Yes, you can buy a house with open permits, but it's crucial to understand that doing so involves significant risks and complexities. While not impossible, it requires thorough due diligence and careful consideration.
What Are Open Permits?
Open building permits are permits that have been issued by the local building department for construction or renovation work (such as additions, electrical upgrades, plumbing work, or structural changes) but have not been officially closed out. This means the work was started but never received the final inspections and approvals necessary to confirm it meets local building codes and safety standards.
The Risks of Buying a House with Open Permits
Purchasing a property with unclosed permits can lead to various problems for the new homeowner. The reference clearly states that buying a house with open building permits can pose risks such as potential safety hazards, legal issues, and financial liabilities.
Here’s a breakdown of these risks:
- 1. Potential Safety Hazards:
- Work done without proper inspections may not meet current building codes, potentially leading to structural instability, fire hazards, or unsafe electrical and plumbing systems.
- Uninspected work could compromise the integrity of the home, posing a risk to occupants.
- 2. Legal Issues:
- The local building department could issue fines or penalties for unclosed permits.
- You might be legally required to bring the work up to code, even if it was done by the previous owner, potentially involving costly demolition and reconstruction.
- Difficulty obtaining future permits for your own projects on the property until existing open permits are resolved.
- Issues with property insurance coverage if a claim arises from unpermitted or uninspected work.
- 3. Financial Liabilities:
- Cost of Completion: You, as the new owner, might become responsible for the costs of bringing the work up to code, including repairs, re-inspections, and potentially re-doing shoddy work.
- Fines and Fees: Accumulating fines from the municipality until the permits are closed.
- Impact on Resale Value: Future buyers will likely face the same issues, making it harder to sell the property or forcing you to accept a lower price.
- Mortgage Complications: Some lenders may be hesitant to approve loans for properties with significant open permits, or they may require them to be closed before closing.
Due Diligence: What to Do If You Find Open Permits
Discovering open permits during the home-buying process requires immediate action. Here's a crucial checklist:
- 1. Identify the Specifics:
- Contact the local building department or city planning office. They can provide detailed information about what work the permits cover, their status, and any associated fines or requirements.
- Obtain copies of the original permit applications and any inspection records.
- 2. Get Professional Assessments:
- Home Inspector: Hire a qualified home inspector, ideally one experienced with code violations, to thoroughly examine the work related to the open permits.
- Contractor Quotes: Get estimates from licensed contractors on what it would cost to bring the work up to code and close out the permits. This might involve repairs, modifications, or even demolition and rebuilding.
- Real Estate Attorney: Consult with a real estate attorney specializing in property law. They can advise you on potential legal liabilities, negotiate terms, and draft protective clauses in your purchase agreement.
- 3. Negotiate with the Seller:
- Seller Closes Permits: The ideal scenario is for the seller to resolve and close all open permits before closing. This should be explicitly stated in the purchase agreement.
- Price Reduction: Negotiate a significant reduction in the purchase price to cover the estimated costs and inconvenience of closing the permits yourself.
- Escrow Account: Request that a portion of the sale proceeds be held in an escrow account until the permits are closed after the sale. This protects you financially.
- Walk Away: If the risks are too high, the seller is unwilling to cooperate, or the costs are prohibitive, be prepared to walk away from the deal.
Buyer's Options with Open Permits
| Option | Description | Pros | Cons |
|---|---|---|---|
| Seller Closes Permits | Seller completes all necessary work and obtains final inspections. | Buyer receives a property free of permit issues. | Closing may be delayed; seller might not agree. |
| Negotiate Price Reduction | Buyer takes on the responsibility, compensated by a lower purchase price. | Potential for a good deal if the work is simple. | Buyer assumes all risk, cost, and effort. |
| Escrow Funds | Money is held back from seller until buyer closes permits post-closing. | Financial protection for buyer. | Buyer still responsible for closing; funds might not cover all costs. |
| Walk Away | Buyer terminates the purchase agreement. | Avoids all risks and liabilities. | You lose the house; potential loss of earnest money (depending on contract). |
Final Thoughts
While it's technically possible to buy a house with open permits, it is generally not advisable without a clear understanding of the work involved, the associated costs, and proper legal and financial protections in place. Always prioritize your safety and financial security by conducting thorough due diligence.
