It’s common for real estate agents to pull the permit file and include it in the disclosure packet. But this can be risky and make you vulnerable to a permit-related lawsuit. Here are the reasons why:
Permit Files May Be Incomplete or Contain Errors
A permit file doesn’t show unpermitted work. It only shows what works have been permitted on the property. A real estate professional can obtain the permit file (though it’s not always easy!), but there’s no guarantee the file is 100% accurate. It may be incomplete or contain administrative errors. Open permits could lead to misinformed buyers regarding work that may or may not have been done and more effort required to close the permits.
The Buyer May Presume the Information is Correct and Accurate
Buyers rely on information provided by real estate professionals. You are a trained professional who deals in home sales every day, whereas buyers may only do this a handful of times in their lifetime. So, it’s not surprising that buyers might presume the information being provided to them is correct and accurate.
A permit file is not a replacement for due diligence by the buyers. It’s the buyers’ responsibility to seek information about unpermitted works. They should be encouraged to obtain a professional building inspection and do other investigations regarding potential property issues before committing to the property purchase.
It Could Result in You Being Sued
Unpermitted work is bad news for the property buyer and can result in costly outcomes. The buyers can be penalized for the unpermitted work, even if they didn’t do it themselves. Potential problems include having to do further work to obtain permits, difficulty getting financing, issues with home insurance, and having to remove extensions or sections of the home where the work was not permitted.
If buyers discover unpermitted work after closing, they may also sue the seller and/or real estate agent for non-disclosure, if they believe there was knowledge of the unpermitted work, or other legal grounds, such as negligence. One in five real estate lawsuits is permit-related.
What You Can Do To Avoid a Permit-Related Lawsuit
If you do provide any permit documents to buyers, use a written disclaimer. The disclaimer should say that you are passing along the information and you assume no responsibility for the accuracy of such information. The Notice of Information From Other Sources (TXR 2502) offered to members of Texas REALTORS® can assist in this situation.
You have an obligation to disclose anything that materially affects the value or desirability of a property. If you know about unpermitted work, you need to disclose it. It’s that simple. If you don’t, you and the seller can be sued.