Home Buyer Tip: Why Building Permits Matter

Having spaces properly permitted is ideal.  However, it is not uncommon in our area of older housing stock to come across spaces that have not been permitted.  When we evaluate non-permitted space these are our concerns:

1. Market Value.  Often, even non-permitted spaces still have an inherent "use" value.  The value of the space in our area is usually related directly to the quality of the improvement and usefulness of its purpose.  Because of our competitive market (and frequency when non-permitted spaces sell at high value), it is hard to pinpoint any direct correlation between  a lack of permit and decrease in value. 
2. Appraisal Value.  Conversely, we have seen non-permitted space effect the value in the eyes of a lender.  Some bank appraisers will not give ANY worth to a non-permitted space.  If the banks appraisal comes in lower than needed to achieve the desired loan amount, this is a risk for the buyer.  The buyer may not be able to qualify for the purchase.  Buyers should protect themselves with a loan and appraisal contingency.
3. Potential Future Liability.  Some jurisdictions have taken a fairly easy going stance regarding existing spaces.  However, if you ever want to improve the space by adding plumbing or electricity, it may be necessary to bring the entire space up to code and pay for permits in order to permit your improvements.  Also, some cities have been aggressively pursuing code violations- via dive-bys, trolling through the Internet and showing up at open houses.  This has been met with some pushback in these communities.  This is a potential risk for any of the areas we sell in should the local jurisdictions decide it is worth a little bad PR to seek the revenue such violations could bring into the city coffers.
4. Lack of Oversight.  Finally, having proper permits means that the space was inspected and meets the standards of the codes current at the time of the inspection.  Without permits, this code check did not take place.  Even with a good inspector, there may be defects that cannot be seen because they are hidden behind drywall or under floor coverings.