Unpermitted Room Addition Advertising & Appraising

[Brendan Delahooke]

I am looking at buying a home that is a one bed, two bath 2,600 sqft home and adding some bedrooms. There is a very large living room that I want to build walls and create bedrooms out of to add value to the home. If I do the work unpermitted by a licensed contractor, is it illegal to advertise it based on the added bedrooms? Permit timeframes are long and I'm looking to flip the home. 

[Shawn Parsh]

Brendan,

I do not know your market, however, I imagine there are some on BP that will have your answer. I would also reach out to your team. Talk to your real estate agent, real estate attorney, and other investors in your area. If you cannot advertise the home with the increased number of "bedrooms" maybe you could list the property with the number of "rooms" to include the sizes. 

Although I sometimes get a different opinion when I'm driving, people are not stupid they will be able read between the lines and decide how to use the space themselves. I'm guessing the property is on public water and sewer? I live in the country so everyone around me has septic systems. If that is the case with this property you will have to determine if the septic system can handle the additional bedrooms.  

[David Avery]

A bedroom is a bedroom regardless if it is permitted or not!

Oh, boy, here comes all the negative. 

If the new bedroom has 3 outlets,  a windows and a  closet all that are done correctly. 

"It's a bedroom "

[John Clark]

Quote from @Brendan Delahooke:

I am looking at buying a home that is a one bed, two bath 2,600 sqft home and adding some bedrooms. There is a very large living room that I want to build walls and create bedrooms out of to add value to the home. If I do the work unpermitted by a licensed contractor, is it illegal to advertise it based on the added bedrooms? Permit timeframes are long and I'm looking to flip the home. 

The problem isn’t the room, it’s the “unpermitted” before it. Code violations are expensive to fix and will be used against you. Talk to your city first about what it wants you to do to add rooms. You don’t have to go through with it.

[Bruce Woodruff]

I would NOT do this without a permit. Not in Phoenix, or anywhere for that matter. People will ask why the house was a 1/2 and is now a 3/3 or whatever. It will come up in a future search for open permits on the house....and then you will lose square footage value for one. And if you get caught doing this, the City can and will red tag the house. The city can easily find out and they can go back and retro the fines (usually $500+ per day).

You need correct egress size windows, 1 outlet within every 6/12 feet on every wall and after a  corner, and the framing inspected. It's fast, cheap and easy, I cannot imagine why anyone would skip this......? Well I can, but I won't be rude on here.....

But if you're feeling lucky, go for it, what's the worst that could happen? 🤣

[Brendan Delahooke]

Thanks for your advice. I reached out to a realtor I know in Prescott (not where I'm investing though) and they said doing this without permits wouldn't be an issue for resale or appraisal purposes based on prior experiences. They said it just needs to be done in a professional manner. I am NOT adding square footage or moving load bearing walls, just a face lift and new floor plan. I know there is a risk of being fined, but I'm seeing other flippers turn homes around in 30 days sometimes and there's no way they got the bedroom permitted. It seems like the changes would be easy to explain to a buyer + them knowing a licensed contractor did it. Am I missing something?

[Josh Young]

@Brendan Delahooke you should be able to get a permit for this in a few days, you just need some professional help. Some clients of mine have used a local company called REZIO who will do the drawings and facilitate the permitting for you. It might cost you a few thousand dollars, well worth the money in my opinion, especially if you are already planning to use a licensed contractor. Shoot me a DM if you want to connect and I'd be happy to put you in contact with them.

[John Morgan]

@Brendan Delahooke

I’d advertise it with the extra bedrooms you add. Permits? What permits? lol

[Kyle Gardner]

Appraisers look for a window, door, closet, outlets and ac vent for a bedroom. I've read a few hundred appraisals in PHX Metro and sometimes you'll get away with not having the AC vent or closet but they're looking for it to be done in a professional manor as you stated. 

But appraisers always measure. I've also seen public record show a higher sqft than what's actually there. Therefore appraisers always measure and don't go off "permitted records." Their responsibility is to the bank and client to provide a value to what they find on site. Whether it's 1 bedroom or 4, the appraiser is there to give value based off their onsite inspection.

Very unlikely that you'll have any issue with the city in converting living space to a bedroom. Have it done by a licensed GC and if a buyer gives you problems because you don't have permits, you probably don't want to sell to that person anyways. You're providing value to an end buyer, if they don't like your value, sell to someone who does like it. 

[Brad S.]

Quote from @Brendan Delahooke:

I am looking at buying a home that is a one bed, two bath 2,600 sqft home and adding some bedrooms. There is a very large living room that I want to build walls and create bedrooms out of to add value to the home. If I do the work unpermitted by a licensed contractor, is it illegal to advertise it based on the added bedrooms? Permit timeframes are long and I'm looking to flip the home. 

Unpermitted bedroom conversions would increase your potential liability and may hinder the resale in some ways. I'd also be weary of any realtor who tells you it's not an issue. Oh, and if an appraiser is doing their job correctly, there WILL be a negative impact on the appraisal. 

I'd have multiple concerns :

* Liability - you knowingly doing unpermitted work creating a sleeping space in the house. In the unlikely event someone gets harmed in that unpermitted bedroom before/during/after you sell it, guess who they will come after! It wouldn't matter what licensed professional did the work, or that it was done "per code," or how good the quality was, etc. What would matter is that you specifically did NOT have the local authority approve it. 

And, do you think your insurance will cover you?  ...probably not - check your insurance policy and with your insurance agent. 

Are you sure your licensed contractor knows the current smoke and CO detector laws for your area. I can tell you from my personal experience, even some licensed electricians aren't always clear on them. I have inspected (as an Appraiser) literally 1,000's of homes, and am no longer surprised when newly renovated homes (done with permits) don't have the proper placement of Smoke/CO detectors. Some local municipalities don't even check for them, that's typically a state law. But, again, guess who they come after if there is a fire and they are missing or don't work properly in those new-fangled converted bedrooms!  Even if they are all good, they will find someone to blame, and you are an easy target since you did that work without permits.

Then, as @Bruce Woodruff stated, are you going to be aware if your contractor doesn't do everything to code (# and type of outlets, smoke/co det., proper egress, etc). I am thinking it is not even legal for a licensed contractor to do unpermitted work like that. But, do you think their bond or insurance is going to cover you ...doubt it. And if they are doing unpermitted work, they may cut corners, since it won't get inspected, and do you know what to look for to make sure all is well?

* Resell - I personally had an issue with one of my flips years ago, due to the basic unpermitted work that was done. No added sf, or anything to major either, but the building dept in this specific area is known for being difficult so the Buyers and their agents were extra careful. You need to disclose, disclose, disclose all of it and buyers may have an issue with it or use it to negotiate the price down or just offer less, even if their concerns are unfounded. That project was the only one I lost money on, since it took longer to sell and sold for less than I was hoping for.

Also, a title company may have an issue with it when underwriting the policy for a buyer. And their insurance company may also have an issue. Of the buyer's lender may have an issue with it and may refuse to lend on it due to the additional liability to them, etc. 

* Appraisal/Value - When I am doing an appraisal I am generally assuming everything is legally permitted, as long as it generally matches public records. But, if on record it is a 1 bed/2 bath, but I observe a 3/4 bedroom house, I am going to ask why the difference. And I am going to check with the planning dept to verify it is a "legal" 3-4 bedroom house. If it is not, I will either not include those unpermitted bedrooms in my valuation by doing a "cost-to-cure" to put it back to the original configuration or I may do a "cost-to-cure" to estimate the cost and/or market affect to get it permitted. Either way, I am not appraising it as illegal, I'm not willing to take on that liability, especially for an unpermitted bedroom/s.

What @Kyle Gardner stated is unfortunately incorrect. The improvements need to be legally permissible. Unpermitted work like you are proposing is not legally permissible in most jurisdictions. And while some appraisers may not do their job correctly, many will. It is not my job, as an appraiser, to know what the proper egress, electrical codes, etc, are to constitute a bedroom, that's what permits are for and I am not going to make myself liable for YOUR benefit.

Regarding advertising - It typically would need to be disclosed within the listing, probably in the private remarks section in the mls. But, just, make sure you disclose, disclose, disclose.  That is really a question for a local Broker. 

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In my area this would be considered an "over-the-counter" permit, potentially issued immediately, as long as the proper documents were presented. Typically that's just a rough sketch and fill out their application. It may even be what's called an express permit. And the fee should be reasonable. So, there would be little reason to skip the permits for creating bedrooms.

[Bruce Woodruff]

@Brad S. has a good point that I forgot....if there is an issue that involves insurance, the first thing they do is check permits. They are of course trying any way possible to not pay....

And yeah, this should be no more than a 'counter permit' at worst...

[Kyle Gardner]

I don't disagree with anything that anyone said, but the question was about the PHX specific market and advertising more bedrooms. Agreed that maybe 1/1000 times you'll have some sort of issue with an appraiser and there is a proper way to do things by the book. But the question was about seeing "flippers" skimping on paperwork and whether that's what is actually happening. I can only speak for PHX as I have seen other parts of the country that're very strict. But what you're seeing is correct, they're adding bedrooms, don't take out load bearing walls and do the work correctly so it doesn't hurt anyone. It's not my place to tell anyone how much risk to take, but non load bearing walls by a good licensed contractor isn't something I'd worry about too much. If it worries you, then get the city to sign off on it with a permit.

[Bruce Woodruff]

Quote from @Kyle Gardner:

 but non load bearing walls by a good licensed contractor isn't something I'd worry about too much.

Wait until this comes back to bite you and you will care.....

[David Avery]

A bedroom is a bedroom regardless if it is permitted or not!

[Bruce Woodruff]

Quote from @David Avery:

A bedroom is a bedroom regardless if it is permitted or not!

No it is not. An unpermitted bedroom does not have the same $$ per SF value (0nce it is found out). It also does not have the same insurance protection if an accident occurs. And may not have been built to the same construction standards......