Building permits pay off for sellers

Guard yourself against additional work and expenses
By: Dian Hymer: Inman News
Curing deferred maintenance before selling usually improves a home's overall appeal, which can attract more buyers for a quicker sale at a higher price.

Sellers typically do pre-sale fix-up as quickly and inexpensively as possible. This can lead to cost-cutting measures, some of which trigger unwelcome consequences.

For example, one way to keep costs down and shorten the time it takes to get work done is to bypass the permit process. Some contractors charge less if they don't have to apply for permits, pay the permit fees and wait for building inspectors to sign off on the work when it's done.

But, consider the downside. A homeowner in the Oakland Hills in Oakland, Calif., expanded his home to increase its market value. He used a licensed contactor but did not take out the required building permits.

The house sold for a good price. But when the appraiser evaluated the property for the buyer's lender, he reduced the valuation on the addition because it hadn't been done with permits. Because of this, the house did not appraise for the price the buyer offered.

To save the deal, the seller applied for permits after the fact. He not only had to pay the permit fees he'd hoped to avoid, he also had to pay penalties. In addition, walls had to be opened so that the inspector could confirm that the plumbing and electrical were properly installed. It might have taken a little more time to do the job right the first time, but it definitely would have cost less.

Other issues come into play when sellers sidestep the permit process. Some municipalities won't issue a final approval for work done with permit if there is a building code violation.

For instance, an Oakland homeowner obtained a permit to replace and relocate a gas furnace. When the city building inspector visited the property to inspect the furnace installation, he noticed electrical wiring near the furnace that didn't meet code. A contractor from Hayward, Calif., who didn't apply for a permit, had done the wiring years before and obviously wasn't well informed on Oakland code requirements. The homeowner had to have the electrical wiring corrected before the city inspector would issue a final clearance for the furnace installation.

HOUSE HUNTING TIP: If you buy a home where work was done without required permits and you take out a permit to do additional work, you could find yourself paying to correct the past owner's misdeeds. To guard against this, visit the local planning or building department and ask to see a copy of the permit history on the property. Make sure that you do this before you remove your inspection contingency from the purchase contract so that you'll have an opportunity to negotiate a satisfactory resolution if there's a problem.

Another issue is that - depending on where you live - you might not be granted a new permit if there is an outstanding permit that has not received final approval. Recently, the buyer of a Piedmont, Calif., home discovered that the seller had taken out a permit to replace the roof, but the job was never done. The roof either had to replaced and approved or the roofing permit had to be voided by the city building inspector before a new permit would be granted.

In California, home sellers are required to disclose if they are aware of work that was done without required building permits. If you're buying in a state that doesn't require this disclosure, it's even more important to check the permit history before you buy. Be aware that sellers often think that permits were obtained when they weren't.

THE CLOSING: To find out if a project requires a permit, consult with your local building or planning department.

Dian Hymer is author of "House Hunting, The Take-Along Workbook for Home Buyers," and "Starting Out, The Complete Home Buyer's Guide," Chronicle Books.