Real Property Appraisals/Permit issue
QUESTION: Hi John,
We are in the process of buying a property where the changes to the basement and garage were done over 20 years ago. After that the home has been sold and bought 2 times. The county records show that the home has 8 rooms (inclusive of the basement, so clearly there is a legal record somewhere but does not show any permit records. Apparently the county has had a patchy record of storing the permits. This issue has never been a problem last two times the home has been sold. Will it be a problem with our lender? And what should we do about it?
ANSWER: Good Afternoon, Chloe,
Appraisers seem to have a problem with basements. The way basements are SUPPOSED to be valued is as a separate area. The Gross Living Area (GLA) of the above grade 1st and 2nd floors are the main living area. Any below grade basement is included in a valuation, but on a separate line item on the appraisal adjustment grid.
Appraisers should make adjustments based upon basement finish. Let's say the home you describe has a bonus room, a bedroom, a bath and a laundry. The appraiser should look for not only homes with comparable GLA, but also comparable basement areas. For instance, if one of the comparables an appraiser found had no separate rooms in its basement, the appraiser would make an upward adjustment for inferior finish in the comparables finish.
I suggest you Google: "Measuring a house", "measuring square footage" and especially: "Square Footage:Method for Calculating:ANSI Z765-2003"
When you download, read and understand how to measure a house, you will know more about how to measure a house than most appraisers. You will also be able to make sure that the appraiser correctly measures the house you are buying.
BE SURE that the selected appraiser knows the neighborhood in which you are buying a home.
Good luck with your home purchase.
John C. Carlson
CA Certified General Real Estate Appraiser
Victorville & Diamond Bar, CA
---------- FOLLOW-UP ----------
QUESTION: Thank you John. The issue is about the county not having a permit to finish the basement and changing the area of garage that happened over 20 years ago and have not been an issue in last two sales.
Although the county has the additional sq. ft area listed in the records, it does not show the permits for it.
Below is from the appraisal report. Will the lender consider this as a reason to refuse the loan?
INTERVIEWS WITH THE LISTING AGENT INDICATED HIS INVESTIGATION OF PERMITS FROM THE CITY PLANNING DEPARTMENT REVEALED PERMITS FOR A FAMILY ROOM & BATHROOM ADDITION, BUT NO PERMITS FOR THE BASEMENT OR ALTERATIONS TO THE GARAGE. THE ALTERATIONS TO THE GARAGE APPEAR TO HAVE BEEN IN PLACE FOR
MANY YEARS, AND ALTHOUGH THE BATHROOM WAS NOT INCLUDED IN THE SUBJECTS BATHROOM COUNT, THE AREA HAS BEEN INCLUDED THE GROSS LIVING AREA AND THE GARAGE HAS BEEN REFERRED TO A "ONE" CAR GARAGE
OK, this sounds like an older property, yes....no? Could it be that the construction of the house and basement predates the cities/communities compilation of permits?
The appraiser appears to have taken the Listing Agents word for the permits that exist. He/she should have verified permits as part of this appraisal. I suggest that you go to the building department yourself, or have your agent do this, and pull the file for this property and review the permits yourself. That way you will know for sure whether this is correct or not. Make copies of all permits for all of the construction.
I also have a question about what was valued here. Your comments indicate that the family room addition and the "alterations to the garage" were included in the value. None of the comments you have provided indicate how the appraiser valued the "basement".
You need to get a copy of the appraisal, you are legally entitled to a copy, and CAREFULLY review it to see exactly how the appraiser attacked this problem. You need to get your own tape measure and make sure that the appraiser included all areas of the house correctly in the valuation.
You do not say how long ago the "last 2 sales" occurred. The issue today is that Underwriters are looking at the appraisal and loan documents under a much more powerful microscope. As such, these issues may become an problem with your loan being approved.
1.) If the property was built before permits were routinely required by the city/community/ municipality required permits, this lender may require permits to be obtained before the loan is approved. Usually, the permitting agency is more lenient with regard to the lack of permits in this case.
2.) If the property was built, and the builder just jolly well did not obtain permits, this may be a bigger issue. The permitting agency may require that construction was completed in compliance with building codes, and require that the seller PROVE this. This will require opening walls to look at electrical and plumbing, excavating along the outside walls to verify foundations are to code, all kinds of "neat" stuff.
When you open the "Pandora's Box" with a permitting agency and they discover non-permitted items, they have the right to require that all construction be brought to code. For instance, if the local code requires 2-car enclosed parking, there appears to be only a "one car garage". The permitting agency may require that the "gross living area in the garage" be returned to garage, or, as a requirement to permitting the living area in the garage, may require that one more enclosed parking space be required.
The way I see it, you have two choices: 1) You can "roll-the-dice" and let the appraisal go as-is to the lender, and cross your fingers that the lender will just fund the loan, OR: 2) Start dealing with the permitting agency to see what they require to bring this property up to code.
Neither are very palatable to you. The appraiser really did not do his/her job in confirming what was going on with this property. I can foresee that you might have further questions and I'm sure that you are under time pressure. If you have other questions, you can call me at 909-861-6186 and I'll be happy to spend a few minutes solving this problem so you can get your loan funded. I will be in most of the day on Saturday and some of the day on Sunday
John C. Carlson
CA Certified General Real Estate Appraiser
Victorville and Diamond Bar, CA