Understanding the Risks and Taking Precautions

Purchasing a home is a significant investment, often accompanied by a mixture of excitement and apprehension. One of the potential pitfalls that can turn this dream into a nightmare is unpermitted work. Unpermitted work refers to renovations or additions made to a property without the necessary approvals from local building authorities. These unauthorized modifications can lead to costly repairs, legal issues, fire risks, and safety concerns. In this article, we will delve into how to detect unpermitted work and the steps you should take when purchasing a property.

Its Important to note that not everywhere requires permits for all work. When it is required, compliance is important.

The Risks of Unpermitted Work

Unpermitted work can pose various risks, including:

• Safety Hazards: Unapproved renovations may not comply with building codes, resulting in substandard construction and potential safety hazards.
• Legal Issues: Homeowners can face fines and legal action from local authorities for unpermitted work.
• Insurance Problems: Insurance companies may refuse to cover damages caused by unpermitted work or may cancel the policy altogether.
• Lower Resale Value: Unpermitted work can deter potential buyers and reduce the resale value of the property.
• Future Work: Future permit pulls (such as a new kitchen remodel after you buy the property) can result in the inspector finding these unpermitted previous issues. This inevitably leads to much higher construction costs and rework.

How to Detect Unpermitted Work

Detecting unpermitted work requires a keen eye and diligence. Here are some steps you can take:

1. Review Property Records

Start by reviewing the property records at the local building department. These records will show the permits that have been issued for the property. Compare the records with the current state of the home to identify discrepancies.

2. Conduct a Thorough Inspection

Hire a qualified home inspector to conduct a thorough inspection of the property. Inspectors can identify potential signs of unpermitted work, such as mismatched materials, unusual construction techniques, or incomplete finishes. Things to look for could include:

1. Check the attic; do you see any newer-looking cables? Look for a date code on those cables. If your home was built in 2002, and you find electrical cables that were manufactured in 2019, you should expect to find a permit for work on file (if required) with the local authority for that 2019+ work.
2. Do you see any unsecured cables in the attic? Make sure that the attic cabling looks clean and professional. No unsecured boxes or light fixtures should be noted.
3. Does your potential new property have a pool?  Check to make sure that the pool is correctly permitted. Unpermitted pools are very common in Texas, as there are no/little license requirements for General Contractors or Pool Contractors. In Texas, pool contractors often don’t have an electrician to wire the pool’s electrical and ground systems. This leads to a lot of issues with workmanship and code compliance.
4. Does your potential new property have a new slab extension? Check to make sure that the slab was inspected and has an approved grounding electrical system, including a Ufer ground. Slabs that are newer may appear to be a different color than the slab under the main house. If there are any newer slabs, it could be best to check the date codes on the wiring in that new extension as well.
5. Does your potential new property have a garage that was converted into living space? That work is likely to need permits as well. Check the wiring and date codes, and look for permits related to that remodel.
6. Does your potential new property have a kitchen island? Recently renovated kitchens often have one overlooked issue. That issue is ensuring that any cables running through the slab are wet-rated. Often electricians may incorrectly assume that the area is not considered a wet-location or that liquid-tight conduit is all that is needed. These assumptions are incorrect; be sure that all cable that runs through a slab sitting on the ground is wet-rated.
7. Does your potential new property have a separate powered structure? Second separate units on the same property are becoming popular, and usually the underground cables are correctly rated for the wet-location or as service entry cables. In some cases, smaller remote buildings (such as a small outdoor kitchen or a small shed) can have cable not appropriate for direct burial or a wet-location. Be sure to check that these cables are correctly rated.

3. Ask the Seller

Directly ask the seller about any renovations or additions made to the property. Honest sellers should disclose any unpermitted work. Be cautious if the seller seems evasive or reluctant to provide information. Not every seller will be aware of all changes that were made by others or by the contractors that they have hired. They may be simply unknowingly stuck in a situation that you are trying to avoid yourself.

4. Check for Red Flags

Look for signs that might indicate unpermitted work, such as:

• Recent renovations not reflected in property records.
• Inconsistent or amateur-looking construction work.
• Electrical, plumbing, or HVAC systems that seem out of place or not up to code.

What to Do When Purchasing the Property

Before or After finalizing the purchase, take the following steps to protect yourself:

1. Negotiate with the Seller

If you discover unpermitted work, negotiate with the seller to either have the work permitted retroactively or to reduce the purchase price to cover the cost of bringing the work up to code. The preferred method by far is to have all permits resolved before you purchase the home.

2. Consult with a Contractor

Consult with a licensed contractor to assess the extent of the unpermitted work and to estimate the cost of necessary repairs or modifications. This information can be crucial during negotiations. Hiring your own independent contractor is best, but also be mindful that you may need to have a scope of repairs ready to go for them to quote.

You want a contractor that is capable of making the statement at the end of the project that the systems are working correctly, and they can certify that. We see situations where it becomes difficult to specify who did what work, and who might be responsible for the bad work product. This type of situation can yield financial loss to a homeowner that they would otherwise be able to recover. Make sure you know exactly what work each contractor is planning to do, and then what they actually did to your home.

3. Obtain Legal Advice

Seek legal advice to understand the potential liabilities and legal implications of purchasing a home with unpermitted work. A real estate attorney can guide you on the best course of action. If you decide to purchase a home with unpermitted work, you may need a non-standard home purchase agreement, and a real estate attorney is the best place to go for advice. Remember, this will be your property, and you might be responsible for injuries suffered by others due to unsafe construction.

4. Consider Title Insurance

Ensure you obtain title insurance that covers any potential issues arising from unpermitted work. This can provide an additional layer of protection. Basic title insurance typically does not cover this, but you may be able to obtain a special endorsement on the policy. Expect an inspection from the insurance company confirming that no unpermitted work is found before the endorsement is approved.

5. Hire a Licensed Residential Inspector

Engaging a licensed residential inspector is a critical step in the home-buying process. An inspector will conduct a comprehensive examination of the property, identifying any underlying issues that may not be immediately apparent. This includes evaluating the structural integrity, electrical systems, plumbing, and overall safety of the home. The detailed report provided by the inspector can serve as a valuable tool during negotiations with the seller, allowing you to address any concerns before finalizing the purchase. By investing in a thorough inspection, you can avoid costly surprises and ensure that you are making a sound investment. Ask the inspector if anything appears out of place or new compared to the rest of the home.

6. Consult with a Professional Engineer

Checking with an engineer about the workmanship of the home’s systems can help protect you from any lingering issues. It’s important to note that an inspection from an engineer is not to replace an inspection from a Licensed Real Estate Inspector, but can supplement those inspections with a more detailed and precise engineering assessment of what repairs and permitting processes you are facing if you decide to continue with your major purchase or speak to a contractor. We recommend an inspection from a Licensed Real Estate Inspector for all home purchases. The residential inspector is a generalist who is trained to find many common problems across all of a home’s systems. Engineers are hyper-specialized individuals with extensive knowledge on a handful of your home’s systems.

The current owner of the home can reach out to a professional engineer in the area to request a comprehensive report on the status of the home’s relevant systems. Those reports can be shared and a plan to get unpermitted work resolved can be established. Many areas require full disclosure of any known issues with a property in conjunction with a sale.

Dreiym Engineering routinely helps homeowners who have inadvertently purchased a home with unpermitted work in Texas. This is an incredibly unfortunate situation that can cost homeowners thousands of dollars. If you find yourself in this situation, the best advice is to first consult a Lawyer. In very unfortunate circumstances, sometimes the entire project has to be redone. You don’t want to be caught in that situation. Having a lawyer to quickly identify all involved parties before any changes are made may help you in the future with the costly rework.

We also recommend that you do not allow the inspector to perform the actual repair work. You should not allow a contractor responsible for repairs or the original contractor to inspect the structure for construction or design defects. It is generally a conflict of interest for an inspector to have an inappropriately vested interest in finding (or hiding) issues. The inspector should only wish to find and report issues if any are found, not protect themselves from any other ongoing issues or litigation. While many contractors can perform these two separate tasks ethically, we have found that it is also common for the contractor to be highly motivated to perform unneeded work (such as taking more than three inspections) or attempt to hide issues altogether.

7. Stay Involved

You may feel like it’s a lot to handle, but keeping involved is incredibly important. When you stay involved, you minimize your costs and maximize your safety. If there are inspections done on your property, you have the right to request a copy of those reports, and you have a right to ask the engineer about any safety issues that may have been encountered and how to keep you and your family safe. Make sure that the inspector is qualified; they should be a licensed professional electrical engineer at a minimum, and be sure to get a copy of any reports. Many individuals will market themselves as an inspector, but make sure they have at least some type of state-issued license, not just a private industry credential. As the homeowner, there are a few things to keep a watch for in our experience.

Red Flags to watch out for:

1. The original constructor or designer inspects the structure themselves and finds nothing wrong. Not even one item on the turnover punch list was noted, or everything noted was superficial. Construction projects are complex, and issues happen in each one, the turnover is where we find and minimize a lot of hidden risks to safety. By the time a contractor is looking for an outside engineer or inspector, most if not all of these issues should be resolved and documented.
2. The constructor responsible for repairs on the structure keeps calling for additional inspections beyond three. In our experience, anything over two inspections to approve a structure is suspect, over three inspections can be indicative of fraud (such as the constructor not performing any repairs between inspections). The following are rough estimates of what our experience is in Texas:
   • ~60 percent of all properties we deal with have no issues found on the first inspection. These are generally built & designed by the licensed professionals of the industry. The unpermitted work is normally the product of project scheduling errors or honest miscommunications (for instance, the pool concrete was applied early, without everyone knowing it had been pushed up in the schedule).
   • >99 percent of all properties we deal with will have any issues resolved in just two inspections (The first inspection shows defects, and the second inspection shows all defects are repaired.) These are a mixture of honest mistakes, things falling into the cracks, and Do-It-Yourselfers who may have not quite understood all the requirements. If you are a homeowner who falls into this category, we may provide additional guidance for any questions you have, but you should hire an electrician as soon as possible.
   • A fleetingly small minority of contractors at some properties will show no interest in resolving the issues, perform a fraudulent repair (like hiding a wire junction inside a wall to purposely mask the use of incorrect wiring), incompetent repair (they simply do not know how to perform this type of contracting), or incorrect repair (used inappropriate methods or materials outside their listing), or otherwise take over two inspections to get it fixed right.

When a deficiency is found, make sure that the contractor responsible for the repairs has fully addressed the concerns before they ask for a re-inspection of the work. As the property owner, it’s your right to understand what is being done to your property and why it is being done. Staying involved helps ensure that your family is safe and that the repairs are correct. You can use online resources to investigate the issues in the inspection reports through NFPA.

Conclusion

Buying a home with unpermitted work can lead to unforeseen complications and expenses. By conducting due diligence, thoroughly inspecting the property, and seeking professional advice, you can mitigate these risks and make an informed purchase decision. Remember, it’s better to uncover potential problems before closing the deal than to face costly surprises down the road. When you purchase a home and sign the closing documents, you often obtain that property “as-is.” It’s best to make sure that you are buying something worthy of your investment.

If you do decide to purchase a home with unpermitted work before it is resolved, consider hiring a contractor yourself after you take possession and negotiate the cost of the home accordingly. If you find yourself in this type of situation, you can contact Dreiym Engineering. We have assisted hundreds of property owners and their contractors in Texas to get through this difficult situation.