Buying A House with Unpermitted Additions

You’ve been searching for your dream home for a year now, and finally you come across the perfect house. It’s everything you’ve been looking for, EXCEPT – the listing agent tells you that the awesome third bedroom “may not be permitted”. What does this mean? Can you still buy the house? SHOULD you still buy the house? Here are a few things you should know if you find yourself in this position.

Permit histories are public record – you don’t need to have an accepted offer in order to view the permit history for a home. You have the right to pull the permits for any home in any city. Pulling permits is an easy process – in some cities (like Glendale, for example) you can email the permit office, pay a small fee via credit card, and have the permit history emailed back to you. In Los Angeles, you may go in person to a neighborhood permit office and request a copy of the permit history for a nominal fee. There are also some Internet sites that will pull the permit history for you in exchange for a slightly larger fee. When you “pull the permits” for a house, you will receive a copy of every permit that the city has on file for that particular home. This will typically include the original building permits, as well as permits that were pulled for any subsequent additions or improvements.

Many buyers are surprised to find that legally, you are required to get a permit for the majority of even the most basic home improvements. For example, replacing windows, putting in a new water heater and upgrading your electrical panel all legally require city permits. Does this mean that all homeowners obtain permits for this kind of work? No. Many homeowners hire contractors or handymen to complete repairs or improvements without going through the process of obtaining a permit. Getting a city permit will cost you additional money (you’ll pay a permit fee) and it will usually lengthen the time period for your repairs because a city inspector will be required to come to the property to sign off on the permit before it can be entered into the public record. Depending on the size and scope of the work, the inspector may have to come by multiple times to sign off on individual phases of the work.

What happens if you do work without a permit? If the city never finds out, there is often no consequence. However, should the city be notified that you have unpermitted improvements they can issue you a citation and require that you bring the work up to code and have it legally permitted. This is where the scope of the work often comes in. If you have dug up your entire front yard to replace a sewer line and a city inspector happens to drive by and see the work, they can stop and ask to see your permits. Likewise, if you add a large unpermitted room to your home and your nosy neighbor alerts the city, you can be cited.

So how does all of this affect you as a buyer? If you are considering purchasing a home with unpermitted square footage, you may have a problem with your appraisal. When a home has a third bedroom that is unpermitted, it will usually show as a two bedroom in the tax records. Because of this, appraisers will not value the home in the same way they would if the house had a legal third bedroom. Instead, the unpermitted space will likely be valued as some kind of “bonus room”.

In addition to appraisal issues, you may have problems getting a loan on a house with unpermitted additions if you are purchasing with specific types of loans such as FHA or VA loans. Those loan programs tend to be stricter about the condition of the property and they may require either you or the seller to correct certain issues. For example, if there is an unpermitted kitchen with a gas line, you will likely be required to cap the gas line before the close of escrow.

If you are able to resolve any loan and appraisal issues and decide to move forward with your purchase, then you have to be conscious of the fact that it’s possible that you could be cited in the future for having unpermitted improvements. Is this likely? Usually not, but again it largely depends on the type of violation. An unpermitted water heater is not likely to ever be noticed by anyone, but an unpermitted guesthouse may eventually draw the attention of your neighbors. Some cities – like the city of Pasadena – require that homes be inspected every time they are sold. In an effort to crack down on unpermitted work, the Pasadena “City Occupancy Inspection” requires that all unpermitted space be corrected within a certain timeframe before or after a sale.

In general, buyers shouldn’t avoid looking at potential homes solely because of their permit status. Each situation is unique and will present a different level of risk to the buyer. The reality is that in this day and age, it is unlikely that you will find a home with NO unpermitted improvements. The best way to determine your risk as a buyer is to investigate the permit history and discuss the ramifications with a real estate attorney and the permit office of city in question. It is then left to you to make a final decision about the sale based on your own comfort level.