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.
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!
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.
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, youâ€™ll be thankful. If you already have a home with unpermitted space, read my post below. This may help.
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.
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).
NMLS # 6395
Financing Kentucky One Home at a Time
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!
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.
Scared of the can of worms I will open, but maybe it has to be done.
This discussion gives me pause.
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).
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.
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.