Homeowners need to understand the codes, ordinances, and requirements when they remodel and then put their homes up for sale. Knowing when to seek expert assistance can help you and your clients avoid surprises during an inspection or at the closing table.
A buyer made an offer on a two-bedroom condo. Agent Ian Katz and the clients’ attorney realized during the due diligence period that the property was legally only a one-bedroom with bonus space. “The second bedroom shouldn’t have been classified as a bedroom because its window was too close to a neighboring building, yet the price reflected it being a room, so that needed to be re-evaluated,” he says.
The buyers didn’t want to feel as if they were overpaying for an improperly characterized space. Thankfully, the appraisal supported the value assessment, and the deal closed last month.
But not all deals can recover from building code and permit issues. Here are some concrete actions you can take to better represent your clients in these sticky situations.
Ask to See the Permits
When listing agents highlight recent updates, it’s always smart to suggest your buyers ask to see the permit history. If the homeowners’ work crews never filed for the improvements, they may have to reapply or make changes, and that might disturb your buyers’ timetable and budget.
“You typically need permits to add on—or do a major renovation with mechanicals, plumbing, and electrical work—but not to change out a floor and trim,” says builder Anthony Della Porter.
Because your role as the real estate professional is to be the source of the source, you should not attempt to verify the permits yourself. But by making sure your clients request them, you might be helping them avoid headaches.
But just because permits exist doesn’t mean everything’s settled. Tell your clients to check not only that permits were secured but also that each tradesperson signed off on the work so they are classified as “closed.” Such due diligence isn’t only about the paperwork, but also making sure updates are truly completed.
In his work, Katz has found that the due diligence of reviewing local department of building records has gone from “something on the periphery—and not always done—to an absolute necessity,” he says. “Developers and owners got careless in years past in not doing work to code or getting final sign-offs, and it fell on the current owner to correct the situation.”
Stay Up-to-Date on Local Rules
Be diligent; building, remodeling, and zoning standards are updated regularly, and they may differ by state, city, county, and town. Connecticut-based architect and author Duo Dickinson advises real estate salespeople and homeowners to learn how to access their local and state codes online or make contact with someone in their area’s building department or at a local title company. Again, you can’t be the expert on such matters, but being aware of what’s happening in your area will mean you’re able to alert your clients to potential red flags that they may need to investigate.
A good place to start is the building department. Not only do you have to stay current on changes, it’s important to realize that rules about home updates can vary block by block. Some historic districts have strict rules about changing exterior paint palettes, doors, windows, or entryways. In other areas, homeowners may be restricted in the height of new additions or the percentage of the lot that their home takes up.
Also, if you’re working with sellers who are making updates prior to putting their homes on the market, make sure they’re aware of the current permit rules. If not, work could be halted or need to be redone, which may add to expenses and drag out the transaction timeline.
Help Clients Understand the Costs Involved
Zoning changes can also cause pricing problems and surprises at a hyperlocal level. Sometimes bringing an existing building up to new, more stringent codes can be a deal-breaker. Buyers might walk away from purchasing an older house if the extent of the improvements would require bringing all plumbing and electrical work up to current codes.
Understand New-Construction Requirements
Help buyers determine whether their builder is complying with the International Building Code (for multifamily buildings) or International Residential Code (for one- and two-family dwellings and townhomes up to three stories), both developed by the International Code Council based in Washington, D.C. Rules are revised every three years; the last set came out in 2015. States have the discretion to accept the code in its entirety, adapt rules for their state, or allow municipalities to make changes.
California lets cities modify standards according to local conditions, in particular regarding energy consumption, says architect Chris S. Texter, with the Irvine-based architecture and planning firm KTGY.
Rueter, of the Home Builders Association of St. Louis & Eastern Missouri, says that, “The national code model is meant to be amended to fit local needs and climate. Adopting the model code without amendments would impose an up-front cost on home buyers that would take 50-plus years to recoup through savings on energy bills.”