Ignorance is bliss
Many buyers and sellers are unaware home improvements — not just room additions — often require city or county building permits.
Modifications or improvements made to a dwelling that require a permit include:
- a 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.
Knowledge is power
On the sale of a one-to-four unit residential property, a seller’s agent delivers property-related disclosures to the buyer, such as 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)]
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The TDS includes a questionnaire allowing the seller to disclose known material facts which might affect the property’s value and its desirability to a buyer — including 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]
The seller’s agent has a statutory duty to disclose to a buyer all facts about the integrity of the physical condition of a one-to-four unit residential property listed for sale.
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, unless already noted by the seller or when inconsistent with the seller’s disclosures. [See RPI Form 304; CC §2079]
However, the agent’s duty excludes other readily available information unknown to the seller’s agent, including review of public records or permits concerning title or use of the property. [CC §2079.3]
When a seller’s or buyer’s agent observes a modification or alteration with a permit status unknown to the seller, it is the buyer’s agent’s responsibility to further investigate any improvements in question.
Do your due diligence
During the buyer’s investigative contingency period, the buyer’s agent advises the buyer to have 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) — assuming the buyer has not already done so. Together, the disclosures and an HIR reveal observable property defects.
When a buyer or their agent suspect additional improvements may not have the necessary permits, the buyer’s agent needs to assist the buyer in obtaining additional information.
Editor’s note — Many agents erroneously believe the California Association of Realtors® (CAR)’s non-mandated Statewide Buyer and Seller Advisory form satisfies their duty to advise the buyer on their right to inspect and investigate. However, the form’s general advisories unrelated to the subject property do not adequately convey information crucial for buyers to avoid surprises after closing, and is therefore meaningless to buyer and their agents.
Failing to investigate permit status when on notice is one of the most common forms of malpractice committed by buyers’ agents. Often, they and the buyers who rely on them overlook code compliance during the inspection and due diligence contingency period.
When a buyer’s agent is concerned about an additional improvement, they need 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 that would require an inspection by the local authority.
When necessary, more information can be obtained from a title company and city and county department records.
The buyer’s agent also needs to review a property profile from a title insurance company to confirm the general description of the property is consistent with its actual physical attributes. This includes:
- the square footage of the parcel and dwellings; and
- the permitted use or zoning of the property.
When property profile information is inconsistent with existing improvements or the property’s use, the buyer’s agent needs to review public records for discrepancies.
Permits are public record
Searching public records to verify permits is simple. Permits are readily reviewable through any jurisdiction’s building or planning department. Copies of all permits on record are provided to anyone who requests them, typically for a small fee. Much of that information may also be available online — quick, easy, and free of charge.
Permit records may reveal other surprises — like when the current or previous owner properly began the permitting process but never obtained the final approval upon completion of the project.
Knowing information like this allows the buyer to negotiate a remedy for unpermitted improvements, cancel their transaction or close and seek recovery of the lost value of remedial work when no agreement can be reached.
This article was originally published December 2016, and has been updated.
