Ignorance is bliss

Many buyers and sellers are unaware home improvements often require city or county building permits. Thus, permits apply to more than just room additions.

Typically, modifications or improvements made to a dwelling or any of the property’s systems and components require building permits. This includes:

  • roof replacement;
  • electrical modifications, such as installing recessed lighting or additional outlets;
  • plumbing modifications, such as relocating the laundry area or replacing a water heater;
  • central heating and air conditioning installation or replacement;
  • window replacement;
  • patio cover installation; and
  • fence installation.

Home improvements add value to and influence the price a buyer pays for a property. However, when unpermitted improvements exist on the property, the buyer may unknowingly inherit a costly and possibly dangerous problem.

Known material defects as disclosed

Property-related disclosures delivered to the buyer of a one-to-four unit residential property by the seller’s agent include the seller-mandated Condition of Property Disclosure, commonly known as the Transfer Disclosure Statement (TDS). [See RPI Form 304; Calif. Civil Code §§2079 et seq.; Calif. Attorney General Opinion 01-406 (August 24, 2001)]

The TDS includes a questionnaire allowing the seller to disclose material facts they are aware of which might affect the property’s value and its desirability to a buyer. Included are questions related to the seller’s knowledge of room additions, structural modifications or other alterations or repairs:

  • made without necessary permits; and
  • not in compliance with building codes. [See RPI Form 304 §C (4-5); CC §1102.6]

Further, the seller’s agent has a statutory duty owed to prospective buyers to disclose facts about the integrity of the physical condition of a listed one-to-four unit residential property. This requires the agent to conduct a visual inspection of the property and note observable conditions which might adversely affect the market value of the property, then enter their observations in the TDS, if not already noted by the seller or if inconsistent with the seller’s disclosures. [See RPI Form 304; CC §2079]

However, the mandated visual inspection and investigation by the seller’s agent and the disclosure of their knowledge and observations excludes other readily available information not already known to the seller’s agent, including the inquiry into or review of public records or permits concerning title or use of the property. [CC §2079.3]

When the seller’s or buyer’s agent observes a modification or alteration which permit status is unknown due to the seller’s lack of knowledge, it then becomes the buyer’s agent’s responsibility to advise of the concern or further investigate any improvements in question.

Due diligence investigations

During the buyer’s investigative contingency period, the buyer has the property inspected to confirm conditions disclosed on the seller’s TDS. A prudent buyer’s agent always counsels their buyer to hire a professional home inspector and obtain a home inspection report (HIR) when the seller has not first obtained one. Together, the disclosures and an HIR reveal observable property defects.

When the areas of concern pertain to additional improvements possibly made without necessary permits, the buyer’s agent needs to advise the buyer and assist them in obtaining additional information.

Editor’s note – Many agents erroneously believe the trade union’s non-mandated buyer and seller advisory form satisfies their duty to advise the buyer on their right to inspect and investigate. The form’s many general advisories do not convey what either agent knows needs to be investigated to avoid surprises after closing. Thus, the advisory becomes meaningless for the buyer, as they have no idea which provision is to be of concern.

Failing to investigate permits, or the lack thereof, when on notice is one of the most common forms of malpractice committed by buyers’ agents. Often, they overlook code compliance, as do buyers who rely on their agent, during the inspection and due diligence contingency period.

When an additional improvement of concern arises, the buyer’s agent needs to request information from the seller, such as:

  • when the further improvement was made;
  • whether the improvement existed when the seller acquired the property; and
  • whether any other improvements have since been made requiring an inspection by the local authority.

If the information is not satisfactory, more information can be quickly obtained from a title company and city and county department records.

A property profile from a title insurance company needs to be reviewed to confirm the general description of the property is consistent with the physical attributes of the property. This includes:

  • the square footage of the parcel and dwellings; and
  • the permitted use or zoning of the property.

When the information in the property profile is not consistent with existing improvements or the property’s use, public records need to be reviewed to look for any discrepancies the profile may contain.

Permits are public record

Searching public records to verify permits is simple. Permits are readily reviewable through the building or planning department for the jurisdiction, such as the city or county. Upon request, copies of all permits on record are provided to anyone who requests them, typically for a small fee. Further, many authorities make permits accessible through their websites. This makes access to permit information quick and easy for agents — free of charge.

These permit records may further reveal the current or previous owner properly began the permitting process but never obtain the final approval upon completion of the project.

Knowing this allows the buyer to further negotiate a remedy for the unpermitted improvement, cancel their transaction or close and seek recovery of the lost value/cost of remedial work if an agreement cannot be reached.