A-to-Z Guide to Selling a House with Unpermitted Work
Even though the information on this web page is provided by a qualified industry expert, it should not be considered as legal, tax, financial or investment advice. Since every individual’s situation is unique, a qualified professional should be consulted before making financial decisions.
If you are facing the difficulty of selling a home with unpermitted work done to it, this article will prepare you to handle it successfully.
During my more than 20-year real estate investing career, I’ve helped many homeowners to deal with this situation. Let’s go over what you need to know so you can close.
Can You Sell a House Without Improvement Permits?
The first thing that homeowners in this position want to know is, can you sell a house with unpermitted work? Is it even possible? The answer is yes, you can sell the house. But, the way that you go about it will be very important to your liability and your pocketbook.
Generally, there are two ways to sell your home in this situation:
- The hard way is to list it on the market for the general public and bring the property to the code by legalizing and/or modifying or removing unpermitted improvements.
- The easy way is to sell your house fast, ‘as is’, and for cash to a real estate investor without enduring upfront time and money expenses.
If you want to skip reading about the details connected to the hard way, jump to the section about the easy one.
It’s easy to get in this position because laws and regulations in various locations can be very different. One town or county could make you get a permit to build a deck while another does not. You may have done work to your home without realizing that a permit was needed.
It’s not unusual for homeowners to find themselves selling a house with a finished basement without permits or an unpermitted bathroom. A lot of homeowners bought a house with an unfinished bonus room and finished it themselves.
If work is done after the initial construction that involves the basic systems of the house, like structural, plumbing, or electrical, you should assume that a permit is required.
If you sell your house in this condition the traditional way, to the general public, you will have to deal with the disclosure laws in your state. See the section on Disclosing Unpermitted Work.
A traditional purchase contract will allow the buyer to do inspections. This could alert them to after-construction improvements. If so, the inspection report will recommend that the seller confirm that permits were obtained for that work.
Most homeowners will need to finance the purchase. A mortgage lender will require a lender’s title insurance policy, which means that a survey has to be done. If your improvements expanded the footprint of the house, even with something like a deck or patio, and the improvements encroached into utility easements or setbacks they will have to be removed.
You may see online comments that advise homeowners to sell their house as-is and hope that the buyer doesn’t discover the unpermitted work. However, listing your home as-is can make potential buyers think that you are hiding something. And, selling as-is doesn’t relieve you of your responsibilities regarding your state’s disclosure laws.
Selling as-is will mean disclosing the situation and selling for a lower price. You should count on pricing the house as if the unpermitted improvements did not exist, possibly less. Even then, selling as-is will be difficult if a lender is involved.
Often the best thing to do is to deal with the issue yourself before selling your house.
This will mean getting the work permitted retroactively. We’ll discuss that in detail in a minute.
Disclosing Unpermitted Work
What Happens if the Seller Didn’t Disclose Unpermitted Work?
Unpermitted work could lead to the property’s value being diminished below the purchase price. This would most likely result in legal action by the purchaser. The buyer could face having to demolish the improvements in question. Or the new owner could have to pay delinquent taxes that were the result of inaccurate assessments caused by not being permitted.
Most states have residential property disclosure laws that require sellers to tell buyers about anything they are aware of that is material to the sale of the property.
Their real estate agent also has to disclose anything that is material to the sale. As professionals, realtors are held to a higher standard than the public. If they see something that they should know is wrong, they have to tell the buyers about it whether the seller disclosed it to them or not.
If you bought the property in this condition, they and/or their broker may be responsible for fixing the situation. You should consult with an attorney before communicating with them. Be aware that the legal route could be long and expensive and any financial award could be difficult for you to collect.
Once you are aware of the problem, you become responsible for telling buyers about it when you sell.
This is why if you are aware of unpermitted work, you should properly disclose it now, in writing. Biting the bullet now might be a lot more palatable than having to do it later.
How Should I Disclose Unpermitted Work?
Your state’s disclosure form may specifically ask if any work has been done on the home and whether or not it was permitted. If it doesn’t, there should be a place on the form to include this information.
Have a plan in place to address the situation before marketing your home. If you can, couple the disclosure with a description of what you have done, or are willing to do to remediate the issue.
Determine what you will need to do to correct the issue and what that will cost. If you can afford the cost of fixing the matter, then you should probably take that option.
If the work needed to correct the issue is extensive, then your options will be more limited.
Can I Get a Retroactive Building Permit Before the Sale?
How to Legalize Unpermitted Work?
The process to legalize unpermitted additions or other improvements will be determined by the municipality in which you live. In some cases, you will need to comply with both county and city regulations.
This has happened so often that there are actually jurisdictions that have created a simplified process for homeowners to bring their property up to code. And remember, the work has to come up to the current code, not the code in place at the time the work was done.
If a lot of unpermitted work was done, it may be like starting over. You will have to provide plans and the cost of the original work. If no plans were done at the time of the work, you will need to have plans created.
Sometimes it makes sense to hire a contractor to look at the situation first. They can advise you on whether or not your work was done correctly. They probably work with design-build architects and can help with any plans you need. They will also be familiar with the permitting process and can be a big help to you there.
Typically, you will get a permit similar to when you begin a construction project. The inspector will then decide if your improvements were done correctly, or if additional work has to be done. Once the inspectors are satisfied that the work meets the building codes, they sign off on it and the permit is closed. Now you’re legal.
If any of the work that was done is out of sight, such as within walls, you will have to tear down at least some of that work. Inspectors have to be able to view things like wiring, plumbing, venting, and framing. If you are lucky, you may only need to remove a portion of the work, not the whole thing.
How Much Does It Cost to Legalize Unpermitted Renovations?
Permits cost between $400 and $2,000, with the average being about $1,200. The charge is based on the cost of the improvements but there is usually a minimum fee.
Some municipalities also charge penalties for not getting a permit when the work was done. If you purchased the house in that condition and weren’t aware of it, they may waive the penalty.
If you need a contractor’s help to advise you or to remove and replace portions of the work for inspections, they will charge between $75 and $150 per hour. If they need a helper on the job, that will be another $50 to $75 an hour. This does not include any replacement materials.
If plans are needed for your permit application, that will cost from 10% to 20% of the project costs. The national average for renovation plans is about $5,700.
If your disputed improvements have to be demolished, it will cost between $12 and $15 per square foot. This doesn’t include the costs of repairing the exterior of your home where the improvements were attached.
The Easiest and Cheapest Way of Selling a House Without Permits
If you are selling a house with unpermitted improvements that you can’t afford to fix, then you may have trouble finding a buyer.
You need a buyer who:
- knows how to deal with special permitting situations, who can handle small and large renovation construction projects
- doesn’t have to worry about a lender’s requirements.
Real estate investors are exactly this type of buyer. They aren’t scared away by atypical property conditions and permitting issues. They buy homes as a business and are used to handling all kinds of circumstances.
How Do Real Estate Investors Work?
Investors look for homes like yours and buy them as-is. Then they are able to do a lot of repair or replacement work themselves so that the costs you would be facing will be less for them. Once the home is legally permitted and in good shape, they will either sell it or own it themselves as a rental property.
Investors can’t pay full market value for your home and still make their profit projections. In addition to the costs of making the property legal, they have to include a margin for unexpected problems with your home or the market.
But, if you can’t afford to sell your home and are subject to fines and penalties, selling to a real estate investor can benefit you in a number of ways.
To learn more in detail about how to find a good real estate investor, how high of an offer you can expect from them, and how to deal with them to get the most of your sale, read our extensive guide Selling Your Home to a Real Estate Investor the Right Way. And now, let’s discuss the benefits of this route.
Benefits of Selling Your Home As Is to an Investor
Investors don’t need traditional financing. They buy homes for cash. You don’t have to worry about the buyer not qualifying for the loan at the last minute, or the lender turning down the loan because of the unpermitted improvements.
Investors are looking for homes with problems. Instead of listing a home on the market and waiting for weeks or months for a buyer who isn’t scared to buy a property with unpermitted work, you can contact an investor and get a cash offer after a quick walkaround.
Investors perform their own inspections and value calculations. They don’t have to wait for third party inspections or appraisals to be done. As a result, they can often close in one or two weeks.
By selling directly to an investor, you avoid the closing costs that you would have to pay in a traditional sale such as realtor commissions and title fees. Investors include any closing costs in their offer.
Selling your home to an investor also means that you and your family won’t have to deal with the inconveniences of traditional marketing events like open houses and showings.
As for the disadvantages, the convenience of selling a property to a real estate investor comes at a price. Investors look for low priced homes that they can buy, fix up, and resell. To cover closing costs, overhead, profit, and other expenses, they often have to make under market value offers.
How to Get the Best Cash Offer from an Investor?
As explained above, real estate investors buy homes that have unpermitted improvements (and many other problems) as is and fast, with minimum hassle for the seller. That might be the answer that you are looking for.
However, not all investors are ethical and/or experienced enough to provide the seller with a quick and transparent transaction. To get all benefits explained above, you need to deal with a reputable professional.
As a national platform connecting motivated home sellers with top-rated local real estate investors looking to help them, we at HouseCashin, have selected and vetted according to our quality standards the best investors across the USA.
Fill out our contact form to get multiple cash offers on your property from competing investors looking for houses with unpermitted work in your area.