On today’s show we are talking about the importance of checking an often overlooked item when purchasing a property.
The question is, does the structure have all the required permits? Did it ever get a building permit? Were all the permits ever closed out?
When you consider making improvements or additions to your home, it can be tempting to try and skirt the permit process. In some cities and towns, the cost and hassle of getting a permit can seem unnecessary, especially if you are handy and like to do the work yourself.
Some buyers don’t do the proper due diligence and confirm that the permits were issued and property closed. This can significantly affect the marketability of a property.
The financial motivation for many homeowners to avoid permits is the re-assessment of property value that would result. Nearly every city and town in America collects taxes bases upon the assessed value of a home. Assessed value is calculated by looking at the size and characteristics of property.
What is the gross living area? How many bedrooms does it have? How many bathrooms? These are all factors in determining an appropriate assessed value.
Guess what happens when the tax assessor knows about the luxurious new finished basement with home theater, wet bar, home gym and beautiful bath you just added. If you guessed your taxes are going up, then you would be right.
Homeowners can save thousands of dollars over the course of owning a home when permits are not pulled. When selling a home, this becomes very problematic. If and when the town or city finds out about it, the new owner is the one who will bear the brunt of the increased taxes.
So how do you know if you need to pull a permit?
The simple answer is to call your local building department and review the scope of work with them. They will let you know what requires a permit. Generally speaking, anything involving safety will require a permit. This includes electrical work, plumbing work, or anything structural, or anything that will significantly alter a property. Simple repair work should not require a permit.
Many homeowners who are undertaking a renovation will start the process with good intentions and apply for a permit. It’s often the case that they forget to call the city for a final inspection to close out the permit.
This can create a liability for you. For example, if you are performing electrical upgrades and don’t complete the final electrical inspection, you can bet that your insurance company will argue that the unauthorized and incomplete electrical work was to blame for your insurance claim, and therefore the insurer is exempt from paying the claim.
One of the most famous examples is the Sagrada Familia cathedral in barcelona. This famous Cathedral is still under construction after 137 years. This landmark gets about 4.5 million visitors a year. It’s a breathtaking work of art. Back in the day, the year was 1882, the then designer of the Cathedral was Antony Gaudi. Gaudi’s architecture is all over Barcelona, famous for his unique style. At the time, he asked the city for permission to build the church.
But the city can’t find anywhere in its records that Gaudi was ever given a response to his request to build the church. The initial permit fee imposed by the city included penalties and interest dating back 137 years. Needless to say, the price tag was enormous. That was eventually negotiated down to $4.5 million Euros, still a huge price to pay.
One of the other risks of not pulling permits is getting sued later on down the road by the buyer who purchases your home. Unfortunately, we live in a litigious society. When you don’t pull a permit, and something tragic happens years down the road, who do you think they are going to come after?