Should you remodel with permits or without permits? This is a dilemma thousands of homeowners face in order to save time and money.
As a multi-property owner who has done a dozen home remodels myself, my recommendation is to always do the big jobs with permits. In the long run, remodeling with a permit tends to products better and safer work. Further, remodeling with a permit helps with your home's resale value.
One of the benefits of property ownership is that you can remodel based on your tastes. Further, you can increase the value of your property by expanding its livable space. When the time comes to remodel, you will face a dilemma of whether to remodel with permits or without permits.
In this post, we'll go over:
- My history remodeling with permits
- How long it takes to get a permit
- Additional costs of remodeling due to permits
- The different types of permits
- Trying to pass final inspection
- Why you should remodel with permits
- Why you may want to skip remodeling with permits
- How remodeling with or without permits might affect the value of your home
My Remodeling History With Permits And Without Permits
Since 2005, I've remodeled six bathrooms and two kitchens. Further, I've replaced dozens of windows, re-wired an entire house, built a retaining wall, and replaced one roof with permits. I've also built one deck and created one large master bathroom by reclaiming garage space with permits.
Since 2005, I've also expanded one deck and replaced one roof with permits. The deck was rotting, so we replaced the boards. When I replaced the roof, I didn't even realize I needed a permit until I sold the property. The lack of a roof permit was part of my disclosure package.
Every single time I remodel with permits, I get frustrated by how agonizingly slow the permit approval process is. However, once each project receives final approval from the Department Of Building Inspection (DBI), I feel a huge sigh of relief.
Remodeling with a permit is a royal pain in the ass. It is why many homeowners choose not to get a permit. Not only does a homeowner avoid the critical eyes of multiple inspectors, but homeowners also don't have to pay increased property taxes on the remodeling project as well.
Let me share a typical timeline for how long it might take to get a permit. Just know that getting the permit is one step. Getting final approval for your project is the ultimate goal.
How Long Does It Take To Get A Permit
Depending on where you live and what type of project, getting a permit could take anywhere from one week to two years. To be clear, this is just to get the permit, not the time it takes to finish your remodel. Remodeling a home often costs more and takes much longer than expected.
The wealthier you are, the more valuable your time. Therefore, it is natural for wealthier homebuyers to want to buy an already remodeled home with permits rather than buy a fixer. In my younger years, I was much more enthusiastic about putting in sweat equity.
In addition to time, the decision to remodel with permits or without can be influenced by several other factors. For example, who you hire to do the work, the type of project, and how nosy your neighbors are. Believe it or not, some of your neighbors will secretly report you for not having a permit. The results could be fines or a total shutdown of your project.
If you're simply too lazy to go to the permit office or are highly impatient, just be aware there could be consequences. We'll get into the pros and cons of permits down below.
Now let's cover the different types of permits available.
Over The Counter Remodeling Permit
The over the counter permit is the easiest and quickest type of permit to get.
After purchasing a fixer in 2019, I decided to remodel the house in two stages. The first stage was remodeling the three bathrooms and kitchen. Given we were not changing the floor plan or expanding the envelope of the house, we were able to get an over the counter permit in two weeks.
Even though it was relatively easy to get an over the counter permit, I still needed to negotiate the project with my contractor and pay him to draw up floor plans for submission. The Building Department needs to see floor plans to understand your remodeling job.
I actually got an OTC permit to build my deck. I was surprised because in the past, such a permit would require a neighborhood notification for three months. Only if someone didn't complain, would the permit be approved.
Regular Remodeling Permit
Some municipalities will provide OTC permits for jobs that might require a regular permit in other cities. It all depends on how strict your city is.
If I was to expand the footprint of my house by building into my backyard, I couldn't get an OTC permit. I would need to get a regular permit, which would likely take between 6 – 24 months.
After spending the first month coming up with the design, you then have to submit the drawings to the planning department. The planning department might take three months or longer to get back to you, depending on its backlog.
Example Of Permit Record
During the pandemic, the backlog became enormous in San Francisco because contractors could no longer go into the Department Of Building Inspection in person. Further, the online permit submission system didn't work properly.
Once the Department Of Building Inspection approves your permit in cities like San Francisco, you need to then send out a notification to your neighbors about your plan (if you are expanding the footprint). Your neighbors then have three months to review it and raise objections at a hearing. Only if no neighbors object will the planning department give the go ahead to start construction.
As you can imagine, this is where getting your permit approval process can run into many roadblocks. If you build too high, too big, too long, or too ugly, your neighbors may object. If there is no precedence for your remodel, your neighbors may object. Neighbors don't want their views blocked. They also tend to want houses in their neighborhood to be of a similar scale.
The grander your home remodel, the longer it will likely take to get a permit approved. In wealthier neighborhoods, you see permit fights all the time.
The Long Process To Pass Final Inspection With A Permit
Getting a permit is only half of the battle. Once you get the permit, you must still pass various stages of inspection with three inspectors: building, plumbing, and electrical.
You may first need to get a demolition permit and have an inspector approve you've demolished everything properly. The Rough stage is post demolition when your builder frames out the house. For example, the plumber goes in and installs all the pipes within the walls. Then, the electrician drills through all the beams and wires the house.
You can't cover up the walls before passing the Rough stage. If one of the three inspectors does not pass your project, you cannot move to the next stage. Further, each inspector must be scheduled separately and sign off at each stage. The building inspector is usually last.
Building Inspector Scheduling Is A Bottleneck
What can be very frustrating is that it can sometimes take one or two weeks to schedule an inspector. If one inspector finds something not up to his satisfaction, you've got to redo the error, wait another 1-2 weeks, and have him come back.
If your contractor and sub-contractors are excellent, passing the various stages of inspection will be easier. But undoubtedly, something will go wrong. Further, building codes are always changing, usually due to better safety requirements. If you have an inspector arrive in a particularly bad mood, your project might get delayed for months.
What's crazy is that sometimes, you may have two different building inspectors or electrical inspectors wanting two different things! We had this happen once. As a result, my contractor had to call their boss and make a case as to why their requests were conflicting, unfair, and costly to redo.
Building Permit Costs
Just like how there is an endless number of things you can remodel, there's an equally endless number of permits the city requires you to pull before you can begin remodeling.
Here are the average building permit costs in America in 2021 according to HomeAdvisor. Building permit costs vary by city. Building permit costs are often usually a percentage of the remodel cost. Then there are random fees as well. Therefore, check with yours for a more accurate estimate.
Talk about tons of building permit costs! A good licensed contractor will be able to navigate all the required permits. He may include the permit costs in the cost of the remodeling contract or send you the permit bill separately.
The Building Inspector Is On The Homeowner's Side
Given you are paying to have your remodeling project inspected, the building inspector is supposed to be on the homeowner's side. The building inspector makes sure all the electrical, plumbing, and building work is done to code. The last thing you want is faulty wiring that results in your house burning down.
Therefore, no matter how painful the inspection process is, the key is reminding yourself the building inspector is there for your own good. In fact, the more times an inspector has to come over to your house and evaluate the work, the more you're getting out of your permit fee!
If you execute the work yourself, it’s even more important to have someone experienced inspect the details. A good inspector will provide guidance on how to get things done right and pass his inspection. A bad inspector will just report what is wrong with minimal guidance. Then, you're left guessing how to best do the work.
Unfortunately, however, there are also some instances when a building inspector or contractor can hold your project hostage due to corruption. My contractor has told me stories where a building inspector won't pass a stage of inspection until they receive some type of favor or money.
Remodel With Permits Or Without Permits
Now that I've provided you with just a taste of how difficult it can be to remodel with permits, let's go through whether it's best to remodel with permits or without permits.
Why You Should Remodel With A Permit
1) Safety and protection
Without a permit you won't have three inspectors at two or three stages looking for faults. No matter how good your contractor is, there will always be something they will miss. The inspectors are trained to know the latest building codes for maximum safety.
The more inhabitants you have in your house, the more you want to remodel with a permit. I've seen too many tragedies happen due to something wrong with the building.
2) Liability protection
If something goes wrong with your house after remodeling with a permit, you may be able to sue the Department of Building Inspection for not doing its job properly.
For example, there is a luxury high-rise in San Francisco called Millennium Towers that is sinking into the sand. The homeowners sued the Department Of Building Inspection for approving the project without instructing the construction company to anchor the building deeper into bedrock. There's supposedly a $100 million resolution to fix the building.
3) More peace of mind
If you remodel without a permit, you're taking a bigger leap of faith that your contractor knows what he is doing. When it comes to business, there is sometimes a tendency to take shortcuts to maximize profits. With three building inspectors inspecting your property, you can literally sleep easier knowing you have licensed professionals protecting you every step of the way.
4) Higher resale value
You might save money upfront remodeling without a permit. However, remodeling with a permit increases the value of a home on the back end if you ever decide to sell. In San Francisco, we have what's called a 3R report (Report of Residential Building Record). The 3R report is the report card of your home. It shows all permits pulled and passed in its entire history.
If you plan to sell your home in the future, you will have to disclose your home report card. To experienced buyers and home remodelers, showing approved remodeling permits is very valuable. The more home remodeling torture a buyer has had to go through, the more the potential home buyer will value a home that has been remodeled with permits.
In fact, after a two-year remodel with permits, I'm sure the value of remodeled homes will go way up. Fewer people want to deal with remodeling fixers anymore.
5) Less stress about getting outed and fined
If your workers are particularly loud or rude one day, your neighbors might just look up your house on the building inspection's website to see if you have a permit. If you don't, your neighbors can easily submit a complaint.
In the unfortunate situation where an inspector catches you remodeling without a permit, you might receive a fine sometimes equal to 10X the cost of the permit. Further, you might be forced to redo the work given all the steps involved in getting permitted work done.
The only way an inspector can catch you after a complaint is if he sees unpermitted work. Therefore, if you are doing remodeling work outside the envelope of your house (deck, driveway, expansion), you should probably get a permit. An inspector has no right to enter your home to inspect your work without permission.
Why You May Not Want To Remodel With A Permit
1) Corrupt and inefficient city
If your city has a history of corruption and waste, you may not want to remodel with a permit. There are situations where an inspector will “shakedown” homeowners by only passing an inspection if money or a favor is given. It may be rare, but it does happen.
In San Francisco, we've got a $12 billion annual city budget. Therefore, there have been instances of corruption in the building department ever since I've been here. Our mayor, London Breed, even used to date the former San Francisco Public Works Director, Mohammed Nuru, who received bribes from a recycling business owner.
Greasing politicians to win contracts, charge higher-than-normal recology rates, and receive permits is just the way things have always been done in big cities with big budgets. It's very hard for some politicians and city officials to not be tempted by money and power.
For example, in December 2022, former San Francisco Senior Inspector Bernard Curran pleaded guilty to two counts of accepting gratuity payments as rewards for approving building permits. In 2017, Curran accepted $260,000 from the developer in order to pay off an existing residential mortgage in which he repaid $230,000, according to prosecutors.
The department’s former director, Tom Hui, resigned in 2020 after he was accused by the City Attorney’s Office of misconduct, including that he gave preferential treatment and access to a permit expediter.
2) Cost of permit and higher property taxes
The cost of a permit is one thing. The ongoing higher property taxes will likely be more costly. Whenever you apply for a permit, you must submit an estimated cost of the remodel. The cost of the remodel, if reasonable, will be inputted into the Assessor's Office. From there, your property taxes will increase based on the higher assessed value.
For example, let's say the remodel costs $100,000. If your city charges a 1.5% property tax rate, you will have to pay an additional $1,500 a year in property taxes for as long as you own the home. If you plan to remodel and sell your home shortly after, this cost isn't as big of a deal. However, if you plan to live in your house for decades, this extra cost of a permit really adds up.
3) You disagree with the need for a permit
The more you remodel, the more experienced you will get. You might find that the need to get a permit for some remodeling jobs is unnecessary. For example, you may not want to go through the entire permit approval and inspection process to change one old window.
When I pulled a permit to replace my roof one time, the inspector didn't even go up to the roof to inspect it. Instead, he pulled up to my house, looked up and signed the paper. When I replaced the back windows of my house, the inspector stepped one foot in the door, looked at the windows from 25 feet away, signed the permit paper and drove off. I definitely didn't get my money's worth in these two cases.
4) You or someone you trust can do the job with confidence
Let's say you've worked as a licensed electrician for the past 25 years. As a result, you know how to safely rewire a room from knob & tube wiring to ROMEX wiring. You may not want to get a permit for the job.
5) Getting new construction approved with a permit takes too long
Take a look at this chart below highlighting the length of time it takes to get a new build permit in San Francisco. Due to corruption, bureaucracy, and inefficiency, it now takes over 600 days to get a building permit for new housing. While you wait, the cost of materials and labor will likely go up.
Example Of How Remodeling With A Permit Affects Selling Price
In a hot real estate market, potential buyers might not find unpermitted work a big deal. In a potential buyer's mind, they might think doing unpermitted remodeling work is better than doing no improvements at all.
Below is a two-bedroom, two-bathroom, 1,550 square foot home that went for $780,000 over asking in March 2021. The final sales price is also about $460,000 over Redfin's poor estimate, which savvy investors are now taking advantage of.
Upon first glance, paying $1,403/sqft for this home is at least 35% higher than comps would support. However, if you take a look at the listing's floor plan, it looks like there may be some unpermitted space that makes the home larger than its official 1,550 sqft. I'm familiar with the layout of such homes and it is highly unlikely both floors are only 1,550 sqft.
The upstairs is likely around 1,200 sqft and the downstairs is around 900 sqft for a total of 2,100 sqft. Therefore, the final price of $2,175,000 now seems more reasonable at a little over $1,000/sqft.
How Much More Valuable Would The Home Be With Permits?
How much more would the home have sold for if all the work downstairs had been done with permits? Perhaps $2,300,000 – $2,500,000. Almost always, I believe the value gained from remodeling with permits far outweighs the cost savings of remodeling without permits.
During a bear market in real estate, major unpermitted work might make a home a non-starter. In other words, some buyers might completely balk at buying a home with a major remodel without permits. Why bother when there are plenty of homes with permitted work to choose from?
Therefore, before you begin your home remodel, you should do a scenario analysis.
You Should Probably Get A Permit To Remodel
Whenever you do a gut remodel, you should probably get a permit. A gut remodel involves demolition, rewiring, new plumbing, and new structure. This is your chance to update your home's guts to the safest and latest material and requirements. Big jobs put more capital at risk. Therefore, getting a permit is more important for protecting your investment.
If you have the majority of your net worth in your primary residence, you should probably get a permit. You've already got too much concentration risk as it is. On the other hand, if you're doing a remodel on a rental property that's worth 5% of your net worth, you may not care as much.
Although the entire permitting and remodeling process is generally very unpleasant, once you've finished remodeling with a permit, you will feel great that you did. The feeling is sort of like studying very hard for a test and passing with an “A,” versus copying your friend's work.
You Might Always Wonder What If… If You Don't Remodel With A Permit
If you don't remodel with a permit, you might always wonder whether your contractor did the job up to code. There have been several instances where an inspector did not pass a stage because my contractor didn't do something small, but important.
One example was the contractor forgetting to put a rubber membrane under my shower pan and shower bench. Another example was when my tennis buddy installed a mechanical valve when replacing a leaky pipe. He should have soldered the pipes together. Another example was not having an electrical junction box to break the circuits in case of a surge.
When To Remodel Without A Permit
For small jobs that aren't a safety hazard, remodeling without a permit is probably OK. For example, if the window was improperly installed, you might experience a draft that can be plugged. Although an improperly installed window might fall out, potentially causing serious damage to the person leaning on it! The problem is, small jobs are often accompanied by minimal inspection by the inspector.
Overall, I think for 80%+ of the jobs, you should remodel with a permit. Not only is the peace of mind worth a lot, but so is the improved resale value of the home.
You might also wonder how much more you could have made selling your home with permits. After all, as a real estate investor, you're always trying to achieve the maximum return possible.
Now that I'm a father, I will likely never buy a home that has been remodeled without permits. Once you see how much goes into remodeling, you will be less inclined to risk it. People take way too many shortcuts which could cause damage or pose safety hazards down the road.
As I look into the future, I see the value of remodeled homes with permits increasing at a faster rate than homes that need work. The pandemic has made getting a permit and finishing a remodel more difficult. Therefore, there will be incrementally more demand to buy homes that have been properly permitted.
Invest In Real Estate Passively Instead
Now that I'm gone through so many home remodels, I actually never want to go through another remodel with or without a permit again. My city of San Francisco makes remodeling too tough. My time is far too precious now with two little ones.
Instead of remodeling for profits, I want to invest in real estate passively through public REITs and private real estate funds like the ones offered by Fundrise.
Fundrise is the leading real estate crowdfunding platform to help you diversify and earn income 100% passively. During times of volatility, Fundrise tends to outperform stocks based on historical results. For the average investor, I think it's best to invest in a diversified portfolio of real estate holdings.
For those of you who are accredited investors, take a look at CrowdStreet. CrowdStreet focuses on individual real estate opportunities in 18-hour cities where valuations are lower and cap rates are higher. Due to the spreading out of America, growth rates tend to be higher in 18-hour cities as well.
Both platforms are free to sign up and explore. I've personally invested $810,000 in real estate crowdfunding to diversify and earn income passively. Private real estate has been one of the most stress-free and best investments I've made since becoming a dad in 2017.
Readers, what is your opinion on remodeling with a permit or without a permit? Have you had a terrible experience with an inspector before? What kind of remodeling jobs have you done without a permit. How much do you think remodeling with a permit affects the resale value of a home?