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Dear Real Estate Adviser,
It turns out that the owner of the home that we’re trying to buy never got permits pulled for work he had done there. If we back out of the contract now, the owner said he’ll sue us. What are my options?
— Allan B.
This seemingly cavalier seller has absolutely no leverage unless — and it’s a big “unless” — you have contractually agreed to buy his house “as is.” Even so, if it was your party that discovered the unpermitted work — because the owner didn’t disclose it, as required by law — that’s a clear violation of the contract and an out for you, regardless of whether or not he sells “as is.”
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Buyer assumes liability
First, realize that buying a home with unpermitted work passes on the legal liability to you. But should this seller offer enough credits to compensate for his “oversight,” making you want to proceed again, be sure to ask your inspector or a qualified building professional if the illegal work conforms to code standards. If so, you can probably get the city to approve it “as built.”
But this may still cost you back permit fees and maybe even a modest fine. While most cities won’t force owners to tear down work unless it’s dangerous, yours may require some potentially costly modifications to conform to 2016 standards, not the standards in the year the house was completed.
Consider legalizing unpermitted work
It is true that in some heated buying markets, particularly California and Florida, it can cost buyers less to legalize unpermitted work than to purchase and fix up a “needs some work” rehab, or to pony up for a pricier “permitted” house of the same size.
Those considerations aside, you’re probably better off moving on to other options because of the risks you’d otherwise be assuming. Also, know that such stealth improvements, when finally brought above board, may raise the home’s assessed (taxable) value, especially if there was an addition. If there was one, you may also be assessed for back taxes on the added square footage. Plus, as I noted in a previous column, you as a buyer may have trouble qualifying for Federal Housing Administration financing if the bank suspects substandard living conditions.
You have leverage
Your seller sounds like a real character. I’m not an advocate of ratting out folks for illegal construction work unless that work is conspicuously dangerous to inhabitants or neighbors. But if the seller persists with his legal threats, you have the option to at least threaten to report the unpermitted work to the city. Perhaps that’ll make the seller reassess his litigious ways.
Since the owner apparently neglected to mention the unpermitted work in the contract space where sellers must disclose unpermitted construction and legal issues, you should be able to exit. Hopefully, the seller will recede and you won’t need to pay an attorney to help you remedy this guy’s obvious contractual deceit.
I wish you luck sorting this out.
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