Do your sellers know the pitfalls of unpermitted work?

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A worker hitting the corner of an exterior wall with a sledgehammer

10/07/2016 | Author: Editorial Staff

Have you ever had a seller suggest making improvements to the home on the cheap before listing? Maybe he wants to increase the sale price through an addition or make structural repairs but wants to avoid the cost of pulling permits from the local building department. In situations like this, the seller might be unaware of how unpermitted work can derail a sale or present other issues down the road.

If it’s a major change, such as a new bathroom or converted bedroom, it might set off red flags during an inspection, where the current state of the home would differ from previous descriptions. Additionally, the Seller’s Disclosure Notice requires the seller to mark if he is aware of work done without necessary permits. Not disclosing unpermitted work could result in a costly lawsuit.

Scaring off a buyer isn’t the only potential risk of unpermitted work: it could cause issues with financing, result in fines from local authorities (representing another possible lawsuit), disadvantage the seller when it comes time to negotiate, or put the next owner at risk if the work wasn’t done safely or to current building codes.

Let your sellers know that while painting or changing a light fixture are fine to tackle on their own, larger projects should be done with the correct permits and ideally by a bonded and insured professional.

Categories: Legal, Sellers
Tags: sellers, selling, legal


Comments

Michael Dougan on 10/21/2016

Deborah, Rick is correct, it depends on the type of work that has been done. In some cases a TREC licensed inspector can be retained to do a “Pre-Market Inspection”. That inspector will research the “permit records” to determine what and how the work was done. The pre-market inspection can then be used as an attachment to your seller disclosure. However, if you have knowledge of work that was not performed or completed in accordance with the code or industry standards, as it were, then you must disclose that.
The typical homeowner that has work done is depending on the “contractor” to do it correctly. In that case you simply disclose the work that was done. Keep in mind that not all unpermitted work is done incorrectly. In most cases the buyer assumes the seller to be honest and up front with the seller disclosure comments and places a large emphasis on that disclosure when making an offer and a purchase decision.

Rick Chumsae on 10/18/2016

Deborah, The owner should consider contacting city planning to have them send out an inspector.  If the inspector will not come out until the owner files a permit, then that must be done first.  Depending on the work to be inspected, the inspector may not be able to fully inspect because the work is no longer accessable (hidden by wallboard for example) which might require some demolition.

The owner could get lucky and be told that all is well, so nothing to disclose.  Owners are allowed to work on their own home, but the permit/inspection process still applies.

Deborah BenNun on 10/18/2016

My question has never been answered:
What steps can a client take (in the city of Austin) to rectify the situation if they had work done that was not permitted?  How can the owners bring their property into compliance so that there will not be an issue whenever they sell the house?

Michael Dougan on 10/17/2016

Thank you Tim Reilly. And yes TREC’s own rules and guidelines are ambiguous at best. But you are right.

Tim Reilly on 10/15/2016

The statewide building code in Texas for municipalities over 5000 persons is the International Residential Code, and the statewide electrical construction code is the National Electric Code. The IRC requires that corrugated stainless steel tubing (CSST) be electrically bonded to the grounding electrode conductor of the residential electrical system. The NEC requires that all metal piping in the house (water and gas) be electrically bonded to the grounding electrode system.

The IRC provision is controversial because it seeks to reduce the risk of catastrophic fire from a lightning strike in a house containing CSST by using the residential electrical system as a lightning protection device. The bond creates a condition that keeps the CSST at the same electrical potential as the grounding electrode system. The theory is that by bonding the CSST, the risk is reduced that an electrical current from a lightning strike conducted through the CSST,  will ‘arc’, or flash over to another metal pipe, a metal AC component, or any other bonded metal in the house. There have been some tests that suggest this make work at least some of the time.

There is no controversy attached to the NEC provision; electrical bonding of metal pipes is intended to prevent electrical shock by providing a safe path to ground in the event of a ground fault (basically a short).

For most people, this is a confusing and complicated subject. Even the state law and TREC’s own inspection requirements on this subject are confusing and ambiguous.  It is in everyone’s best interests to consult a knowledgeable electrical contractor or a knowledgeable professional inspector for guidance and compliance.

Michael Dougan on 10/15/2016

The permit process is NOT to fatten the city’s pockets but to keep consumers including all of us and our families safe from safety, health, and fire hazards as well as inferior and dangerous products.  It is virtually impossible for the average consumer as well as the professional to keep up with every new and existing product coming onto the market respective to home repairs and renovation.  We see products installed by consumers improperly each and every day creating safety and health hazards for themselves and others just because they didn’t want to spent a few extra dollars on a permit and/or a professional. Building code and building safety departments with most every cities are a losing line item in the municipal budget.  Building codes and permits are a way to insure that the products are safe and reliable when installed properly. Try collecting on an insurance claim related to a do it your self project when the list of improperly installed items goes for pages. Someone has to be the watch dog to protect us from ourselves and ignorant apathetic"contractors”. Typically, the municipality inspectors are the first ones to know, even before the consumers, that a product is unsafe or has been recalled. For sure, dealing with some “city inspectors” is frustrating.

James Callas on 10/14/2016

Wait just a minute….........Bonding of a CSST gas line is an absolute safety factor.
Gastite has been used in so many homes (Yellow outer jacket cover a corrugate stainless steel thin wall pipe).  Don’t ignore this and have your house burn quickly to the ground.  Flashshield is newer safer piping that has a black outer jacket but then a complete shield of aluminum mesh.  The Manufacturer says that type does not require bonding but guess what the City of Beaumont requires that a licensed Electrician bond that to the interior of your electrical breaker box.  Old black pipe and galvanized have a thicker wall by far and for many years it was not bonded.  To save life and property bond your CSST for sure.

James Bullington on 10/14/2016

Each city decides what requires a permit. The whole permit system is a legal way for the city’s to fatten their wallets.  Most city’s don’t have anyone on staff that has the experience to know weather the installation is done correctly or not.  Texas law allows for a home owner to do electrical and plumbing repairs on property that them home stead without a license. the exception is HVAC refrigerant. Having a licensed plumber does not always mean the job is done right but your odds are better.  BTW inspectors in TX are requiring to note on their report weather the gas line is bonded and recommend that if it isn’t that it should be. That is a complete load of BS.! Research shows that there is no proof that if lightning strikes your house that your gas line will explode if its bonded or not. Its just one more idiot them that TREC is forcing down the throat of sellers that have home built before 2010.  There is also no general consensus of how to bond an existing house. what if your gas line is bonded?  do you want a electrical surge to touch your gas line. My brothers house was hit with a electrical surge from lightning.  it fried EVERYTHING PLUGED INTO THE WALL AND ON SURGE SUPRESORS.  ENCLUDING HIS HVAC SYSTEMS AND GARAGE DOOR OPENER. The gas line in the attic was not grounded. the house didn’t burn up, Case made!

Deborah BenNun on 10/14/2016

What can a client do if they had work done that was not permitted?  How can they bring it into compliance?

Stuart Scholer on 10/14/2016

In Texas these trades are not licensed: Builders (yes, really), roofing, carpenters, concrete masons, brick masons, slab foundations, dry wall and painters, flooring, cabinet makers, siding and windows, insulation and I am sure there are more. Welcome to the “no regulations” State.  Note to Consumers…. permits and their subsequent inspections (if there are any) will help to protect you but it is not foolproof. Some municipalities don’t have the resources to inspect properly. Get your own inspector to follow up the work if you don’t know this stuff. If you get ripped off the police nor the DA’s office want to hear about it. Buyer beware!
  Also… if you have the permits for major work it will help a Seller to recoup money spent on the work done. The permit helps to insure the value of the work.

James Callas on 10/13/2016

In Beaumont, TX a permit is required except for painting,  fencing,  and small dollar projects but always when it involves, Plumbing, Electrical, HVAC,  and anything structural on a house. Also we have to deal with WindStorm compliance.  Being very familiar with current codes and home building, it is easy to tell when someone not licensed and not up on current techniques and codes does it themselves or hires the “Jack of All Trades”.  I always go to my buyers inspections and follow the inspector around. He always highlights these items and we ask for a concession or repair/fix/replace.  Outside the City it is even more of a problem as no one is watching and many times the sellers some to thing they are exempt from doing it to the code. Too many to mention but make sure your Licensed Inspector does their job.

Tim Reilly on 10/13/2016

As an inspector, one of the first things that I do after being hired is to research the permit history of the address. I try to do this before I even go to the job site. The database is not perfect, especially for older properties, but it is surprisingly effective for houses built in the past 10-12 years.

As the result of the popularity of the DIY movement and the easy availability of a wide range of building materials from the big box retailers, nearly anyone can undertake even the most technically challenging home repairs and improvements. There is a lot of obviously substandard work out there, done by persons who are unqualified, inexperienced,  and untrained.

Another important thing to keep in mind is that most manufacturers of building materials will disclaim their warranty for products that are not installed according to the manufacturer’s instructions, or are installed by unqualified persons, or are installed outside of building code compliance.

Inspectors are limited by their inability to see through concrete and walls, but an experienced, observant inspector should be able to spot “improvements” that have been undertaken by unqualified persons acting outside of the scrutiny of building officials.

Michael Dougan on 10/13/2016

When we see new systems such as electrical upgrade, plumbing upgrade (sub slab repairs),  roofing, evidence of foundation repairs, etc. we always ask the seller ....“Who did the repairs and when?” If they simply don’t remember who they wrote a check to for $6,000 or $12,000 for significant repairs we will be on speed dial to see if there was a permit taken out and if the followup inspections were completed. Just because a permit was taken out doesn’t mean that the follow up inspections and the “FINAL” clearance inspection was done. There may have been a “RED TAG” failed followup inspection issued and the problem was never corrected and a re-inspection of that phase of the process never called for. WE have seen many deals fall apart due to non-permitted projects over the past 47 years of inspecting. Of course the homeowner is depending on the “contractor” to take out the permit after all the “contractor” is the professional. Buyer, seller, and agents beware.

Michael Dougan on 10/13/2016

Requirements for permitted work are set by the municipality and code(s). Depending on the level of work to be performed a permit would be required for electrical, HVAC, plumbing, roofing, and structural modifications. Typically, any work that would have an impact on the value of the property or repairs directly affecting the safety, health and welfare of the occupants and or public. Obviously, changing a light fixture would not require a permit or installing a new lavatory faucet, etc. Examples of permitted work would be HVAC replacements, water heater replacement, roof replacement (in some cases repairs), electrical panel and meter box replacement, structural additions, foundation repairs, etc.

Summer Jung on 10/13/2016

I am your friendly real estate appraiser and believe me,  the lenders are requiring us to check for permits on almost everything, which can be a real nuisance for owners who purchased property that was already altered, in some cases over 10 years ago, and the county doesn’t keep records for that long. Please be sure the property listed matches county records, if there are major differences in square footage (GLA), garage areas, etc., have the county records updated ASAP, most owners don’t do this for fear of tax increases, however, if they are selling the property that shouldn’t matter as much as being certain the real estate can be adequately financed without difficulty.

Rick Chumsae on 10/13/2016

This begs the question: When is a permit required?  For roofing, for plumbing, for electrical, for carpentry?

Are there any defining lines set by the municipality?

Michael Dougan on 10/13/2016

Typically, work being performed without a permit is by an unlicensed and unbonded contractor. Licensed contractors are not going to jeopardize their license or bond by not spending a few dollars on a permit and followup inspections. A professional contractor or sub-contractor is trained and confident in their quality workmanship.  The job costs include the cost of the permit and followup inspections which is passed on to the client. Beware of non-permitted projects and unlicensed contractors. There is a reason why they don’t possess the necessary credentials.  Low bids are not always the “best bid”. An experienced licensed inspector can spot their work immediately. Of course this wouldn’t apply to “handy man services” such as screen replacement, minor repairs, etc.

Cindy Collins on 10/09/2016

A great reminder for me to print this article when my sellers are given the SDN to fill out.. Thank you for sharing.


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The material provided here is for informational purposes only and is not intended and should not be considered as legal advice for your particular matter. You should contact your attorney to obtain advice with respect to any particular issue or problem. Applicability of the legal principles discussed in this material may differ substantially in individual situations.

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