4 Dangers of Unpermitted Improvements

Should You Buy a House with Unpermitted Renovations?

Many of the improvements you make to your house require a permit. Some of them are very obvious, others not so straight forward.

You need a permit for the following: structural changes such as removing a load-bearing wall, adding a room or a bathroom, replacing the existing plumbing system, installing a new electrical service, replacing a water heater, adding a deck, replacing windows (if the size changes), and adding a balcony. When in doubt, check with your local Construction Office.

You may wonder what happens if you don’t have permits when you do the improvements or what happens if you already have purchased a house with unpermitted improvements, alterations or additions. In New Jersey the Department of Community Affairs (DCA) oversees Uniform Construction Code (UCC) compliance and enforcement and advises municipal officials, as needed. In the DCA’s bulletin 06-1, the DCA provides guidance for inspection of existing work done without proper permits.

To detect unpermitted work, the DCA advises municipal officials to perform a Certificate of Continued Occupancy (CCO) inspection, specifically including a report describing the work done without a permit. Corrective work may be required.

Let’s discuss the most important dangers of unpermitted changes:

1. Fines, Penalties, Remediation, and Back Taxes

If you were the owner when the unpermitted work was done and if you are still the owner at the time the unpermitted work is discovered, you are definitely responsible. If you just purchased the house and you didn’t realize that some of the improvements/additions were unpermitted, you may still be liable for unpermitted work by former owners, especially if safety is compromised. You may be responsible for the cost of remediating the safety issue created by the unpermitted work. In New Jersey municipalities may issue a Notice and Order of Penalty for work done without permits, and assess penalties of up to $2,000 per day that violations remain outstanding after the municipality’s deadline for correction. Failure to obtain permits may also cause a property to be undervalued for tax purposes, with possible back-taxes owed, once the unpermitted work is discovered.

2. Substandard Construction Practices

 Don’t allow unlicensed and unskilled workers to perform improvements. Such workers might not do the work properly and you may have more problems than you can handle, such as a leaky roof, mold caused by pipes in walls leaking, inadequate insulation, leaking gas line, sagging floors, missing shut off valves for gas and/or water lines, under-sized windows in bedrooms, inadequate ventilation, over-loaded electrical circuits, missing GFI outlets, inadequate support pilings, faulty or unprotected wiring, etc.  The list is endless.

3. Safety Issues

Permits require inspections to ensure that the construction was done following the UCC guidelines to ensure the safety of you, your family, people that visit your house, neighbors,  and others that may merely be passing by.  In New Jersey if during a CCO inspection, the construction official has probable cause to believe a life-threatening safety violation exists, the official may require demolition, at your expense, as necessary to properly inspect the work. Otherwise, a CCO inspection is limited to only the visible portions of the home. Add to this the fact that if, for example, a fire destroys your house and the new electrical service was unpermitted, your insurance claim may be denied.

4. Reselling Issues

 Unpermitted work is often detected when the required CCO is done during the sale of a property. For example, take the case of a home that is marketed as a 5 bedroom home, where one of the bedrooms was a garage that was converted to the 5^th bedroom, without permits and with inadequate wiring, inadequate heating, and under-sized windows for a bedroom.  The mortgage company’s appraiser may appraise the home for less, since it is listed as a 4-bedroom home in the tax records. This lower appraisal could cause the potential Buyer’s financing to fall thru.  Additionally, a savvy Buyer may detect the unpermitted work and request pricing concessions to bring the bedroom up to code.  These negotiations could significantly lengthen the closing time as well.

Precautions When Buying a House

Always ask your real estate broker/realtor and the seller if there was  any unpermitted work done and make sure you get the answer in writing. As you know parties are bound to fully disclose any problem the property has. If unpermitted work was done, it may be better not to buy the house, for it may be costly for you to obtain the permits and remediate any UCC violations after the fact.

Compare the square footage of the house, as listed in the multiple listing, with the actual square footage, as provided by a home inspector or by actually measuring it yourself. A significant difference in square footage may be a sign of unpermitted work.

Require a CCO to detect any unpermitted work or permitted work that has not yet been approved (i.e. an open permit).

In most cases, the CCO is the responsibility of the Seller to obtain prior to closing. However, when the house is a short sale, bank foreclosure or “as is” sale, the Seller will often require that the CCO be obtained by the Buyer. By agreeing to obtain a CCO, you may inadvertently be agreeing to incur costs of remediating unpermitted work!

Precautions When Selling a House

As a homeowner, once permits are obtained, you should retain a copy of each and every permit, permit revision, plan or drawing, inspection, and approval, as well as contractor invoices. Don’t rely on municipalities to retain such information.

Ensure any open permits are approved.  Otherwise, the closing could take significantly longer and you run the risk of losing a potential Buyer.