no permits

Imagine a home owner adds a “Bonus Room” on the rear of a house. It’s nice to have the extra space, right? Well, imagine one of the rear bedrooms now no longer has a direct exit to outside of the home. Is that going to be an issue?

The Problem: This home above has an addition of a Bonus Room that essentially removes direct exterior egress from one of the bedrooms. No big deal, right? Well, it actually is a big deal because by definition a bedroom must have two methods of egress. If you didn’t know, according to International Residential Code (R310.1), a bedroom needs to have one doorway that opens to the interior of the house and one doorway or window (of adequate size) that opens directly to the outside of the house (read here for more on what makes a bedroom a bedroom). Thus when an addition of a Bonus Room, Family Room, or Whatever Room blocks the secondary egress in a bedroom….. Houston, we have a problem! All of the sudden a room that was previously considered a bedroom is technically no longer a bedroom. If you’re interested in reading the nitty-gritty of various national codes on the subject, check out this document (pdf).

Impact on Value: Being that I’ve seen this issue twice in the past month, I thought it was worth kicking around some thoughts. Like most things in real estate, we need to look at the problem from a few different angles:

1. The Lender: Keep in mind a lender might not want to lend on a property when there is a blatant safety issue. Or a lender might ask for the addition to be removed, a secondary egress to be added in the “bedroom” if possible, or for the appraiser to not consider the room as a bedroom any longer. Ultimately the appraiser can ask the lender for some direction or advice, but at the end of the day the appraiser has to communicate very clearly and make decisions that will lead to a credible value.
2. Not Code Enforcement: Let’s remember it’s not the appraiser’s job to enforce code violations or stop a deal from moving forward if there are code issues. Increasingly lenders want appraisers make comments as if they were home inspectors, engineers, or code enforcement officers, but the appraiser’s job is to come up with a credible value. Bottom line. At the same time, appraisers need to know enough about building code to be able to recognize a blatant egress issue, disclose the issue, and consider if there is any impact on the value (there may or may not be).
3. Less Bedrooms: Decreasing the bedroom count could impact value since a property is likely less marketable with less bedrooms.
4. Permits: Let’s realize this addition may not have been done with a permit in the first place, so the appraiser is going to have to figure out what the market is willing to pay for a house that has some non-permitted space. Some appraisers will not assign any value to a non-permitted area, saying “no permit = no value”, while others will try to figure out how much the market is willing to pay for the house in its non-permitted state. Read more on a lack of permits here. Remember that some additions increase the functionality of a floor plan in a positive way, whereas other additions make a floor plan very funky (in a bad way).
5. The Whole Enchilada: Ultimately, I find myself looking at the “whole enchilada” or entire package of a house when trying to figure out how a layout like this might be seen in the market. For instance, in a recent appraisal consulting assignment, an owner hired me to help him see the market since his house was not selling. On paper it looked like the house should be valued toward the top of the market because of its much larger size, but in actuality the lack of upgrades and funky floor plan (that blocked egress from one bedroom), ended up meaning the house attracted zero offers and was more comparable with the bottom of the market. The way I knew the house was more closely aligned with the bottom of the neighborhood spectrum was finding a few odd floor plan sales (that was lucky), the subject having zero offers at a higher price range, and even a previous sale of the subject property from years ago that showed it sold at the bottom of the market at the time despite its very large size.

I hope that was helpful. By the way, thank you to home inspector Ken Ives for a good conversation on some of the above points as I prepared this post.

Questions: Any thoughts, insight, or stories to share? Did I miss anything? I’d love to hear your take.

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