Unpermitted Renovations: Why They Can Make Your Home Sale Fall Through

Unpermitted work is one of the most common and costly reasons a home sale fails. A recent case where a $1.5 million sale of a Jersey Shore home collapsed due to concealed, unpermitted renovations highlights the severe financial and legal risks for sellers. For buyers, purchasing a property with such issues can mean unforeseen costs, safety hazards, and difficulties obtaining insurance. This article explains the critical importance of permits, the consequences of non-compliance, and how both buyers and sellers can protect their investments.

What Are Unpermitted Renovations and Why Are They a Problem? Unpermitted renovations are any structural, electrical, plumbing, or significant cosmetic changes made to a property without obtaining the required approvals from the local municipal building department. The purpose of a building permit is to ensure that all work complies with current safety codes, zoning laws, and construction standards. When this process is bypassed, there is no official record or verification that the work was done correctly. This creates significant problems. For the seller, it constitutes a failure to disclose a material defect, opening them up to lawsuits after the sale. For the buyer, it means inheriting potential safety risks and the liability for bringing the work up to code, which can cost tens of thousands of dollars.

How Can Unpermitted Work Derail a Real Estate Transaction? The discovery of unpermitted work typically occurs during the buyer's inspection period or when the buyer's agent reviews property records. This discovery can trigger a chain of events that kills the deal:

1. Financing Fallthrough: Most mortgage lenders will not approve a loan for a property with significant unpermitted work because it compromises the property's value as collateral.
2. Insurance Issues: Homeowners' insurance companies may refuse to provide coverage for the unpermitted areas or deny claims related to them.
3. Negotiation Breakdown: The buyer will often demand that the seller either obtain retroactive permits (a costly and time-consuming process) or significantly reduce the sale price to cover the future cost of remediation. If an agreement cannot be reached, the buyer is well within their rights to walk away and reclaim their earnest money deposit.

What Should Buyers and Sellers Do to Mitigate This Risk? Proactive steps are essential for a smooth and legally sound transaction.

• For Sellers: Practice full transparency. Based on our experience assessment, the safest approach is to disclose any known unpermitted work on the seller's property disclosure form. Before listing, compare your home's current layout and systems against the original building plans on file with the city. If you discover unpermitted work, consult a real estate attorney to understand your options, which may include applying for retroactive permits or adjusting your asking price to reflect the issue.

• For Buyers: Conduct thorough due diligence. Always hire a licensed and experienced home inspector who can identify work that may not have been permitted. Verify permits yourself by contacting the local building department; this is a public record request. Furthermore, ensure you purchase an owner's title insurance policy, which can offer some protection against certain title defects, though it may not cover all permit issues.

The case of the $1.5 million Jersey Shore home is a stark reminder that cutting corners on permits is a high-stakes gamble. The potential short-term savings for a seller are vastly outweighed by the risk of a failed sale and legal action. For buyers, rigorous inspections and verifying permits are non-negotiable steps in protecting your investment. Ultimately, transparency and adherence to local building codes are the foundations of a successful and secure real estate transaction for all parties involved.