Valuing a Home Addition That Didn’t Have Permits
When you look at all the ways to add space to your house, no other method adds more space than a house addition. Whether it’s a sun room, finished basement, or a new room, additions offer the potential for higher cost-value ratios than other renovation projects.
But what happens to your home value if the addition didn’t have permits? That’s the question we’re looking at today…
"How do you value an addition that did not have permits?"
This depends on several factors.
1) Is it typical in the market area?
There are several areas where it is common for owners to convert garages, carports etc. to living area or have additions built without permits. In these area it can be demonstrated that buyers are willing to pay for these properties at similar rates to homes where there are conversions that did have permits.
2) Was the addition/conversion completed in a professional manner?
If an addition or conversion is not up to the quality of the rest of the home it may contribute a lesser value to the home and the appraiser will take this into account.
3) Does the conversion and/or addition match the style of the existing home?
An addition or conversion that is of a different architectural style than the existing home may actually be a detrimental factor and the appraiser will consider this and make adjustments as warranted based on other sales with similar detrimental factors.
4) What are the requirements of the local building and planning department?
Local building departments have differing requirements where unpermitted conversions and/or additions are concerned. These can range from taking no action to requiring the home owner to remove the addition or restore the conversion back to the original use. This is where it is important to have an appraiser with local knowledge of the area.
For loan purposes Fannie Mae's states the following;
If the appraiser identifies an addition(s) that does not have the required permit, the appraiser must comment on the quality and appearance of the work and its impact, if any, on the market value of the subject property.
FHA states the following;
Room additions and garage conversions are encountered frequently in the practice of residential appraisal. In general, HUD wants the Appraiser to treat them as part of the GLA — with some stipulations. B. Handbook 4000.1 confirms that "[t]he Appraiser must treat room additions and garage conversions as part of the GLA of the dwelling, provided that the addition or conversion space: ƒ. is accessible from the interior of the main dwelling in a functional manner; ƒ. has a permanent and sufficient heat source; and ƒ. was built in keeping with the design, appeal, and quality of construction of the main dwelling."
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