Wouldn’t it be nice if real life was like HGTV’s House Hunters and buyers only had 3 options to choose from? According to Realtor.com, the average home buyer views 10 homes before deciding on which one to purchase. In this example, Buyer Betty has viewed 32 homes with her real estate agent, Randy. Buyer Betty has finally found the home of her dreams, and she’s ready to make an offer. Upon reviewing the seller’s disclosure, Buyer Betty notices that Seller Susan disclosed that the third bathroom was constructed without pulling any permits. The disclosure of unpermitted work makes Betty feel very uneasy and want to start her home search all over again.
Lucky for Buyer Betty, her Realtor Randy is well educated and understands the Standard FAR/BAR Residential Contract for Sale and Purchase (the “Standard Contract”). He explains to Buyer Betty that by using the Standard Contract, Seller Susan will have the responsibility to obtain the required building permits for any existing improvement(s) for which a permit was not obtained up to an agreed upon amount. Section 9(a)(iii) of the Standard Contract dictates the limit for costs associated with closing out open or expired building permits and obtaining the required permits for any unpermitted work (the “Permit Limit”).
Buyer Betty and Seller Susan agree upon a $10,000 Permit Limit, and they are successfully under contract. Seller Susan works in accordance with the Standard Contract and promptly delivers to Buyer Betty all plans, written documentation, and any other information in Seller Susan’s possession, knowledge, or control relating to the improvements to the property, which are the subject of unpermitted work. Seller Susan has the cost to obtain the building permits estimated by an appropriately licensed person who determines the cost will be $9,850.
Seller Susan has no later than 5 days prior to the Closing Date to obtain and close any required building permits for unpermitted improvements to the property. Seller Susan must provide Buyer Betty with any written documentation that all building permits have been obtained and closed out. In the event final permit inspections cannot be performed due to delays by the governmental entity, the Closing Date would have been extended for up to 10 days to complete the final inspections. Seller Susan was on the ball, so all permits have been pulled and closed out. A week later, Buyer Betty and Seller Susan are officially closed! Buyer Betty was so grateful for Realtor Randy.
This is a wonderful example of the power of utilizing the right contract. If Realtor Randy had not been well educated and used the AS-IS Contract, as opposed to the Standard Contract, Seller Susan would not have had any contractual requirement to bring the property into compliance and pull any permits for the unpermitted work. The AS-IS Contract only requires a Seller to provide documentation of any unpermitted work and cooperate with a Buyer to pull their own permits, but the Seller does not have to expend any money, nor does the Seller have an obligation to pull permits. If you have any further questions about how the AS IS or Standard Contract pertains to unpermitted work, we encourage you to reach out to your local real estate attorney.
