Ever notice that when a piece of mail arrives that says: "Important Document Inside," it rarely ever is?
Instead, it's some unwelcome credit card you never requested, OR even worse, a search offer for documents already safely stowed away in the bank deposit box.
With respect to Real Estate, there's so much boiler plated paperwork now generated with each and every transaction that it's often hard for Buyers and Sellers to identify what's truly important from what is NOT . . .
Unfortunately, between the pound of flesh exacted, and the heavy stack of disclosures and reports that are now required in today's more litigious world, who can blame the consumer for wanting to ignore it all? (Please don't.) And for added aggravation, what's with the redundancies and outrageous disclaimers Sellers and Buyers will never realistically come up against?
A Tsunami disclosure? Really? That makes no sense.
"I haven't sold a property in 25 years," my lovely Seller said in exasperation. "Why do I need all this stuff?"
Ahhh, good question, grasshopper.
This "stuff" is designed to protect you. Disclosure and investigation is the Real Estate Industry's attempt at providing clarity upfront as to a home's inherent defects and flaws, thus avoiding unwelcome surprises later on. So while time consuming and frustrating (to say the least) I am going to politely encourage you to tackle the job, read the disclosures thoroughly, and then answer the questions to the best of your ability. It's worth the effort to be thoughtful about your answers and diligent in your research.
Perhaps the most important documentation among the reports, AND home inspections, AND seller questionnaires, AND transfer disclosures statements, is the permit history. (Bonus points for those who have closed out all their open permits.) This is where the story of your house lives and yes, it matters!
Recently I went on a listing appointment where the elderly Seller - a retired contractor of all things - sheepishly admitted that "No one actually ever finals a permit, do they?"
Why yes, they do.
Moreover, they should and here's why: permits that are initially opened, but never closed run into the unfortunate position of needing to be "finaled" prior to the sale of the home, OR alternatively, of disclosing that the work was done "without permits." (Ouch.)
As you might guess, retroactively closing a permit requires the seller to meet today's current codes - as opposed to the year the improvements were actually undertaken. (In Piedmont, this might include ripping out a perfectly good deck, second kitchen, or full bathroom. Oops!)
Warning Will Robinson!
This nagging task may not be so difficult to accomplish if you put in a snazzy new bathroom just last April, but if you put one in ten years ago, it's very likely that the powder room you thought was "up to code," no longer is. In fact, it's almost a given that it is NOT. A finaled permit freezes the requirements to a specific date in time.
Moreover, rooms that were added with no permits can't be counted in the advertised square footage and that can lead to a significant disconnect for prospective Buyers, not to mention a hefty discount in price. Appraisers don't give the same value to "nonpermitted" or "nonconforming" spaces as they assign to "legal " additions and improvements - no matter how seamlessly they blend in.
As you might surmise, building codes only become more stringent over time - never less - so when contemplating renovations on your home, check with the local building statutes, pull a permit IF required (cosmetic fixes such as new paint often don't require a permit, while anything involving new electrical or plumbing components, exterior windows and doors, or changes to the facade almost always do) and THEN have the improvements signed off on once the work is completed.
Important! Keep a copy of the permit history, the job card, and the receipts for future reference. (You'll absolutely thank me when it comes time to sell.) Receipts allow a Seller to itemize a property's improvements so that the net proceeds aren't as heavily taxed should you realize a healthy profit.
For the record, a single Seller may take a non-taxable gain of $250,000 on the sale of a primary residence, while a married couple can receive as much as $500,000 in tax-free gains. (That's not chump change!) However, you can bet Uncle Sam is going to want to see some proof that you did the work you claim, and that it actually cost what you reported. In other words, you can't just make this stuff up; you'll need the paperwork to support the higher basis. (Please check with your CPA or tax advisor for more information.)
Finally, even if you claim your "nonpermitted" home improvements meet current codes, the cost in perception for the suspicious Buyer is infinitely more expensive than the permit would ever have been. In my experience, this is when a prospective Buyer turns to me and says, "Well if they didn't get a permit for this, what else are they covering up?" When it comes to your home, don't be penny wise and pound foolish.
Without the report card (aka: 'permit history') there's an inherent bias that something is amiss; that somehow corners were cut; (even when they weren't); that the Seller is trying to pull a "fast one." (Not you, of course. I know you meant no harm.)
The moral of the story?
If home improvements are high on your list, do so with the building department's seal of approval. Yes, I know planning departments can be a pain in the you-know-what, and your neighbor's objections may be a whole other story best suited for the therapist's sofa, but it's far worse to begin a job only to have the uninvited inspector show up and plop down a "Cease and Desist Order" that not only stops the project in its tracks,but levies heavy fines to boot. A building permit is worth the extra time, trouble, and expense. In fact, it's gold.
Trust me on this one. It's IMPORTANT!
How can I help you?
Julie Gardner, has been writing The Perspective for 14 years and has published more than 500 essays. She is also a frequent contributor to the Sound Off column in the Real Estate section of The San Francisco Chronicle.