Unpermitted Work/Alternations Causing Appraisal Issues

[Michael Bianco]

Hello BiggerPockets Community!

I'm a first time home buyer, and under contract for my first home. It's a single family residence with a garage that has been converted into a studio apartment.

The garage conversion is not a legal ADU, but it is partially permitted. There are permits for electric, plumbing, and adding a full bath. In addition to the full bath, there's a "kitchen" (sink, stovetop, and fridge; no stove) and washer + dryer hookups.

There's also a shed on the property that was converted into a office. It's drywalled, insulated, and has a  half-bath. There's a permit available from the 80s for adding a shed, but clearly that old shed has been torn town and replaced by this upgraded "office shed".

Also, the back porch has been converted into an addition on the property. There was a permit pulled for the sliding door on the addition, but not the addition itself.

The owner of the home who made all of these modifications was a general contractor, and according to the inspector, did a pretty good job on the work. The issue that I'm running into is the appraiser is giving us a "conditional" appraiser for the sale price based on resolving all of the unpermitted work on the property. My agent is claiming that this is very strange, and the appraiser should indicate the value of the property as-is without any modifications. The lender is saying that unpermitted work causes issues per some sort of regulation that's been in place since 2010.

Here is the snippet from the appraiser that is causing issues:

https://dl.dropboxusercontent.com/u/3125772/Mortga...

I'd love some second opinions on the situation and any help the community here can offer! Here are a couple questions I have, although I'm open to any feedback on the general situation.

1. Is unpermitted work very problematic? Is seems like if there's "big" unpermitted work, that can cause appraisal issues, but finishing over a basement is fine. Is that correct?

2. It is sounding like the only resolution path is getting the town to come out and permit all of the work that was done, although we are working on getting a specific list from the appraiser on what needs to be done.

3. The town doesn't currently allow additional ADUs. What constitutes an ADU vs a detached room?

Thanks so much!