Farm Talk: Buying and Selling with Unpermitted Structures
There are some important questions you need to ask when discussing unpermitted structures specifically when it comes to real estate. If you already have property and you’re considering building or expanding, should you pull permits or not? If you’ve fallen in love with the property that you’re thinking about buying, should you buy that property if it has unpermitted structures? First, I’m going to share with you some stories and real experiences that I’ve had in relation to selling properties with unpermitted structures, then I’ll tell you how the home seller and the buyers dealt with those various issues.
About five years ago I was asked to sell a home, a beautiful Spanish style property on five acres with beautiful views, a private orchard, tennis courts, and a swimming pool. It was a 3,500 square foot, single story, Spanish style Mediterranean home. The interesting thing about this particular property was that it had 16 garages and a guest house. The guest house and eight of the garages were all constructed without building permits. They were built to code, but for whatever reason, the homeowner decided not to pull permits when he built those additions.
A few years before that I was asked to sell a 10-acre property. The house was built in 1973 and had a guest cottage, which was not permitted. The particular owner at the time did not construct that cottage. That cottage was actually on the property when they bought it several years earlier, and from what we could tell, it was early 1940s construction based on the electrical circuits based on the windows. The construction overall showed it was probably late 1930s, early 1940s. Here in Ventura County, California, permits did not kick in until 1946 so anything constructed before that time, it’s considered grandfathered in.
Another interesting scenario; I’d been asked to sell another farm property with a detached workshop. Beautiful structure, but again for whatever reason, the owner decided not to pull permits when he built it. It’s interesting because it’s a newer structure but made to look old. It has a metal roof, big distressed wood beam ceilings inside, reclaimed windows, rustic wood doors with antique latches; it’s just a really neat structure. It was built to code when he built it a few years ago, but now my job is to sell it.
In relation to the property with the 16 garages, the seller knew smartly that the garages were going to be an issue. Number one, a lot of buyers understandably would be concerned about buying a structure with so much of it not permanent. The big question is what happens if the county finds out that there is so much to the property that that is unpermitted. For the seller, it was a major disclosure and we literally had paragraphs which added up to pages disclosing what was permitted and what was not permitted. We also had all of the building codes and architectural plans included as part of the seller’s disclosure packet. The buyer had to sign off on every single page. We didn’t want this to come back and bite the seller later on that so much of this property was unpermitted. Yes, it was built up to code, but for whatever reason, the seller opted at the time not to pull permits. The buyer absolutely loved this property and he was willing to take on that risk. The challenge and the drawback for the seller was the appraisal was not going to come in at the value that he wanted because we could not give a real value to anything that was not permitted correctly and rightly so. The appraiser and the buyer’s lender also would see an issue with so much of the property being unpermitted. So, fortunately the buyer fell in love with the property enough to where he was willing to take on the risk. wanted to make sure that all of his disclosures were in place so that five years from now it wouldn’t come back and bite him.
In relation to the 10-acre property with the Spanish home and the unpermitted cottage, we had to disclose that. To our knowledge, the cottage was not permitted. The seller did not construct the cottage, but from what we could tell, it was built before 1946 and it was up to the buyer to verify the construction period so it wouldn’t come back and bite him later on.
Regarding the property that I’m working on currently, the same holds true. For the seller, he’s going to have to disclose that this building was constructed without permits and the buyer, assuming that they liked the property enough and that they still want to go forward, can do their due diligence during the escrow period. At the end of the day, it’s not going to be a permanent structure, just as with the earlier two stories.
These are just some words of caution if you own property and you’re thinking about going the quick route and just not pulling permits, I would caution against it. Yes, permits may cost and will cost thousands of dollars; but what happens, five, 10, 15, 20 years from now when you want to turn around and sell that property? You have a major disclosure on your hands. Also, you’re not going to realize the true value of the property because you have an unpermitted structure. You’re also going to decrease the buyer pool for your property. There are going to be too many people that are going to be hesitant to buy such a large purchase knowing that it could come back to bite them later on.
Now, if you are a seller and you have an unpermitted structure, you want to err on the side of caution. Do not disclose that you have unpermitted structures because it will invariably come back to bite you.
Another story – I was involved in a transaction up to a point, and then I was not involved any longer. What happened was buyer and seller decided to complete the transaction themselves without using realtors and the seller opted not to disclose to the buyer that the guest house was unpermitted. The new owner had a tenant in the new guest house and the tenant got disgruntled with their new landlord and decided to go down to the county government center and disclose that she believed that she lived in an unpermitted structure. Several years after the new buyer bought the property, they found out that their guest house was not permitted. They sued the previous owner for $150,000 and they want a judgment for half of that amount. This is years after the seller sold the property to the buyer. So again, you just want to err on the side of caution if you’re selling and disclose what you know because it can come back to haunt you.
Now, if you’re a buyer and you’ve fallen in love with the property and this is your dream home and you have to have this property, but a piece of it is unpermitted, I would find out more about that unpermitted structure. What’s the worst-case scenario that could happen three, five, 10 years down the road if you had to permit that building. Is it a small structure? Is it a large structure? Does it have a kitchen? If it has a kitchen, it’s probably going to have to be removed at some point. And, if it was built up to code at the time, at least our county would want it to be reconstructed to today’s codes. For example, if it was built in 1985 and the county finds out about it in 2019, does it mean that they’re going to say that it was built in 1985 it needs to be up to 1985 codes? No, they’re going to want it to be up to 2019 codes. So, you want to think about that in relation to the size of the structure. Also, where is the structure located? Is it located in an area where the county would naturally allow a property to be built or is it built in a protected area? Is it built in a flood zone? Is it built in the middle of an easement? You have got to look into those things because even if the property or the structure was built up to code, if it’s in the wrong location it’s going to come back to bite you.
It may be okay to buy a property with an unpermitted structure, but you definitely want to do your due diligence ahead of time because if you buy it and the seller disclosed what they know, then the burden is really on you, the buyer. I would your feedback. Feel free to reach out at Paul@homeandranchsellingteam.com or message us.