Caveat Emptor: Buying Property with Changes in Mind

By Lorianna Kastrop, Vice President, The Kastrop Group, Inc. Architects

If you Google the phrase caveat emptor this is what appears at the top of the page: “DEFINITION of ‘Caveat Emptor‘ A Latin phrase for ‘let the buyer beware.’ The term is primarily used in real property transactions. Essentially it proclaims that the buyer must perform their due diligence when purchasing an item or service.” www.investopedia.com

Lately we have had several clients come to us with projects that a real estate agent who was selling the property told them they could do. They bought the property with those changes in mind. Unfortunately, we have verified that they will be unable to do the projects they envisioned. Here are just a few examples:

The buyer of a 6 bedroom/3 bath house was told he could remodel the home (which was more than he needed for a family of three) to create two homes with an adjoining wall, like a duplex. The home is in a neighborhood zoned R-1 (single family residential) and the project would create an R-2 property. It is unlikely that he will obtain a variance for this project.

The buyer of a home was told he could create a great room by taking out a wall between a living room and a dining room. We discovered that the wall is load-bearing and cannot be removed without creating additional structural support, such as adding a steel beam. This will be a much more expensive project than the new owner had in mind.

A restaurant owner wanted to lease the retail space next door so that he could expand his seating area. Fortunately, he called us before he finalized the deal. The retail space is not up to code, and he would have to spend money on accessibility improvements, add fire sprinklers, and create parking spaces. These are expensive retrofits before he could even begin to think about removing the wall between the two businesses.

Several homebuyers were told that they could add second floors, or in-law units, or convert the garage into a bedroom. Some of these projects are not possible due to lack of available on-site parking, inadequate setbacks, foundation issues, or other unique aspects of the properties. It seems logical to assume that if a neighbor did something on their property, you can do it on yours. That is not necessarily true.

A buyer purchased a residential property that had an existing rental unit in the backyard. The real estate agent told him that he could continue renting it out. It was never legally permitted, and a neighbor complained to the city about the illegal unit. The new owner was not allowed to use it as a rental. We were unable to get the unit legalized due to the neighbor’s opposition.

In a particularly egregious case that went to court, a home had been “flipped” after the previous owner extensively remodeled, adding a second floor with a surrounding deck. The seller had never obtained a building permit, had not used a licensed contractor for the work, nor did a licensed architect or structural engineer create the plans. Although the home looked great, and seemed fine to a non-professional observer, it was an accident waiting to happen. The young family that purchased it “as is”, eventually found out that the work was done illegally. They wanted to get out of the purchase contract and to be compensated for the expense of moving somewhere else. They were afraid for the safety of their young children. They sued not only the seller, but also the real estate agent, the real estate brokerage, and the title company. Everyone who had anything to do with the transaction and didn’t tell them about the “known defect” was named in the lawsuit. The case was eventually settled out of court for an undisclosed sum. Presumably the “flippers” didn’t come away with as much profit as they thought they had!

It has become common practice to sell property “as is”, meaning that you are accepting the condition of the property, even if it has defects. There are laws that require specific disclosure of “known defects”, but in our experience we have found that many properties are sold without detailing the specific defects, such as unpermitted remodeling and additions. These are “known defects” because the seller was the one who did the unpermitted work. Sellers often do not disclose this on the paperwork, or even reveal it to their real estate agent.

Please don’t buy a property without checking with the City or County jurisdiction for any abnormalities. The title reports for most buildings are part of the public record. If you are buying a home, make sure that all of the rooms are on the public record. If the City records (and the County Assessor’s records) show it as fewer rooms or less square footage than advertised, then the addition was not done legally. Either walk away from the sale, or understand that you may have a legalization issue on your hands and negotiate a lower price to account for the deficiency. The term “bonus room” is often a clue that it is not a legal bedroom.

Don’t accept that whatever the real estate agent tells you about possible improvements to the property are correct. Most agents simply do not have the professional knowledge necessary to make judgments about architectural issues and what can be done with a specific property. Some experienced agents and brokers may have seen it done somewhere else and are just making assumptions. Verify the facts before signing a contract.

If you are planning to do an improvement to the property, then contact an experienced architect in that community and check that your project is feasible before buying or leasing the property. (This is particularly true if there is not enough legal parking on the site for the proposed use.) The architect will check the zoning and the current permitted footprint of the building. He or she will understand the allowable setbacks, accessibility and code requirements, and other restrictions. This fact-checking could save you a lot of money and disappointment. So, caveat emptor!

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One Response to Caveat Emptor: Buying Property with Changes in Mind

  1. lkastrop says:

    I’ve already received feedback from a real estate agent who rightly pointed out that not all agents should be lumped together and that she does not make unsubstantiated claims about the property she sells. (And she adds that County records may be wrong.) She makes a good point. Our intention is not to criticize real estate agents or brokerages. In fact, they often give us referrals to clients and provide a very valuable service!! The point I was trying to make is that it is up to the BUYER to verify that they can legally make the improvements that they are planning to the property before they buy it. They need to check with a licensed architect and the building department in the jurisdiction where the property is located. Checking County records is usually a first step, but not the only step necessary to make an informed decision. And in many cases, a buyer might still go ahead with the purchase, but at least they will know the facts about the feasibility of improvements.

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