Risks of Remodeling Without a Permit
Most cities require that homeowners obtain a building permit before making modifications to their residence. Which modifications require a permit vary by city. Also, some cities are more vigilant than others in enforcing permit laws.
In order for the homeowner to receive a permit, the homeowner or his/her designee are required to file plans and pay fees to the city. In addition, the improvements are given a value. If they increase the value of the property, this may result in an increase in property taxes. Inspections are often required, and this means having to schedule and then wait for inspectors to approve the work to be done. This process can be time consuming and inconvenient in the short run. It is for this reason that some homeowners skip the permit process.
If a permit is needed and you fail to get one, the city may discover this at some time in the future and getting a permit retroactively can frequently be significantly more expensive and much more problematic than having obtained the permit before work commenced. If work is not done in accordance with city procedures or if the inspector is unable to determine if the work has been done properly, the homeowner could be required to open walls, tear up floors, so that the inspection may take place. In addition, by law, work not permitted where a permit was required must be disclosed to any prospective purchaser. This may cause the owner to discount their sale price or perform costly or time-consuming repairs before title can be transferred.
For prospective buyers of a property, save yourself the future hassle and loss of money by researching whether all work on the premises has been done according to code and with the proper permits. You may obtain these permits by going directly to Building & Safety in the municipality in which the property is located or by hiring a “permit puller” who will research the permits for you.
Selling Your Own Home
As an alternative to working with an experienced real estate agent, you might consider selling your home yourself; however, if you choose this option, be prepared for a lot of work! It can and has been done, of course, but if you don’t have the time and energy to commit to it (or need to sell in a hurry), this option might not be for you. If selling your home on your own sounds like too much work, you might want to consider assist-to-sell programs, which most agents offer and can include yard signs, a marketing strategy and flyers at a very reasonable cost to you. Nine out of ten times, most do not have the time or the resources that a real estate agent may have, so it is best to use someone that is fully committed to selling your property, has access to a wide variety of resources and is focused on getting the highest price possible for the sale of your property. Whether you choose to use a real estate agent or not, you still need to do your homework! The following is a checklist to help walk you through the process: Know your property. If you are not already, become familiar with such facts about your property as property taxes, zoning, lot size, square footage, etc. Look at the terms of your existing loan. Research the current market and property laws in your area. How much are properties similar to yours selling for? What are the terms of the sales? What property disclosure laws do you need to take into consideration? Set the price. Once you know the specifics about your home and have checked out what similar properties in your area are selling for, set a realistic price. Determine financing alternatives. Contact lenders in your area to determine what the options are for your prospective buyer. You want to be informed before they ask, or your lack of knowledge may turn them off from dealing with you. Perform a “walk-through” of your property. Look at it from the perspective of both the prospective buyer and the inspector. Take notes on all items that need to be repaired or replaced. Things to consider include: Outside:
- From the street, is the house appealing? This is called “curb appeal”.
- Does it need a new coat of paint (either because the old paint is obviously cracked or faded, or because of an uncommon choice in color that might turn off prospective buyers)?
- If a house with a yard, is the lawn and landscaping attractive and well-kept?
- If it is a condo, you can’t do much about the building, but is the front door (and balcony, if there is one) appealing?
- Are the windows and doors attractive and in good condition?
- Are the roof (and the gutters) in good condition?
- Is the grass nicely cut, are the hedges trimmed, are the leaves swept up? Are all toys put away such as bikes, scooters, etc.?
- Are the interior paints and finishes in good condition (recently updated), or do they need to be freshened up? This is one area with the best ratio of least expensive to most desired. For a minimal investment, you could possibly make or break a sale by having your home look well-kept and inviting.
- Are the appliances in good working order and of recent vintage?
- Are the plumbing and electrical systems in good condition? Are they fully functional?
- Are the carpets or other floor coverings clean and in good condition? Like the paint, are they attractive and well-kept? Floor coverings are worth paying for so that your home makes a good impression.
- Are the sealants (sink, shower, tub, windows) in good condition?
- Are all light fixtures working properly, and is there good lighting in each room so that prospective buyers won’t think you’re hiding something?
**Make all repairs noted in your inspection. Know your neighborhood. Most prospective buyers will want to know about the local schools, shopping, parks, transportation, etc. Be prepared so you can knowledgeably answer their questions. Establish a marketing budget. How much are you willing to spend to sell your house?
- Real estate commission if you use an agency to sell.
- Advertising costs, signs, other fees if you plan to sell by owner.
- Attorney, closing agent and other professional fees.
- Excise tax for the sale.
- Prorated costs for your share of annual expenses, such as property taxes, home owner association fees, and fuel tank rentals.
- Any other fees typically paid by the seller in your area (surveys, inspections, etc.).
- Real estate agents deal with transactions every day and can give you a very close estimate of seller closing costs.
Investigate the real estate sections of local newspapers and other publications. What will get you the most “bang for your buck?” Are there “throwaway” (i.e., free) real estate publications in your area that accept ads from individual sellers? In the local paper(s), is it better (in your area) to run a text-only classified, or do they have “photo boxes” where you can run both text and a photo of your property? Don’t forget the Internet. As you have probably noticed from the website you have found this article on, most agents have their own website, which includes their clients’ listings as well as the entire MLS search. If you work with an agent, your property will most likely be placed on their web site (if they have one) and on the full MLS search as part of the services they will offer you. If the real estate agent’s website you are currently viewing does not service your area, log onto www.agentwebpros.com to find an agent who will be able to list your property on their website. In addition, some newspapers automatically (or for an extra fee) offer Internet advertising tied in to their traditional print ads. Learn the rates and deadlines for each publication, then decide which one (or more) is best for you and your market. Establish a marketing plan. Now that you know what advertising will cost, create a plan on how to best (within your budget) reach prospective buyers, both local and out-of-town. Since many people do relocate from a distance, be sure to include Internet advertising in your plan. If your town is large enough, the “local” newspaper might have a national edition that you want to place your ad in, at least periodically. Write the text and/or design your ad. At the very least, you will need a well-written few sentences that will run as a classified ad or a photo box ad. In addition, you might decide to run a larger, custom-designed ad in the paper and/or to use as flyers to hand out at open houses (or anywhere else you might meet prospective buyers). Don’t skimp on this. A professional, well-crafted ad can attract buyers while a poorly designed and executed one can turn buyers off to your property. Even if you do not have full service agent representation, you may consider assist-to-sell, which some agents offer at a lower price. Clear your schedule. Make arrangements so that you have free time to schedule appointments at the prospective buyer’s convenience, as well as for any “open houses” that you hold. If you are working with an agent, he or she will take care of showings and open houses on your behalf. It is best to allow your agent to show your home on their own so that the prospective buyer does not feel uncomfortable or pressured. Purchase and install a “for sale” sign. This should be well-designed, attractive and weatherproof. The sign must be placed where it can clearly be seen from the street. If you are working with an agent, he or she will most likely provide the sign to you. Prepare a fact sheet. Design a single sheet description of your property listing the features and benefits that will draw in prospective buyers. This should be attractive and professional looking. Have enough copies on hand to give out at open house showings. Again, if you are working with an agent, he or she will most likely do this on your behalf. Purchase “open house” signs. Make sure that they include a place to write the address of your property and the date/time of the open house. In addition to one for the front yard, you’ll want to place several in conspicuous locations around the neighborhood, such as main streets leading to your house. For these, directional arrows can point prospective buyers to your house even if they don’t know the area. Make sure that you take these signs down as soon as the open house is over. You don’t want people showing up on your doorstep at all hours of the day and night. Set up a schedule of open houses. While most are held on the weekend, this is not convenient for all buyers. Make sure that you coordinate your print advertising to include information about your next open house. Keep a list of prospective buyers. As people come through during open houses, or as they call from reading your ads or seeing the sign out front, keep a list with their names and phone numbers. Concentrate your attention on those who seem serious about your property, as opposed to those who are just checking out the neighborhood or whiling away a Sunday afternoon. Make sure that you make follow up telephone calls to all those who seem seriously interested in your property. Once you have an offer, it’s time to negotiate. Leave your emotions behind when you enter negotiations. You never want to get angry or give away the fact that you’re overly eager. Get your forms in order. A number of forms are required for the legal sale of your property. In addition to the contract of purchase and any counteroffers, there are approximately 20 other forms that the seller is required to provide to the buyer. It is necessary to review the contract carefully to determine when these forms/documents are due and what the buyer’s rights are once they receive the document. The form and content of many of these documents are prescribed by state or federal law and must be adhered to in their entirety. The proper forms may be obtained from your local Board of Realtors or from your real estate agent who is representing you. Negotiate final terms of the sale. Buyer(s) need to come to an agreement (in writing) regarding the following:
- Inspection contingencies
- Financing terms
- Date of closing
- Date of possession
- It would be prudent for you to have an attorney review any and all contracts before the deal is finalized
Final walk-through. When both the buyer(s) and a witness can be present, schedule a final walk-through before you complete settlement in order to determine that the property being conveyed meets the expectations of all parties involved. Resolve any disputes before the transfer of title. Find and make arrangements for the home you will be moving to. Unless you have already built or bought a new residence, you’ll need to be the “buyer” for a new property while simultaneously being the “seller” for your current one. If possible, schedule both transactions to close at the same time, or else close your purchase shortly before closing your sale. You need to be moved out before the new owners take possession.
Traversing the Pitfalls of Home Inspections
June and Fred Smith were diligent about getting their home ready for sale. They ordered a pre-sale termite inspection report. The report revealed that their large rear deck was dry-rot infested, so they replaced it before putting their home on the market.
The Smiths also called a reputable roofer to examine the roof and issue a report on its condition. The roofer felt that the roof was on its last legs and that it should be replaced. The Smith’s didn’t want buyers to be put off by a bad roof, so they had the roof replaced and the exterior painted before they marketed the home.
The Smith’s home was attractive, well-maintained and priced right for the market. It received multiple offers the first week it was listed for sale.
But the buyers’ inspection report indicated that the house was in serious need of drainage work. According to a drainage contractor, the job would cost in excess of $20,000. Fred Smith was particularly distraught because he’d paid to have corrective drainage work done several years ago.
First-Time Tip: If you get an alarming inspection report on a home you’re buying or selling, don’t panic. Until you see the whole picture clearly, you’re not in a position to determine whether you have a major problem to deal with or not.
What happened to the Smiths is typical of what can happen over time with older homes. The drainage work that was completed years ago was probably adequate at the time. But since then, there had been unprecedented rains in the area, which caused flooding in many basements. Drainage technology had advanced. New technology can be more expensive but often does a better job.
The Smiths considered calling in other drainage experts to see if the work could be done for less. After studying the buyers’ inspection report, the contractor’s proposal and the buyers’ offer to split the cost of the drainage work 50-50 with the sellers, the Smiths concluded that they had a fair deal.
The solution is not always this easy, especially when contractors can’t agree. Keep in mind that there is an element of subjectivity involved in the inspection process. For example, two contractors might disagree on the remedy for a dry-rotted window: one calling for repair and the other for replacement.
Recently, one roofer recommended a total roof replacement for a cost of $6,000. A second roofer disagreed. His report said that the roof should last another three to four years if the owner did $800 of maintenance work. Based on the two reports, the buyers and sellers were able to negotiate a satisfactory monetary solution to the problem for an amount that was between the two estimates.
It’s problematic when inspectors are wrong. But it happens. Inspectors are only human. Here is another example: A home inspector looked at a house and issued a report condemning the furnace, which he said needed to be replaced.
The sellers called in a heating contractor who declared that the furnace was fit and that it did not need to be replaced.
The buyers were unsure about the furnace, given the difference of opinions. The seller called in a representative from the local gas company. The buyers knew that the gas company representative would have to shut the furnace down if it was dangerous. He found nothing wrong with the furnace, and the buyers were satisfied.
In Closing: Sometimes finding the right expert to give an opinion on a suspected house problem is the answer, but it is always good to get two opinions.
What is a CMA and Why Do You Need One?
CMA is real estate shorthand for “Comparative Market Analysis.” A CMA is a report prepared by a real estate agent providing data comparing your property to similar properties in the marketplace.
The first thing an agent will need to do to provide you with a CMA is to inspect your property. Generally, this inspection won’t be overly detailed (she or he is not going to crawl under the house to examine the foundation), nor does the house need to be totally cleaned up and ready for an open house. It should be in such a condition that the agent will be able to make an accurate assessment of its condition and worth. If you plan to make changes before selling, inform the agent at this time.
The next step is for the agent to obtain data on comparable properties. This data is usually available through MLS (Multiple Listing Service), but a qualified agent will also know of properties that are on the market or have sold without being part of the MLS. This will give the agent an idea how much your property is worth in the current market. Please note that the CMA is not an appraisal. An appraisal must be performed by a licensed appraiser.
The CMA process takes place before your home is listed for sale. This is a good assessment of what your house could potentially sell for.
CMAs are not only for prospective sellers. Buyers should consider requesting a CMA for properties they are seriously looking at to determine whether the asking price is a true reflection of the current market. Owners who are upgrading or remodeling can benefit from a CMA when it’s used to see if the intended changes will “over-improve” their property compared to others in the neighborhood.
The Home Sale: Securing the Deal
Ready to close the deal? Maybe not.
Sometimes unforeseeable issues arise just prior to closing the sale. Hopefully, with negotiation, most of these have a workable solution. Unfortunately, this is not always the case. But don’t panic. Another buyer might still be found who is willing to accept the house as is.
Imagine that your prospective buyers are a couple with young children. They envision your unused attic as the perfect playroom for the kids but, before closing the deal, they request an inspection to see if it’s safe and also if they will be able to install a skylight to provide natural light to the new space.
This inspection reveals that under the shingles that are in good condition is a roof that will only last another year or two. The prospective buyers immediately balk, not wanting to incur the time and cost of replacing the roof. Their plans were to move in and only have to spend time and money renovating the attic. The additional cost of the new roof, they say, is just too much.
At this point, you sit down with the prospective buyers and calmly discuss the situation and how it can be solved to the benefit of all. First, you agree to get another professional opinion on what really needs to be done. Inspectors are only human, and are not infallible. Once the extent of the damage is agreed upon, you can jointly decide what to do about it. While the buyers hadn’t planned on that expense, you show them that instead of a limited roof life that they would get with most existing homes, they’ll have a new worry-free roof that won’t cost them in repairs for the next decade or so. Since the roof wasn’t in as good shape as you had thought, you agree to lower the purchase price to help offset the cost of the new roof.
By negotiating calmly and looking at all possibilities, what could have been a “deal breaker” can be turned into a win-win situation for both the buying and selling parties. In other cases, the most workable agreement for both parties might be for the deal to be called off. The seller can always find another buyer and the buyer can always find another home.
To protect yourself against last minute “buyer’s remorse,” make sure the purchase contract anticipates and closes as many loopholes as possible after all known defects have been fully disclosed.