I delivered bad news recently. Well, it was helpful news for the buyer, but maybe bad news for the seller. There was a 700 sq ft home addition that turned out not to be permitted as living area, and I was the guy to let everyone know. Oh dang!! Let’s talk about this and highlight two important things about permits.
Two things to consider with permits:
1) Signed off: It’s one thing if a permit was pulled, but the most important thing is that it was finaled. If a permit is not finaled, it’s sort of like getting a marriage license from City Hall but not actually getting married. The thing is the marriage license is only the beginning of the process, and it means very little by itself unless it results in a marriage ceremony. The same thing is true with permits in real estate. The beginning part of getting a permit matters, but unless the permit is actually signed off at the end, then the act of pulling a permit means very little. Thus when someone says, “We pulled a permit,” a good follow-up question might be, “When was the permit finaled?”
2) Getting specific: In the situation above there was one big problem. The large addition was basically an attic conversion on the third floor, and it was only permitted as storage in the eyes of the county – not as living area. This reminds us that sometimes after being told an area is permitted, we might consider asking a clarifying question, “What was it permitted as?” After all, it can be technically correct to say an area was permitted, but was it permitted for the actual use it’s being said to have been permitted for? That’s the real issue.
Appraisers and non-permitted areas: There are times when appraisers might include non-permitted areas in the value, but there is no one rule for appraisers to apply in all cases because each situation is different. Though my sense is when an area is very large most appraisers probably won’t include it in the square footage because it hasn’t gone through the most basic process of becoming legitimate in the eyes of the building department. In other words, it’s one thing to include a non-permitted covered patio in the value because that’s pretty minor and so common in many markets, but it’s another thing to include an addition that represents 20% of the total square footage of a house. You can read more about the problem of non-permitted additions here.
I hope this was helpful or interesting.
Questions: What is a third thing to consider when it comes to permits? Any stories or wisdom to share? Anything else to add?