No Building Permit - Where's the Liability?

April 21, 2006

A builder builds a house for himself and gets the necessary building permits and eventual occupancy permit. Later, he adds a deck and finishes the basement with several rooms including a full bath without obtaining the legal permits. He then decides to sell the home and a savvy prospective buyer notices that the tax record does not have a record of the finished basement or deck. As part of on offer to purchase, the buyer requests records of the permits for these additions. The builder can not produce the required documentation and the buyer withdraws the offer.

Not all agents and buyers are savvy enough to pick up on this little detail. In the case that the tax record was incomplete and the owner did get the required permits, no problem. Just produce the permits. On the other hand, many people modify their homes to some extent without the necessary legal permits and inspections. In the latter case, the question becomes what needs to be disclosed and who might be liable if it is not disclosed?

It is the responsibility of the listing agent and the seller to disclose any material fact about the home even when a "Property Disclaimer" is used. In our example, the seller is obligated to disclose this fact. If it is not disclosed, the seller is ultimately liable if after a purchase a defect is discovered or worse yet, an electrical problem causes a fire and the house burns down. It is also the listing agent's responsibility to disclose facts that he or she should have reasonably known or discovered in the normal course of their duties. The listing agent could be held liable as well.

Here is a good article from Inman News discussing this very issue:

Unpermitted bathroom will likely cause grief for home sellers

Contact local building department to ensure smooth sale
Friday, April 21, 2006

By Paul Bianchina
Inman News

Q: We put a second bathroom in the basement of our home, without getting a permit. A well-respected contractor did everything to code. Our concern is what happens if and when we want to sell. Can we advertise it as a two-bathroom house? Do we face any fines? --Matt A.

A: First of all, when you go to sell a home, you are legally required to disclose anything you know about the home that might affect the new buyer. This would obviously include the new bathroom. If you fail to notify them, your lack of disclosure could easily be grounds for legal action on the part of the buyer. Also, any reputable real estate agent will not take the listing if you are not honest about the condition of the home, since the agent could be taking on legal liability as well.

Most new buyers are savvy enough to ask if any remodeling work has been done on the home, and then to ask for copies of any relevant building permits for the project. Even if the buyer fails to ask and you fail to disclose, most home inspectors are sharp enough to spot the remodel and make it part of their report on the home's condition.

At this point, your best bet is simply to 'fess up and get things legal. You need to contact your local building department, explain the situation, and request the necessary building, plumbing, electrical and mechanical permits.

...read the full article here.

As a listing agent: ask the question. If you suspect the seller is skirting the issue, don't take the listing.

As a buying agent: look after your clients best interest. If there is a hint of suspicion, advise your buyer to ask for the permits.

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