Is a non-permitted addition a deal breaker?

Question

I'm looking at a short sale that has a room addition that was done without a permit.  The record has the property as a 2bd/1ba, but the illegal addition makes it a 3/1 plus more sq. ft.  The last buyer cancelled escrow when they found out about the addition and the cost of some termite damage (2k).  Is the non-permitted addition a reason to walk away from this potential deal or a bargaining chip to lower the price?  Anyone have experience with rehabbing and flipping a property that was lacking permits on previous additions?

Account Closed · Answer

It may depend on how your local laws address the issue. Call the appropriate office to find out. 
IIRC, here, I would have to have the inspector come out and determine if it was up to code. If so, there were fees and maybe fines to be paid. If not up to code, it would have to be repaired. THEN fees and fines...
Depends, probably, on the expected overall cost, (time, aggravation, money, etc) whether it's a deal breaker.

FWIW, a client (not mine) put an offer on a house recently.  During the inspection, it was discovered that a particular building material that was used in the entire subdivision (all over the country at that time) was NOT listed on the sellers disclosure. 
The agent told me that was a deal breaker for his client.  It would cost about $5K to replace it. The buyer was not interested in doing that, and if the seller wouldn't, he'd probably pass.

Ofgift

Rich Weese · Answer

I have to issue a warning here. I'd be VERY concerned about this purchase. Maybe not to code. Maybe encroached on setbacks. Maybe utilities not connected properly. 
     Actual experience. I bought "thirteen " units in Montclair CA 30 + years ago. Owned it for a year or so and sold it to a partner of mine. Some time later, inspector came out. The THIRTEENTH unit had been converted from the rec room above the carport area into a one bedroom unit. The zoning had never allowed for 13 units and PARKING. The city said to gut it. My partner had to sue me and I had to sue my seller. A mess, and completely unknown. 
     There could always me problems on this deal. Get the approval FIRST imo. Rich in FL.

Sean Williamson · Answer

Kristen , not very long , it was a matter of some paper work with the city some makeshift plans letting them know what was going on paying the normal fees then calling for an inspection . around seven or eight weeks . they wanted to see foundation bolting , electrical , some nailing , insulation  and to see some footings. also maybe find a contrctor to help as i had done two room additions the year before so they new my face at the city. I was lucky all was done to code just not permitted and that helped.

Kristen Bottger · Answer

Rich, I appreciate that perspective too and as it turns out, we're passing it up because of the potential problems we could run into.  We're just not comfortable taking that risk w/out more experience under our belts.  We're looking at some legitimate 3/2 properties w/out any funky additions.

Kristen Bottger · Answer

Thanks for the help!

J Scott · Answer

There are a few things to consider here...

- If you plan to retail this property or do any additional rehab work, it's quite likely you'll need to have inspections done in the property; inspectors will check to see if any other work that was obviously done was permitted, and if they find out that the work wasn't permitted, you're on the hook for it.

- What does "on the hook" mean?  It may mean a fine, and will definitely mean a reinspection.  Depending on the local codes, you may need to pull down drywall, dig around footers, etc, to expose the rough work that was done, so the inspector can bring it up to code.

- If it's not up to code, you'll be required to fix any problems the inspector finds.

- I would recommend bringing in a qualified GC to inspect the work and to determine if it's up to code or not.  He should also be able to tell you the local codes and what to expect from an inspector.  Likewise, he can give you an idea of how much it would cost to correct, and you could potentially subtract that from the cost of the deal before you purchase.

- As for how long it takes to get permits and inspections, that's going to be highly dependent on your county inspectors.  Where I live (a suburb of Atlanta), permits can be gotten in about 30 minutes (by someone who is permitted to pull permits) and if an inspection request is called in by 8am, the inspection will be completed that day.

Sean Williamson · Answer

not at all . use the extra footage to your advantage. buy it for what is permitted do fix up then get footage added , (i had to actually cut holes in the wall to show inspectors it was done to code and fix code problems) finish rehab then sell as larger house

Kristen Bottger · Answer

Sean,
I know we're in different cities, but about how long did that take to get an inspector to come out and finally get the permit?