DEAR BARRY: Our home has a bedroom addition that was built without a permit. Now that we are selling, we want to know if the nonpermitted addition adds value to the home, or will it not be considered when the property is appraised. How should we consider this when pricing our home for sale?
DEAR KEVIN: Nonpermitted additions to a home pose a challenge to appraisers because, on one hand, they cannot include the square footage of an illegal addition in their measurement of the building, while on the other hand, they realize that the addition has real value as a usable feature of the home. For example, a three-bedroom home in which one bedroom was added without a permit has more usefulness, and therefore more actual value to a family, than a two-bedroom home. In terms of function and marketability, the value of the nonpermitted addition is real and cannot be dismissed or ignored.
The problem for appraisers is that including the nonpermitted addition in the measured living area exposes them to legal liability and potential lawsuits. Therefore, some appraisers refuse to assign any value to an addition that is not permitted, even though it is a violation of Uniform Standards of Professional Appraisal Practice to exclude a feature of significant value.
If it can be demonstrated that a nonpermitted addition contributes significant value to a home, an acceptable appraisal method employed by some appraisers is to treat the nonpermitted addition as an accessory structure, not unlike an enclosed patio, bonus room or workshop, and assign value separately. How this will work out when your home is appraised remains to be seen. In any event, be sure to disclose the nonpermitted status of your addition to all prospective buyers.