Buying A House With Unpermitted Work

Buying a house with unpermitted work comes with significant risks for your homeowners insurance, mortgage lender and more, so it may not be the best fit for every family. However, home buyers who can legalize the unpermitted additions before closing can mitigate their risks and buy a home they love.

If you’re looking for a new home and find that your dream house has unpermitted work, you shouldn’t have to give it up and settle for something else. There are options to ensure you get the home you want and stay out of legal trouble.

Any alterations or construction done to a house without the proper permissions to make it lawful is unpermitted work. To have the correct paperwork, you need three separate permits and licenses, including zoning, plan review and post-construction inspections.

People decide to have unpermitted work done for various reasons, such as: 

• Saving time and money
• Keeping their assessed real estate value low
• Thinking they’ll stay in the home forever

Even if you’re looking to remodel your kitchen and need a small addition, it’s a good idea to go through your city to gain a permit before you renovate your home.

Unpermitted work can be a big risk, and while it may not seem obvious, the risks can outweigh the benefits.

DIY Gone Wrong

Finding out a house has unpermitted renovations should raise an immediate red flag. Without the proper permits and paperwork, you won’t be able to tell if it was done by a professional or an amateur.

While it may look perfectly fine from the outside, it can have internal issues that are unnoticeable to the average homeowner. Unseen mistakes can worsen over time and rack up an expensive repair bill, so it's important to hire professional home inspectors so you can buy your home with confidence. Even if you’re looking for a fixer-upper, it’s important to know the good, the bad and the cost that comes with it.

The Homeowner Is Liable For Penalties

If you buy a home that has unpermitted renovations, the liability of that renovation is then passed onto you, whether you knew of the renovation or not. This is why it’s essential to do your research and hire professional contractors.

With the liability in your hands, you will be responsible for fixing the refurbishment if the city asks you to. Depending on the city you’re in, you’ll also have to pay a fine of $500 – $5,000¹ and may even face a lawsuit.

Homeowners Insurance May Not Cover It

Homeowners insurance is always there if something goes wrong with your home; however, insurance doesn’t cover everything. Earth movements, neglect and water damage are not covered by homeowners insurance, which can be an issue if you have unpermitted work done on your home.

Without proper permits for additions to your home, it could be seen as neglect if anything goes wrong. This would mean insurance won’t cover any damages, and you’ll have to pay out of pocket for the repairs. Home insurers may also completely drop the property from coverage.

Mortgage Lenders Can Demand Repayment

Selling a home with unpermitted work isn’t illegal, but mortgage companies may demand loan payback if a buyer knowingly purchases a home with unpermitted work that wasn’t previously disclosed.

Unpermitted Work Can Stop The Sale

If unpermitted work is discovered in the closing process, the home’s appraisal may come back much lower than expected, and a mortgage lender can reject the buyer’s application.

Buyers also have the right to demand that a seller obtain the proper permits retroactively and remove or fix the unpermitted addition before signing the purchase agreement.

All of the risks of unpermitted home additions shouldn’t discourage you from buying your dream home. However, it’s still a good idea to consult professionals to weigh your risks properly.

Sellers should disclose any unpermitted work done on the home. Hiring an experienced home inspector and a knowledgeable real estate agent can help you discover any additional issues in the home buying process that you may be unable to catch on your own.

You can also go to your city’s permit offices and request to look at their records. Their records should show if your home matches the permits. Otherwise, there may be something that was done without approval.

If your home inspector or real estate agent finds that work was done without a permit by the previous owner, you have a few options if you wish to continue to pursue that home.

Have An Inspection Contingency

Scheduling an inspection contingency for a home you’re looking at buying can protect you from issues such as safety hazards, broken fixtures or home additions that don’t have the proper permits.

As the buyer, you have the right to have the house inspected within a certain time frame, thanks to an inspection contingency. You then might negotiate repairs or terminate the agreement based on the home inspection results. This small step alone can save you time and thousands of dollars.

Renegotiate The Price

If you don’t have much time and want to move in as soon as possible, renegotiating the price of the property is a simple way to ensure you’re getting what you’re paying for. You have to know how to negotiate the price of a home and what you’re negotiating for.

Make it clear to the seller that you’re asking to lower the price so you can either pay for the proper permits if you want to keep the addition or the cost to get rid of it.

If you have more time to close on the house, you can ask the seller to correct the problem by: 

• Retroactively getting the permits
• Removing the renovation
• Correcting the renovation 

Going this route protects you from liability, but you risk being turned down by the seller or extending the closing process.

Should You Tell An Appraiser About Unpermitted Work?

As a seller, yes, you should be upfront and honest with the appraiser. Unpermitted work may cause an appraisal to be lower than what you’re asking for, preventing the buyer from getting financing.

How Do You Gain A Permit After Work Is Already Done On The Home Before Selling A Home?

The process for getting a permit after the renovation is completed depends on what city you live in and if it has a post-construction permit process.

The typical steps include:

1. Contact your local permit office
2. Fill out an application
3. Schedule and pass an inspection
4. Fix any changes that the city requires
5. Pay permit costs

Do Home Inspectors Look For Unpermitted Work?

Yes, home inspectors spot unauthorized construction and other possible red flags so buyers are aware before deciding to purchase the property.

Can You Finance A House With Unpermitted Work?

While it’s ultimately up to state law, some lenders may approve homes with unauthorized additions and renovations. That said, check your state's rules and regulations to confirm what you can and cannot do.

Can You Sell A House With Unpermitted Work?

You can sell a house with unpermitted work. However, you’re obligated to disclose any unpermitted work done in the home to buyers before they begin the home buying process. As the seller, you’re responsible for acquiring and closing out any permits before the buyer signs the contract.

Bottom Line

Finding unpermitted work during the house buying process shouldn’t stop you from purchasing your dream home. It’s always worth investing in an experienced home inspector or real estate agent to ensure you get what you’re paying for.

Need help with your home buying budget? Discover how much home you can afford with our mortgage calculator.

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