There is always a question about what does an agent have to do regarding disclosing permit issues. If you are in a market with older homes, you can be pretty sure that there is much remodeling been done ..... much of it done WITHOUT a permit. California and several other states have used their lobbying clout to get a law passed where the agent is not legally required to go off-site to investigate the status of permits.
Agents will argue that they have no responsibility anyway because they are not contractors; how would they know about permits. If you believe that, you are RIGHT and WRONG. Before, I talk about why you might be liable, let's discuss a little about permits.
Permits: A permit is simply the homeowner asking the governmental agency's permission to remodel or upgrade their home. Most agencies change a fee and this has become a very profitable profit center for them. Once the work is done, the homeowner (or contractor they hire), is supposed to notify the agency so that they can inspect to see that the work is done properly. This is typically called the sign-off or final inspection.
Transactions: In most states, a seller must disclose material facts which would affect the buyers decision to buy. Having permits and finals or not having them, would be considered a material fact. It is not uncommon for these permits to be given to the buyer or the agent or buyer picking them up at the governmental agency.
Potential problems: There are a few traps in this process for the Seller, the agents and the Buyer:
- No one is looking: You may not be aware that most home inspectors exclude building code and permit issues from their inspections. Go back and look at the fine print on your last inspection and I think you will be surprised by what you find. It might also comment that their inspection was done within ASHI or some other association guidelines. ASHI is the American Society of Home Inspectors and most states have a statewide association as well. It would be the equivalent of our NAR organization. Looking at the ASHI website, I quote: The home inspector is not required to determine compliance with regulatory requirements (codes, regulations, laws, ordinances, etc.) unquote. Some go so far as to say that even if they see or suspect a discrepancies, they do not mention it since they are not required to (key word) determine whether it is in compliance. ASHI website: (http://www.homeinspector.org/standards/standards13.aspx),
- Construction industry: Contractors are notorious for doing a remodel and not getting permits. First, they don't want someone looking at their work in case it might be wrong. Secondly, they normally don't get paid until the work is done. So, when the work is done and the city inspector hasn't come, they still want to be paid. So, it is easier for them to skip the final inspection. The third reason is that they might have to wait days for the inspector to come. In the meantime, they are standing around. I know when I got my kitchen remodeled, we left the ceiling open to inspect the electrical and lights and the floor open to inspect the plumbing. Too often homeowners are victimized by who do the work without permit or take out the initial permit and never get a final. So, just because your Seller hired a contractor doesn't mean they got a permit
- What requires a permit?: It depends. Each city or county has different rules. One might require a permit for a new roof while another does not. And, things that were allowed in the past, might not be allowed today. So, someone will have to determine what the rules are in your area.
- Governmental Immunity: One of the unpublished scandals is the fact that most homeowners are expecting that for the permit fee they paid, the city inspector will catch all the mistakes made. WRONG! In most states, these inspectors have made so many mistakes in the past, they have gotten laws past giving them governmental immunity on such matters. Check in your area. And, if that is the case, your homeowners might want to hire an architect to oversee any remodeling work.
- What's a Seller's agent to do? The first step is to explain the issue to a Seller. The might take the position that they don't know about permits issues. But, when you inspect the house, it should be pretty easy to spot those issues that have been remodeled or upgrades since the original house. As you inspect the house, write down those items that look remodeled. Then if the seller did the work, they should check their paperwork and disclose it to the buyer. On unknown remodeling, the Seller could go to the city and get copies for the buyer. Remember, houses don't normally come with pools, huge decks, air conditioning, etc
- What is a Buyer's agent to do: Don't you just love Seller's agents who put together a beautiful flyers saying ....new roof, new kitchen, new bathrooms, new furnace and air, added-on master suite, etc, etc. All of these items need a permit. So, if you showing a property, note these issues and find out from the Seller's agent if they are or are not permitted. Don't take the seller's word for it, make them provide copies.
- Can you read a permit: But that raises another issue. Can you or your buyer read a permit. Most cities use their own form and system and it is almost impossible for a non-contractor to read the forms. If you buyer gets handed a pile of papers saying, here are the permits ......have someone who is qualified read them. Don't take the responsibility yourself. You might ask your home inspector if they would use them during their inspection for an additional fee.
- What are the ramifications? So, what are the ramifications of buying a property without permits. It can be very painless or possibly very painful. If the work was done correctly, It might be as simple as calling the city to inspect and provide a final inspection. If codes have changed or the work was done incorrectly, here are a couple of downsides including but not limited to; City making current homeowner fix the problem, city making them tearing the improvement out at their expense, insurance not covering claims (fire, slip and fall, etc) since the buyer knew system (wiring, etc) was defective, and if legal non-conforming, not allowing the improvement to be put back.
In my work as an expert, many agents are not paying attention to this issue. You are not a contractor but you should be aware of the risks and pitfalls of buying a property without property permits.