Valuing unpermitted area

First, let me say that I am not a rehabber, but a wholesaler. I came across a home in foreclosure that has two rooms that are not permitted. My question is, What is the best way to value a room that is not permitted? My best guess is that the rooms are 12x10 and 14x10.

Home is older(1961)3BR/2BA brick home. Assessor site has it at 1390 sq.ft. Homes in the subdivision w/similar build and size have sold for 150 withing the last four months.

Any help would be much appreciated


Depends on the area, some appraisers won’t even count unpermitted square footage.

Where I am, they either:

  • Don’t value it.

  • Value it as a negative if it’s likely to have to be removed.

  • Won’t finance or insure it if the unpermitted area has only one egress, fixed up rentable with bath and kitchen, with the landlord liable for criminal charges, and the banks for lender liability should someone get killed in a fire, which is a frequent occurence here in crowded unpermitted units.

  • The only value comes from additional rent if a rental, if rented out with the other legal units.

Frank Chin

Thanks fellas,

Frank, what exactly do you mean lenders wont finance if area has only one egress?

I was in the Air Force for four years so I have heard of egress, but I think this kind of egress is different.

Do you mind expanding a bit?

There’s many unpermitted apartments built into attics and basments. And many of them only has one door to get out. It’s made more dangerous when windows are barred to prevent burglaries, or too small to squeeze thru, resulting in deaths and injuries.

This compares to other unpermitted basement units that got one door leading to the apartment in front, and a back door to the back yard, two egresses, and the law makes a distinction here, as they are less dangerous.

When unpermitted units are found, the authorities require they be removed. Death and injuries could also subject the owner to criminal rather than just civil penalties as in the past.

Say some guy just bought a 300K house, with the illegal unit, and the city finds out, demands the owner file the permits, and spend thousands of dollars to remove the unit. If the poor guy does not have money to do so, the city can condemn the place. How is the bank going to collect the mortage payment??

And if the bank lent the monies knowing about all of this, someone got killed, some lawyer is going to sue the bank, claiming that the bank knew about the illegal situation and done nothing.

I bought an REO with an unpermitted apartment, a few years later, a code inspector came by, issued a citation to have it removed. Long story short, I managed to file plans that made the apartment legal with a minor modifications, mainly removing a bathtub.

Really good info. Thank you Frank.

Is there a way that you can tell if an area is permitted or not? I guess you could just measure the entire sq. footage of the home and compare it with what the county assessor has. Would this work? Is there another way?

It’s a two step process.

The appraiser first look at the physical layout, and compare it to the certificate of occupancy. If needed, then they can check further and compare the layout to the floor plans on file.

I was told the key is not “square footage”, but “room count”, so any construction that changes the room count needs a permit.

I got caught when they were checking a complaint on an illegal unit down the street, and knowing the area was zoned for two family, we had three mailboxes. The first mistake was my wife opened the door, and the code inspector barged in. Most folks here tell me the best way is not to let them in at all.

Anyway, I hired an expeditor (someone who works to correct violations) and was told the correct way to handle the citation was to make the basement look like the floor plan, basically empty, except for a washer dryer hookup, which was converted to a kitchen.

I told the guy to be more creative, and file plans for a home office, with a wet bar,and bathroom. Since this is not allowed living space, I had to take out the bathtub, and convert the area to a closet, and convert the kitchen sink to a bar sink. The bedroon is now designated the office. My theory was, since the citation was for “construction not in accordance with plans”, I said why not “file plans in accordance with what’s already constructed”.

The filing was originally turned down, but the expeditor said folks who get turned down usually gets a local politician to make a lot of noise, which we threatened to do in the appeals procees, and it was approved after appeal.

It cost me a few thousand dollars, mostly BS fees, less than it would’ve cost me to rip everything out (several thousand), and surreptitiously rebuilding it (another 15K), and I almost have a completed legal unit. I since put the bathtub back in, and all it takes to convert the wetbar to the kitchen is enlarge the hole for the sink, slip in a kitchen sink, put in a stove, and I’m set.