What Realtors Should Know About Building Permits When Selling a Home

13 December 2024

So, you’re getting ready to sell a home. Maybe it's a cozy suburban house, a modern downtown condo, or a fixer-upper with potential to spare. Sounds straightforward, right? Well, not always. Selling real estate can be like navigating a winding road—there are a few bumps and detours to watch for along the way. One of those tricky spots? Building permits.

Yep, those seemingly minor pieces of paper can make or break a real estate transaction. Whether you’re a seasoned realtor or just starting out, understanding the ins and outs of building permits is crucial. Let’s dive into what you really need to know when it comes to building permits and selling a home—no boring jargon, just the essentials.

Why Are Building Permits a Big Deal?

Let’s set the stage. Imagine you’re helping your client sell their home, and everything’s going smoothly. Suddenly, during the buyer’s inspection, a red flag pops up—there’s an unpermitted addition in the back or a kitchen remodel that doesn’t have the paperwork to back it up. Cue the headaches, delays, and potentially scared-off buyers.

Building permits are the official stamp of approval from the local government that says, “Yep, this work was done up to code.” Without them, there’s no guarantee that any renovations or additions were done safely or legally. It’s like driving a car without a license—sure, it might work, but if something goes wrong, you’re in trouble.

What Exactly Is a Building Permit?

Okay, let’s back up for a minute. What even is a building permit? It’s essentially a permission slip from the city or county, approving construction, remodeling, or renovation work on a property. They’re required for substantial changes or additions, like:

- Building a deck or room extension
- Installing new plumbing or electrical systems
- Knocking down walls during a remodel
- Adding a swimming pool

But here’s the thing—not every project needs a permit. Minor repairs (like fixing a leaky faucet or repainting the walls) usually don’t require one. Knowing what does or doesn’t need a permit is key because this can vary depending on local building codes.

How Unpermitted Work Can Affect a Sale

Now here’s where it gets sticky. When you’re selling a home, unpermitted work is like that one item on your to-do list you keep ignoring—it can come back to bite you. Here’s how unpermitted work can throw a wrench in the sales process:

1. Buyer Apprehension

Buyers want to know that the home they’re purchasing is safe and up to code. If they find out there’s unpermitted work, some might think twice before moving forward. It raises red flags and makes people ask, “What else is the seller hiding?”

2. Inspection and Appraisal Issues

Home inspectors are thorough, and they’ll usually spot unpermitted work. This can lead to a lower appraisal value because lenders might consider it a liability. And let’s be real—no one wants their property undervalued right before closing.

3. Higher Costs (For the Seller)

If unpermitted work is discovered during a sale, sellers might be forced to retroactively get permits, upgrade the work to meet current codes, or even tear it down altogether. This can be costly and time-consuming. Not exactly the smooth transaction you were hoping for.

How Realtors Can Prepare to Address Building Permits

As a realtor, it’s your job to guide your client through the process and avoid potential pitfalls. So, what can you do to prepare for permit-related surprises?

1. Do Your Homework

Before listing the property, ask the seller about any renovations or additions they’ve made. Were permits obtained? If they’re unsure, you can always check public records or the local building department for confirmation.

2. Address Unpermitted Work Early

If you find unpermitted work, don’t sweep it under the rug. Sit down with the seller and discuss the options. They might need to disclose it to potential buyers or work on getting retroactive permits (sometimes called an “as-built permit”).

3. Emphasize Transparency

Honesty really is the best policy here. If there’s unpermitted work, it’s better to disclose it upfront rather than letting a buyer discover it during the inspection. This builds trust and avoids last-minute surprises.

4. Leverage Expert Help

If things get complex, don’t be afraid to bring in reinforcements. Contractors, home inspectors, and real estate attorneys can all help navigate permit issues. Think of them as your team of experts—because no one expects you to know everything.

Retroactive Permits: What You Need to Know

So, what happens if your seller wants to fix the problem? Enter retroactive permits. These are permits obtained after the work has been completed. Sounds simple, right? Not always.

The process typically involves:
- Submitting detailed applications and plans of the work done
- Having the work inspected by the local authorities
- Making upgrades or changes to meet current building codes

And here’s the kicker—it can be pricey. Retroactive permits often come with additional fees or fines, and there’s no guarantee the work will pass inspection without updates.

How Building Permits Impact Property Value

Let’s talk dollars and cents. Building permits (or the lack thereof) can have a direct impact on a home’s value. A well-maintained home with proper permits is often seen as a safer, more attractive investment. On the flip side, unpermitted work can signal hidden risks, which may cause buyers to lower their offers—or avoid the property altogether.

Also, unpermitted work can affect the square footage calculation. For instance, if sellers added an unpermitted sunroom, it might not legally count toward the total square footage. No bueno.

Tips for Realtors to Educate Sellers

Helping sellers understand the importance of building permits is a big part of your role. Here’s how you can educate them without overwhelming them:
- Explain the Basics: Break down what permits are, why they matter, and how they affect the sale.
- Use Real-Life Examples: Share stories about past transactions where permits (or the lack of them) played a big role.
- Highlight Potential Consequences: Make sure they understand the risks—like delayed closings, lower offers, or legal complications.
- Provide Resources: Share the contact information for the local building department, so sellers can check on permit records themselves.

Can You Still Sell a Home with Unpermitted Work?

The short answer? Yes, but it’s not always easy. Selling a home with unpermitted work often requires extra steps, like:
- Pricing the home accordingly
- Disclosing the issue to buyers
- Negotiating repair credits or other concessions

It’s not ideal, but it’s not a dealbreaker either. The key is managing expectations—for both the seller and the buyer.

Building Permits and the Disclosure Process

We’ve touched on this already, but it’s worth re-emphasizing: disclosure is crucial. Depending on state laws, sellers are often legally required to disclose unpermitted work. Failing to do so could lead to lawsuits or other legal trouble down the road.

As a realtor, it’s your job to remind your clients about their disclosure obligations. It’s like putting a giant “Handle With Care” label on the transaction—it protects everyone involved.

Wrapping It Up

Building permits may not be the most glamorous part of selling a home, but they’re super important. Whether it’s a small remodel or a major addition, permits ensure that the work is safe, legal, and up to code.

For realtors, understanding the role of building permits and knowing how to address potential issues is key to a smooth, successful sale. By doing your due diligence, educating your sellers, and prioritizing transparency, you can turn a potential headache into just another part of the process.

At the end of the day, permits are like the fine print in a contract—easy to overlook, but oh-so-important. So, keep them on your radar, and you’ll be well-equipped to handle whatever comes your way.