Underwriting

How to value a property with unpermitted work

Valuing a property with unpermitted work is more complex than a standard deal because it carries extra risk and potential costs. You need to identify the unauthorized changes and understand what it will take to bring them up to code or remove them.

October 26, 2026 · 3 min read

Identifying unpermitted work during due diligence

During your property walk-through, look for signs of additions, renovations, or structural changes that seem out of place or new compared to the rest of the house. Common unpermitted work includes converted garages, finished basements, deck additions, or changes to plumbing and electrical systems. Ask the seller directly about any major work done on the property.

Cross-reference the property's public records, like county assessor maps or permit history, with what you see. Permits are publicly searchable, so a quick check can reveal if major work was legally documented. If you see a new bathroom but no permit, that is a red flag.

Assessing the risk of unpermitted structures

Unpermitted work carries several risks. The biggest is the potential for safety hazards if the work was not done to code. This could include faulty wiring, improper plumbing, or unstable structures. Another risk is that the county or city could force you to tear down or re-do the work, which means unexpected costs.

An unpermitted addition may also not be included in the square footage calculation by an appraiser, meaning the property might be valued lower than you initially thought. This directly impacts your after-repair value (ARV) and, consequently, your offer.

Estimating the cost to permit or remove

Once you identify unpermitted work, you need to estimate the cost to either bring it up to code and get it permitted, or to remove it entirely. This often involves hiring specialists like licensed electricians, plumbers, or structural engineers to evaluate the existing work. They can tell you what is required to make it compliant.

Getting permits after the fact can be more expensive and time-consuming than getting them before the work began. Factor in inspection fees, potential fines, and the actual cost of any necessary corrections. If removal is the only option, estimate demolition and disposal costs.

Impact on after-repair value (ARV) and your offer

Unpermitted work will directly affect your ARV calculation. You cannot reliably include unpermitted square footage or features in your comparable sales. Only permitted, legal square footage contributes to the appraised value. This means your initial ARV might be lower than you hoped.

Your offer ceiling must account for the full cost of addressing the unpermitted work, whether it is permitting or demolition. Treat these as necessary repairs, just like a new roof or HVAC system. They are deductions from your maximum allowable offer.

Local regulations and potential enforcement

Different municipalities have varying levels of enforcement for unpermitted work. Some are stricter and proactively seek out violations, while others are more lenient unless a complaint is filed. Research your specific county or city's building and code enforcement policies. This is not legal advice.

Understand the statute of limitations for unpermitted work in your area, if one exists. Even if the work is old, if it is a safety hazard, you could still be forced to remediate it. Always operate with caution and assume you will need to address the issue.

Protecting yourself in the contract

In your purchase agreement, ensure that you include specific language acknowledging the unpermitted work. You might want to include an inspection contingency that allows you to further investigate the unpermitted work and adjust your offer or walk away if the costs are too high. This protects you from unforeseen expenses.

Also, clearly state that you are buying the property as-is, but your offer is based on the current understanding of the property's legal status. A hypothetical example: suppose you discover a $10,000 cost to permit a garage conversion; your contract should allow for renegotiation or termination.

Questions people ask

Can I just leave the unpermitted work as is?

You can, but it carries risks. You might face fines, be forced to remediate it, or have difficulty selling to a retail buyer. It will likely not be included in an appraisal's square footage.

Will a title company flag unpermitted work?

A title company generally does not flag unpermitted work directly. Their focus is on liens and ownership. However, an unpermitted structure could lead to a boundary dispute or other issues that a survey might uncover, which could then affect title.

How do I find out about local permit requirements?

Check your local city or county's building department website. They usually have sections on permit requirements, building codes, and how to search for existing permits on a property.

Should I adjust my ARV calculation heavily?

Yes, you should adjust your ARV. Do not include unpermitted square footage in your calculations for value, and factor in the full cost of bringing the work to code or removing it as a repair expense.