Unpermitted Work and Buying or Selling a Home
CATEGORY: Practice Tips
TAGS: Disclosure Renovations
What your clients need to know
Whether your clients are buying or selling a home, unpermitted work—any renovation or modification made to a home for which the appropriate municipal building or other permits were not obtained—can prove to be problematic if not dealt with head-on.
For sellers: disclose, disclose, disclose
As the listing brokerage, you must disclose all known material latent defects about the property. In this context, material latent defects include "a lack of appropriate municipal building and other permits respecting the real estate."
Best practice is to pull building permits prior to listing a property, so that any work completed without the required permits is known about and subsequently disclosed. This will also ensure they are available upon request from a buyer. Although the listing brokerage is authorized to search for this information, you may want to have a discussion with your client beforehand, about the impact it could have on the value of the property if your search uncovers unpermitted work.
For buyers: risks associated with unpermitted work
If your clients are looking to purchase a home, it's very important that they be aware of any unpermitted work on the home, as there are a number of associated risks. If they ever decide to do renovations or improvements—perhaps they are even buying with this intention—work that was completed without the required permits may interfere with their plans. Your client will also take over responsibility for any unpermitted work if they purchase the home, and the onus will fall on them to disclose should they sell down the road. Unpermitted work is also generally not covered by house insurance.
To ensure your client is protected, always ask to see the building permit files. If the current owner is not the original owner, you may have to go to the municipality or regional district to pull the permits. It's a good idea to learn about the rules for accessing permits in your region—it may be that only the seller or selling brokerage can access them.
If unpermitted work has been included in the written disclosure, it will also most likely be reflected in the asking price of the home. If you and your client discover unpermitted work that was not disclosed, this may give way for offer negotiations. Even with a discount, your client may not feel comfortable accepting the risks involved with buying a home with permitting issues or want to take on the effort and cost involved with correcting them. In this case, it may be worth asking the seller to fix the issue. If they won't, your client may want to keep looking.
A note about renovations
If your clients are thinking about doing renovations, remind them of the importance of using a professional contractor and ensuring they have the required permits in place. A great resource for this is the Canadian Home Builders' Association. Learn more about renovating and how to find a reliable professional contractor here.
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