Can Mom Sell Cottage that Doesn't Meet Code?


Dear Real Estate Adviser, 

My mother-in-law in Southern California got a visit from code officials for letting her son live in her backyard trailer. At that time, they also informed her that half of her 900-square-foot home -- her kitchen/bathroom addition -- wasn't on blueprints and is unpermitted. Can she legally sell without bringing it to code or paying added fees or fines? The house is in nearly condemnable condition but is located on a double lot. Can she sell the land, stipulating that a buyer demolish the house? 

- Kris C.

Dear Kris,

Yes, she can legally sell the property "as is." And from the looks of things, the sooner this happens, the better. Fortunately for your mother-in-law, such value-add opportunities are in demand in much of lot-constrained Southern California where there's no shortage of investors and redevelopers seeking out such properties.

Obviously it's a Tear-Down

Now that her illegal kitchen and bathroom work has been "outed," she would absolutely have to disclose that if she plans to sell the house conventionally, which I don't recommend. Given the circumstances, the vast majority of folks interested in buying such a property would want to knock the place down anyway and build something better, or at least hold it for investment. Buying the home and leaving the house there, after all, would pass along the liability for the illegal construction to the purchaser.

Unpermitted Work isn't Rare in So Cal

It's not like this situation is unique to local buyers, sellers and agents. In fact, it's been quite common for Southern California homeowners to build unpermitted additions, not only to cut corners or scrimp on construction and permit costs, but to save on the steep property tax hikes that result from cities passing on residential building permits to tax districts.

Selling 'as is' the Safe Way to Go

To my knowledge, your mother-in-law won't be expected to pay fines and fees related to the unpermitted work stemming from the sale other than those already assessed, nor will she need to stipulate that the buyer demolish the house. That's because she'd be selling "as is," meaning she won't be responsible for any known material defects, including her illegal construction.

Unpermitted Work Depresses Value

But realize your mother-in-law will likely be credited for only a small portion of the actual 900-square-foot home structure's value in the sale due to its condition and the unpermitted work. And she needn't arrange to have the house demolished before she sells, though she may be asked for another price adjustment to account for a portion of that procedure, which is expensive in her state because of the landmark 2007 California Building Code written to protect pedestrians and the environment.

Nor does she need to worry about specific buyer plans for the property. Buyers will likely file building plans with the city in advance of the purchase to be sure the teardown and redevelopment they plan is permissible.

With the house in such shabby condition and So Cal land in such great demand, selling seems to be the best -- if not only -- option at this point for your mother-in-law. She may even offer to toss in your brother-in-law as part of the deal!

Good luck.

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