Do Appraisers Check Permits for Refinance?

A mortgage refinance involves replacing an existing loan with a new one, often to secure a lower interest rate, change loan terms, or access home equity. A central component of this process is the home appraisal, which provides an independent assessment of a property’s market value. Lenders rely on this valuation to ensure the property adequately secures the new loan. Home improvements can significantly influence this value, and permits ensure these changes meet safety and building code compliance standards.

What Appraisers Observe During a Refinance Appraisal

Appraisers generally do not directly check permit records by visiting city planning departments. A refinance appraisal focuses on the physical characteristics of the property, its overall condition, the quality of construction, functionality, and marketability. Appraisers also consider the home’s size, layout, and any visible improvements. They will evaluate recent sales of comparable homes in the area to determine market value.

Unpermitted work might become apparent to an appraiser if it shows visible signs of poor quality, appears incomplete, or seems structurally unsound. If an addition or renovation deviates significantly from typical construction standards or is inconsistent with the rest of the property, it can raise questions. Appraisers note any visible defects or issues that could impact the property’s value, safety, or overall marketability, regardless of whether a permit was initially obtained. Their assessment centers on the impact of the work on the property’s value, rather than strict permit compliance. While appraisers utilize public records for basic property details, they typically do not delve into the permit status of specific renovations.

How Unpermitted Work Affects Property Value

Unpermitted work poses several concerns, including potential safety hazards, structural issues, and compliance risks. When an appraiser encounters unpermitted work, their approach to valuation can vary. They may assign little to no value to the unpermitted improvement, particularly if it does not meet code or presents a safety risk. This can lead to a lower overall valuation, as the property might be valued “as is” with the unpermitted nature noted in the appraisal report.

Lenders typically require a property appraisal as part of the mortgage approval process, and unpermitted construction can complicate this. Unpermitted work can raise red flags for lenders regarding the property’s collateral value and the associated financial risk. In some instances, a lender might require the work to be permitted or brought up to code before approving the loan, or they might condition the loan on future remediation. Minor, cosmetic unpermitted changes may be treated differently than major structural alterations or utility-related work, as the latter carries higher risks and is more likely to impact the appraisal negatively.

Managing Unpermitted Property Improvements

Homeowners should be transparent with their lender about any known unpermitted work on the property. Failing to disclose such work can lead to complications during the refinance process, potentially resulting in loan denial if discovered by the appraiser. Lenders may be reluctant to approve loans for properties with undocumented construction due to associated risks.

One potential option for homeowners is to obtain retroactive permits for the unpermitted work, though this process can be complex and costly. Retroactive permits average costs ranging from $2,000 to $8,000, and can involve inspections that may require opening up walls to verify compliance. The process can take several weeks to months, depending on the scope of the project and the need for modifications to meet current building codes. If the appraiser flags issues, homeowners may need to address them, such as bringing the work up to code or making necessary repairs. Consulting with local building departments or experienced contractors can provide specific guidance on navigating unpermitted improvements to ensure the property meets safety and marketability standards for the refinance.