What’s one thing that can prove a home’s value and avoid litigation?

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According to the BuildFax Index, approximately 7 million building permits for nonreplacement residential work were issued in the U.S. in 2014.

But these building permits represent only a small percentage of the work performed nationwide by contractors for additions, remodels and alterations.

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As many of you know, home improvements such as remodeling a bathroom, fixing a basement or adding a great room can enhance a home’s value. What you might not know, though, is the impact that a lack of building permit information can have on a sale.

Before work begins, a homeowner might discuss the need for building permits with the contractor. The contractor might view the building permits as extraneous paperwork that could cause schedule delays and additional expense.

As a result, the contractor might try to convince them to skip the permitting process. But permits exist for a reason.

Permits provide homeowners with additional protection by ensuring compliance to building code, protecting a home’s value, and reducing possible litigation, sales and tax issues.

Uphold a home’s value and avoid litigation

Ignoring local approval requirements can potentially derail an otherwise smooth home sale. Building permits play a pivotal role in a real estate agent’s and home seller’s pricing, disclosure and liability.

The agent will appreciate complete permit paperwork to provide as evidence of home improvements because they legitimately increase the value of the home and avoid possible future litigation.

As residential real estate transactions become more complex, skeptical homebuyers are also increasing. A primary source of real estate lawsuits involves a homeowner’s failure to disclose claimed property workmanship or defects.

For example, an undisclosed and undocumented bathroom remodel that results in a leak and mold can make the seller’s agent liable along with the seller.

Avoid sale and tax surprises

Lack of building permits today can be costly in the future. In some counties, copies of building permits are supplied automatically to property tax authorities and can trigger a reassessment of the property for tax purposes.

Not getting a permit opens homeowners to the possibility of the work being discovered by a field inspector, reported to an assessor by a neighbor or exposed during the buyer inspection.

Without a building permit, home sellers and their listing agents are responsible for violations and fines that can cost plenty. Pulling a permit can cost less than $100 and up to $1,000 or more depending on the locality and the size, scope, value and type of work to be completed.

Additionally, according to the American Bar Association, banks might refuse to make a home loan if no permits are available and it is obvious that the house has been renovated.

Use new online tools

Fortunately, there are technologies available to everyone online, including real estate professionals and consumers.

In addition to finding home listings online and hiring an inspector, home sellers, buyers and their agents have access to online reports that include in-depth information on a property such as building permits and insurance claims.

Comparing the two should give agents a good snapshot of whether improvements or repairs were made within code. A good practice is always to know as much as you can about a property before you buy — or sell.

Michael Abdy is president of Housefax.

Email Michael Abdy.