House with unpermitted MIL basement apartment, risk?

Question

I'm under contract for a house that has an unpermitted finished basement and garage conversion to bedroom and bath. The basement has a separate entry, and although it all looks like it is done by a pro, it is unpermitted. The thought that keeps crossing my mind is that, if he could get a permit before selling, why wouldn't he? He is leaving 50-75K of money on the table with the unpermitted conversion.

Since I plan on occupying the house as my primary residence and renting out the basement, the issue of insurance and liability comes into play. I have no protection from my insurance company, if my tenant gets injured down there.

I am scheduled to have my home inspector look at it Thursday, and he is a former house builder, but he will not be able to tell if all of it is up to code I'm sure. Also, I spoke with the city permit office, and they have Already Built Construction Permits, however, there is no telling if they will permit it or not, without them coming out to look at it. Which could result in being told to undo it, which costs money, though is unlikely from what I've read.

I've seen a lot of realtors online mention that this is actually really common. Still, there is risk, no? Originally I thought it was enough of an opportunity that I'd at least get it inspected, but now I'm wondering if even that is just a waste of money/time.

Jack B. · Answer

Passed on the house within 15 minutes of inspection. Paid the home inspector *my regular guy) a partial fee of $150 which was money well spent IMO. Immediately he could tell the windows were not to code and bringing them up to code would be very expensive. Also, the tub happened to be full of what appeared to be sewer water. Running the sink filled the tub even more. Water heater had issues too, and no electrical panel in the basement, and the vent for the microwave or lack thereof would be an issue, no guard rails, ALL KINDS of issues.

Matt R. · Answer

Thanks for updating us on the results!  It helps everybody calibrate their advice to the next person.  Hopefully you'll find a better deal soon.

Jack B. · Answer

@Matt R.

Thanks, yeah I figure it will help someone else out down the road to post the results. I suspected something was off. I get not having an up to code ADU to keep property taxes low when keeping the property, but when you are selling, why not get the permits and get the extra money from the extra sf?

How lucky I was to visit the place on a rainy day (not hard this time of year in Seattle!) and find the tub full of green water that turned out to be sewer water! Wasn't like that the first time I visited it. Luckily my inspector flagged a bunch of other problems as well so even if the sewer issue was not as evident on the visit I still would have walked. The sewer issue made it a decision that I am beyond certain was right.

@Michaela G.

So how does that work in, "The ATL"? When you live in the house it can't be considered grandfathered, but if you rent it out it can? Except if you don't rent it out for a year then it's not exempt again? Ever? Or just until you rent it out again?

Michaela G. · Answer

I think it really depends on your personal location.

If this was in Atlanta, it would be called 'grandfathered' and can continue to be rented out, even if it wasn't permitted and isn't up to code. But if it ever wasn't used that way for a year, you'd lose the grandfathering.

Rob Myers · Answer

Find out when your building inspector's office hours are and stop down and explain the situation.  Tell them you want to do the right thing and have the work inspected to be legal.  You might receive the generic answer that you need to rip everything open and have it inspected, but many times you will find the inspectors will work to a more reasonable middle ground.  If you can find a reasonable way to get it permitted, you just built instant equity in the deal.

Matt R. · Answer

You and the home inspector can check it for obvious silly things, like not having two ways out of the bedroom, or a light switch that is on the far side of the bedroom (instead of by the door), or only one outlet for a 12' x 12' bedroom, or no central heating in the bedroom, or whatever.  Some of these things are not hard to fix, but if you don't fix them before you get the city guy in there, the city guy may be inclined to take a much harder look at *everything*.

As you said, some things will be harder to tell.  The thing that sticks out to me is the bathroom conversion in the garage - basically, it can be non-trivial to tie in the plumbing for a new toilet to an existing house.  For instance, if the garage has a slab floor, somebody would have had to jackhammer through it to install the waste line to the toilet.  If they really did do that, then OK, but the incentive is high to do something sloppy, like plumb the toilet into an existing floor drain.  (Sometimes the toilet plumbing is offered as an extra-cost option by the original builder; they put it in correctly before they pour the slab and just cap off the waste pipe; later on, the homeowner can install a toilet there and it will work just fine.)

Some of the risk depends a little on how picky the city building inspector is, and that information is probably only available from other local investors or contractors.  If you haven't asked anyone local about their experience with building permits and code enforcement, do so.

House with unpermitted MIL basement apartment, risk?

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