In this highly overheated seller’s real estate market in Silicon Valley, I’m suddenly seeing many more houses being sold with extensive remodeling and no permits and finals – none!
Sellers can get away with this in a hot market, meaning that buyers have limited power to walk away from such a home because the inventory is scarce. But what happens when things cool down to, say, a balanced market? Suddenly those houses and condos with massive, non-permitted remodeling may lose a lot of their appeal, and home sellers needing to move just then may pay the price in what pickier buyers will pony up for it.
Some home owners meekly claim to believe that they only need permits if they expand the original footprint of the house. That’s just plain wrong, and most likely know better, too.
How can you learn about a home’s remodeling history?
First, then, how do you as a home buyer know the situation with the remodeling? Most of the time, San Jose area home sellers provide upfront disclosures and inspection reports, and the answer may be revealed there.
CAR vs PRDS paperwork
We have 2 sets of contracts, disclosure forms, etc. in use here: the Peninsula Regional Data Service, or PRDS, and the California Association of Realtors, or CAR. Here’s one place where the PRDS forms are far better than the CAR forms. The CAR seller disclosure, the Seller Property Questionairre, simply asks if the seller is aware of any alterations, modifications, remodeling, replacements or material repairs on the property. Many sellers are not careful and just mark “no” to every answer, but this is an extremely important question! So buyers, ask yourselves, does everything in this home look unaltered from the time it was built? Probably not.
The PRDS Supplemental Seller’s Checklist asked for detailed information on what was done, when, and whether permits and finals were obtained. The first set of questions is for the time the current seller has owned the property, but then it’s asked again regarding prior ownership. This is so much more thorough!
Many municipalities (towns, cities, counties) have online permit history. It may not always be accurate, which I why I strongly advise home owners to keep a copy of everything, but more often than not it is correct – so it’s a good place for consumers to check. In San Jose it’s a breeze with SJPermits.org. These are things which buyers and sellers investigate, not real estate agents (nor do real estate licensees check the Megan’s Law Database, but consumers should).
What does require a permit and a final?
Almost any replacement requires a permit: a new furnace, a new water heater, a new roof, a new deck, repiping, new sewer line, in ground pool, garage conversion to living space. When you remove something immovable and which is more than surface level (like paint or carpet or a countertop), such as a wall or a kitchen cabinet, and replace it or open it up, that, too, needs permits and finals. If something is portable or temporary, it most likely does not need the permits and finals.
What’s easier is to list when a permit is NOT required. The city of San Jose has a list, which appears to be uniformly applicable throughout the U.S., of items which are exempt from the permit requirement: http://www.sanjoseca.gov/documentcenter/view/1883 In case the page goes down, I’ll include the list here:
Most projects require permits before the start of construction. However, work which is cosmetic, (such as painting, replacing floor coverings, trim work, ect.), does not require permits. The following is a list of 20 items that do not require permits:
1. Detached accessory structures less then 120 square feet of floor area.
2. Window Awnings supported by an exterior wall on a dwelling unit, when not projecting more than 54 inches.
3. Window replacements when the frame of the window (nailing flange and existing weather protection) is not altered
4. Finish flooring, such as carpet, tile, linoleum, ect.
5. Floor sheathing repair-limited to 10 square feet maximum of floor sheathing.
6. Replacement, repair or overlay of less than 25% of an existing roof within any 12-month period.
7. Decorative interior tile installation.
8. Fences not over seven (7) feet high.
9. Retaining walls less than four (4) feet high with no surcharge (height is measured from the bottom of the footing to the top of wall).
10. Platforms, walks and driveways not more than 30 inches above grade and not over any basement or story below. Note: For Driveway aprons and approaches and for repair of public sidewalks, contact the Public Works Department for requirements
11. Movable cases, counters and partitions not over five (5) feet nine (9) inches high. 12. Painting, papering and similar finish work. 13. Prefabricated swimming pools meeting all of the following criteria:
Installed on a single family property
Is entirely above ground
Does not exceed 5,000 gallons
14. Repair or replacement of toilets and faucets.
15. Replacement of electrical outlets and switches (in existing boxes)
16. Replacement of over-current devices such as circuit breakers and fuses. Exception: Replacement of a main disconnect does require a permit.
17. Temporary decorative lighting for a dwelling (such as seasonal Christmas lights)
18. Portable appliances such as, heating appliances, ventilating equipment, cooling units & evaporator coolers.
19. Replacement of any component part of an appliance which dose not alter its original approval and listing.
20. Portable motors and appliances with listed cord and plug connections.
What is a real estate agent to do in the face of all this non-permitted, non-finaled work?
For listing agents, I would suggest that it is wise to encourage your sellers prepare to disclose what has been done, when, and by whom, with whatever documentation is possible in order to meet the seller’s disclosure obligation of telling the buyers anything which might materially impact value or desirability. For brand new remodels, the new buyer will expect receipts so that warranties can be transferred, of course. Your home seller likely has to track all the improvements for tax purposes anyway, so why not make the information available to prospective home buyers? Remember the adage: disclose, disclose, disclose.
For buyers’ agents, it’s important to look at the disclosure paperwork carefully and see if it appears complete. If there’s a kitchen that looks new on a 40 year old house, the seller ought to have disclosed this improvement but perhaps did not. As always, our job as Realtors representing home buyers is to help identify red flags. Sellers who claim no to the question of modifications when they are apparently done should expect buyers or their agents to request more information.
Similarly with the PRDS documentation, if the home owner claims that a bathroom was remodeled with permits and finals, he or she should be able to produce that documentation (and not rely on a town, city, or county to have complete records).
Consumers who are house hunting want to be reassured that buying a remodeled house that lacks permit documentation is really not that risky. I cannot make that assurance, unfortunately. With some improvements, there may be safety concerns (and possible insurance companies declining coverage). If you want to retroactively get permits and finals, it could be costly. And if you need to sell in a market that is not like it is today, you could find that buyers with an abundance of choice in the housing market may prefer to purchase a home that offers more peace of mind due to having a much better permit status.
Also, often it can be difficult to understand the permit records, so it is wise to enlist the assistance of a contractor to help decipher them.
Finally, I want to note that many homes, perhaps most, here in Silicon Valley have some elements which lack permits. It’s very common to find a re-roof or a new water heater without the permit and final (but the jobs would have been done by a licensed contractor in most cases). So I would not want to tell home buyers to freak out if they find things here or there without permits. My major concern at the moment are the houses which are “like new” but there are no permits whatsoever. Retroactively getting one thing permitted, should you wish to do so, may not be so hard or so expensive. But a whole house? That’s a much bigger challenge, and likely a very costly, risky, and time-consuming one.
How important are permits and finals?
What is the difference between the CAR and PRDS purchase agreements? Does it matter which contract is used?