Buying SFH with significant non-permitted upgrades?

Question

My wife and I are looking to purchase a SFH in San Mateo, CA. We're primarily focusing on properties with rentable ADUs for a small house-hack. We've found a property with an unpermitted ADU, as well as an unpermitted bed+bath addition in the main structure. Does anybody have advice on how to properly adjust our offer price to reflect the risk associated with these unpermitted alterations? There's also some deferred maintenance relating to roof and foundation.

Here's how I'm planning to price the property:

1. Start with comps based on the house without any of the unpermitted additions

2. Deduct for the potential cost to tear down all of the unpermitted work

3. Deduct 1.5x the cost of all deferred maintenance, and offer to add this back if the seller completes this deferred maintenance with a contractor whom we approve before closing.

Thoughts? Are significant unpermitted additions such as these generally dealbreakers for you? Also, if we wanted to pull permits for work that's already done, I assume it would require us to essentially tear everything down and redo the work from scratch. Is this accurate?

Jaysen Medhurst · Answer

@Chris Talley, this is complicated and super local. Some towns may insist that the un-permitted work be torn down and re-built no matter what. Others may give you a waiver or ask you to go through the permitting/inspection process. It really depends.

You also have to know if local zoning even allows an additional ADU and if so, can it be legally rented.

Carson Wilcox · Answer

you need to walk into the city planning, smile and play dumb... give them a sob story about your sick Mother in law, and wanting this property, but you just dont know how they handle things.  They deal with it ALL THE TIME... and will tell you whats up.

as was said above... some places make it doable... others are awful.. super local.  my town has a resale inspection where they go through the whole property, original plans, permits pulled and nail you for everything.  they are workable on fixing... but nothing gets winked at...

Chris Talley · Answer

Awesome, thanks for the advice from both of you. This particular property ended up having quite a few additional issues, and we decided not to put in our offer. We're still hoping to buy a property with a rentable ADU. Thanks a lot for the input!