have never smoked so they can not possibly understand me," or "I must add the fee on top of the asking price." Getting the facts will prove beneficial.

Have you considered paying the fees to get the permits in place?
Have you considered making the permitted features disappear?
Do you know who is the best (won't sue later) buyer for your home in it's current condition?
Do you have a means to reach out and touch this preferred buyer?

It is truly hard for the home owner to realize that in the millions of homes sold annually, each and every one presents it own unique set of challenges. I facilitate the sale of over 2 dozen homes sales a year. In this process the highest risk occurs when the owner and buyer meet at a showing. The home owner simply fails to understand the jeopardy created when they start talking. Going it alone in today's market reality is advisable for those with deep resources and with a lot of experience. Proceed but with great caution.

I do wish you the greatest success in what ever direction you choose.
Annette Lawrence
ReMax Realtec Group
Palm Harbor, Fl
727. 420. 4041
Web Reference:  http://www.MyDunedin.com
2 votes
Molly Thomps…, Agent, Saratoga, CA
Fri Dec 16, 2011
As a follow up... I'm sure you've seen all the answers from those folks who are not familiar with the peculiarities of the Santa Cruz County planning department. P lease don't do what they say unless you talk to an outside pro first... if you need a recomendation, let me know. Your situation is not unusual in your specific market, and it sounds like many of your changes won't be a problem... unless you fail to make FULL disclosure, or you contact the county without knowing the answer first...
CHEERS!
Molly Thompson, Broker Associate, APR
831-588-1752
1 vote
Molly Thomps…, Agent, Saratoga, CA
Wed Dec 14, 2011
MC is correct, it is all too common of a situation with homes in San Lorenzo valley and has been for years. The appraisers are picking up on it, and you could face the consequences she describes. In my experience, the folks that buy direct from a seller expect to receive a 6% discount off what they consider fair-market value, if not more. They may expect to get a bigger discount because they don't believe the seller will disclose as fully as is required under the law. If that buyer is working with an agent, that agent may help you with the required disclosures for an extra fee. Buyer's without an agent may go talk to the county about your disclosed issues and result in a red tag. You won't have access to marketing it where the majority of buyer's are looking, in the same way a Realtor would market it. The more buyer exposure, the more likely you are to get a good offer. You'll also receive guidance from a seasoned pro looking out for your best interests, well worth to most buyer's and seller's or it wouldn't be such an interesting career! Most of the weak agents have left the business so you should have lots of choices for a good pro to help you maximize your returns, even with the issues your home might have.
CHEERS!
Molly Thompson, Broker Associate
831-588-1752
1 vote
M.C. Dwyer, Agent, Boulder Creek, CA
Wed Dec 14, 2011
Good question!

There is a lot of behind the scenes work done by REALTORS, that just isn't obvious until you've been through a transaction with a good one.

In my experience, marketing the home is only a small part of what I do. But it needs to be done well - everything from picking the most cost effective things that can be done to prepare the home to sell, to getting great photographs, to being able to blast it all over the internet quickly once the property is ready. For an individual doing that themselves, it could get really labor intensive! The other side of marketing which we do is networking with the other REALTORs, from e-mail blasts to phone calls to the ones we know are the most likely to have solid buyers, to answering all their questions. The other day, a new listing came on in our office and the phones were ringing off the hook with questions from agents.

By the way, while 5-6% is a normal total commission rate , keep in mind sellers offer half of that fee to entice buyers' agents to show the home to their buyers. Only half goes to your agent, who represents your best interests and has a fiduciary duty to protect you. Most buyers want an agent on their side to help them, so chances are really high that for sale by owners will have to pay a buyers agent. Keep in mind, that agent will be working for their client, the buyer, and can't legally represent your best interests.

Attorneys can help you with the paperwork, but they don't typically have much background in negotiations and they generally don't do enough in-the-trenches transaction work to have an intuitive feeling for the problem solving we excel at. Also, they are paid up front and collect an hourly rate. REALTORS are only paid once a transaction is completed.

Showing sounds easy, but if you're doing it yourself, you've got to be there for every showing. Knowing how to weed out the looky-loos takes experience. We pre-qualify buyers before bringing them through someone's house, to minimize wasted time and energy for the home owner (who needs to spiff up the place before each buyer comes through). We can also use a sophisticated lock-box system which, if you want, can allow agents to show your home if you are away. It logs who showed it and at what time, so we can follow up with each buyer's agent. Agents go through a legal background check, and must pay to be members of an association in order to get a lockbox key. This adds security compared to a lockbox you could buy that simply has an alpha/numeric code.

The bulk of what good agents do is problem solving. This starts with helping sellers choose a price that is competitive with the properties buyers have to choose from, while netting the seller with as much money as possible. Then we help with their disclosures. Then there are the negotiations regarding the purchase offer (s). A good agent will discuss potential buyers with their lender. Once in escrow, the inspections begin. What if something is discovered? Buyers have about a dozen contingencies to work through. A good agent will keep them on schedule, so you don't waste time with a buyer who might not perform. The buyer has to get their loan - which can be really hard these days! A good agent will meet the appraiser at the house and offer them comparable home sales to assist them.

Here's the key: Every transaction encounters unforeseen problems, difficult periods for both buyer and seller. The stress levels and frustration can get really high - and the average buyer or seller isn't used to this. But an experience agent can keep a level head and figure out ways to resolve issues. We can counsel sellers on what their options are, but the final decisions are always up to you.

I hope this helps describe what a good agent does. I'd be happy to help further if you'd like more information. We don't charge fees for our consultations.
Web Reference:  http://www.SLVHomes.com
1 vote
Terri Vellios, Agent, Campbell, CA
Wed Dec 14, 2011
Why hire an agent all they do is show and market a house. Well that is not a true fact. You hire an agent to answer questions like this and more. A Broker is a RISK MANAGER. It is their job to understand and explain to you your disclosure requirements, the purchase contract, addendum, negotiate, review the buyers offer and explain to you what pitfalls you may encounter. I don't know the value of your home, I ask you are you willing and able to BUY back your home in the event that something wasn't done right?

Should things go wrong and if their is law suit wouldn't you want someone on your side?

Another question is do you have home owners insurance? Auto Insurance? Health insurance? Why pay for those things when the likeliness of needing it is very rare?

You are fully entitled to sell your home. Let me explain to you about the type of buyers you will meet.
1). Those who have an agent and are relocating and need to buy a house now. They want representation
2). Those who need to sell a home before buying, they too have an agent.
3). First time home buyers who know nothing and need an agent
4). Your most likely buyer that is the Investor. They are looking for a deal and will come in below market value plus they will subtract an additional amount for the commission you would normally pay.

In any event disclose honestly.

All the best to you.
Web Reference:  http://www.terrivellios.com
1 vote
Matthew Bart…, Agent, Glendora, CA
Wed Dec 14, 2011
Hi Freekquency23,

Legally, you have the right to sell your home by owner. But that being said, if selling your home was such a simple process, then everyone would be doing it! Your Realtor will help you determine value for your home. And raising the asking price so as to pay your Agent is not how you determine value. Your Agent will market the home for sale and this goes much farther than simply placing an ad in the local pennysaver or newspaper. Your Agent will negotiate on your behalf with all prospective Buyer's and their Agent's. Your Agent will explain all State contracts and most importantly all disclosure documentation for which you as the seller are legally responsible for completing properly. Your Realtor is a professional, just like your Attorney, your Doctor or Dentist. The reality is most homes are sold by Realtors, and Realtor's in turn net more money for their Seller's than those few homeowners selling their homes themselves. And ultimately, I'm guessing you simply want to net the most money possible. I recommend that you find and Agent that you feel comfortable and confident will get your home sold. Good luck to you!

Warmest Regards,


Matt
1 vote
CJ Brasiel, Agent, San Jose, CA
Wed Dec 14, 2011
1 vote
M.C. Dwyer, Agent, Boulder Creek, CA
Wed Dec 14, 2011
Hi Freekquency 23
While your situation is common in the valley, it presents some interesting questions on how to best protect yourself while properly informing potential buyers.

Also, today's appraisers are very thorough and may discover these improvements were made without benefit of permit. Depending on the lender, the buyer might not be able to get financing.

Finally, there are always risks of getting red-tagged by the county, which would eliminate anyone's ability to get a loan to purchase the property.

All this said, there are intelligent ways to address your situation, and getting advice and selling through a real estate agent experienced with these issues could easily prove to be more than worth the short term cost to help you through this, compared to the potential risks.
Web Reference:  http://ben-lomond-homes.com
1 vote
Rich Homer, Agent, NAPLES, FL
Wed Dec 14, 2011
First, find yourself a good local Realtor and they will guided you. http://www.trulia.com/voices/directory/Ben_Lomond-broker--5637
1 vote
M.C. Dwyer, Agent, Boulder Creek, CA
Fri Dec 16, 2011
Hi FQ,

CJ is right; you must disclose, to protect both you and the buyer.

There are things you can do to bring the home back into compliance, probably at a minimum cost. But, what if you found an all cash buyer who actually wanted to keep what you've done? So there's a balance of when to do what...

There is a clause in the California Association of REALTORS purchase agreement (10-A) which addresses your question about how buyers who sign that contract may handle investigations with government officials...it's designed to protect you.

You're right, there are a lot of unpermitted improvements made to homes here, and they are purchased and sold with full disclosure all the time. It is a delicate, but by all means possible, situation to handle with care.
The county records are often incomplete, but they can discover things at any time, often prompted by a complaint, or when a new permit is drawn.
Web Reference:  http://www.SLVHomes.com
0 votes
CJ Brasiel, Agent, San Jose, CA
Fri Dec 16, 2011
F -

You know, so you will be the one responsible or disclosing or placing yourself at legal risk.

CJ
0 votes
Freekquency23, Home Seller, Ben Lomond, CA
Fri Dec 16, 2011
Thanks for all the great replies!

One thing that you all have convinced me of is that I should talk with more local real estate professionals rather than attempting to sell my house by owner. It seems lots of stuff could go wrong and Id be better protected if I had someone on my side who knew how to deal with stuff. I also think the local agents are correct in that almost 50% of every house I looked at when I was buying had some non-permitted work done so I don't think its as huge of an issue in our area as it can be in others. Either way, I know there are a few things I could do. For one, I could simply remove the stove from the 2nd kitchen (and set it up as a wet bar) when I get it appraised/inspected.

Although, that brings me to another question. When I bought the house I checked with the county and they had no plans (just a square footage count), nor had anyone pulled permits on the house since it was built. I asked them about converting the garage and they didn't even know there was one... so my question is, if they had nothing to start with, how would they ever know I did any work at all, unless someone reveals my disclosures to them.. (essentially rats me out during escrow)? Does that happen?

Thanks again.
0 votes
John Arendsen, Agent, Leucadia, CA
Fri Dec 16, 2011
Well..........I wouldn't go as far as to say "not to do what they say". That's a pretty strong statement and it may tend to influence you not to listen to some very good professional advice. In generalities you can draw some pretty sound information and knowledge from everyone who's taken the time to contribute to you.

But naturally you're going to want to refer to your local building jurisdictions sooner rather than later and like I said in my first answer, it may serve you well to pay for an inspection up front and find out from the pros what you really need to become code compliant.
0 votes
Robert Chome…, , San Diego, CA
Thu Dec 15, 2011
Likely you would need a cash buyer as a buyer getting a FHA, VA or conventional financing would not be allowed to buy the house in converted form. You would at least have to remove the kitchen in the 2nd unit for someone to have a shot at a standard financing.
0 votes
John Arendsen, Agent, Leucadia, CA
Thu Dec 15, 2011
Yo Freek, I just read one of your answers but I think you answered it in in the same sentence. Why should you hire an RE pro for a 6% commish instead of paying an attorney a whole lot more to resolve your issue? Hello............,

Come on let's get real about your situation. I can assure you having been a construction defect expert witness for the past 20 years that it will cost you a whole lot more to hire an attorney than it ever would to pay a meager 6% of your sales price to a professional who can provide you with intelligent leadership, direction and counsel.

What you need to do is search for a RE professional who has construction/contractor experience. There not that hard to find. I R1. But I'm not anywhere near you. However, I'm sure there are some close by so pose this question on Trulia.

"Any RE professionals in Trulialand that are or have been general contractors in Ben Lomond, CA.? I have a listing I'm just waiting to give you if you can solve my permit issues". You blow the whistle and I guarantee you they'll come a running,

But whatever you do don't come on a RE forum like Trulia and start blasting the worthiness of a RE professional. That's tantamount to shooting yourself in the foot. Give a professional the opportunity to prove themselves. After all unlike an attorney who you would have to pay a fee for service in advance a RE pro wouldn't cost you a dime until your home has been sold.
0 votes
John Arendsen, Agent, Leucadia, CA
Thu Dec 15, 2011
Simply put. Pay for a permit inspection from your local building inspector. Ask him to come in and list any code violations. Why you ask? Because sooner or later you will have to face the music. Either you tackle it head on from the beginning or face the music during or after the fact.

At least you'll know what you have to do. What you've described doesn't sound all that dramatic. As a general contractor for the past 25 years I can say with reservation that you could probably resolve most of your issues without a whole lot of pain.
0 votes
Freekquency23, Home Seller, Ben Lomond, CA
Wed Dec 14, 2011
Hi and thanks for your replies.

Why would it be worth it to hire an agent? Ive never sold a house before, but Ive been told all they do is market the house and show it, which is all stuff I could do myself. Then since you have to compensate raising the price for their commission, it can sit on the market longer then if you had simply posted it through U-sell or something like that.

It would be worthwhile to go through an agent however, if there was a way they could help me through any issues I may encounter, but it seems thats more up to a real-estate lawyer I'd hire isn't it?

Can someone explain the benefits I would receive by paying someone 6% in my situation?
0 votes
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