Permits matter.
Or at least, they matter a lot more than they used to.
Here in Colorado, there are more than 30 different types of home improvements that, per code, should require a permit. Here's a partial list:
Interior: Air conditioning, basement finishing, boiler replacement, electrical service upgrades, evaporative cooler installations, furnace replacement, gas fireplace installations, garage conversions, kitchen remodeling (if plumbing or electrical components are touched), water heaters and any other type of work that affects plumbing or mechanicals.
Exterior: Additions, carports or garages, driveways (new or repoured), decks and patios, fencing, enclosing covered patios, adding a shed (always be aware of property line setback requirements), window replacement (lead-based paint mitigation is required for homes built before 1978), skylights, siding, solar panels, and of course, re-roofing.
As you can see, the list of items that technically require permits is quite long. I would say that, based on my experience, required permits are pulled less than 50% of the time. The number one reason people pass on permits is to try and save a few bucks, but sometimes that desire to save money ends up creating a lot of future problems.
Up until about 10 years ago, insurance companies were a lot more tolerant of non-permitted finishes. But then Hurricane Katrina happened. Then the housing market crashed. Then the stock market crashed. And then a relentless series of hailstorms pelted the Midwest, including many parts of Colorado... and suddenly, profit-minded insurance companies became a lot more serious about finding ways to avoid paying claims.
Permits are not that expensive, in my opinion. Most times, city inspections and closed permits cost anywhere from $100 to $1,000, depending on the work. Sometimes it takes the city inspector a few days to get out to the house. Sometimes permit inspectors will nitpick repairs. It adds time and money to the cost of remodeling, and so some contractors and homeowners just roll the dice and skip it.
Increasingly, though, I have become more and more committed to educating my clients about the need to pull permits. In Colorado, the purchase contract states that buyers purchase homes "as is, where is", meaning that they inherit all faults and assume liability for issues with the house. (A new owner can always sue a former owner for non-disclosure, but that is a very hard lawsuit to win most of the time)
If your basement floods due to faulty plumbing work and there were no permits pulled, many insurers will now deny the claim. Same with basement fires, kitchen fires and roof leaks. If no permits were pulled, the insurance company has an opportunity to get out of paying a claim.
There are other reasons permits matter. Increasingly, some lenders don't want to loan on homes with unpermitted additions. These lenders will instruct appraisers to give the extra space no dollar value, because (in theory) the city could require the addition or improvement to be torn out or redone.
There is also a legal component to this, especially if you are a landlord. If you have a finished but unpermitted basement and your tenants are injured or killed in a fire, or poisoned by carbon monoxide from a faulty furnace installation, get ready to be sued. And insurance may not cover you.
Even appraisers disagree about whether value should be given for unpermitted additions or finishes. Appraisers are not required to check for permits. You may have one appraiser who gives a finished basement full value, but five years from now a more conservative appraiser (who may have been burned overvaluing unpermitted work) may slash or wipe out your value altogether.
And if you want to sue your home inspector for not identifying unpermitted work, be aware that most inspectors have a liability clause in their agreements that limits recourse to the cost of the inspection, which won't come anywhere close to addressing the cost of redoing an unpermitted basement finish or illegal garage conversion.
There are many variables here, and the time to educate yourself is before you have crossed that line.
Tens of thousands of homes in Colorado have unpermitted finishes and owners and tenants live comfortably unaware of the liability that may exist.
You can make your own decisions about whether unpermitted work is right or wrong for you. Truth is, almost every home has some work done requiring a permit that was done without one. But as I often say to my clients, most things in life (and real estate) come down to odds and percentages. You have to determine your comfort level with the risks and liabilities of unpermitted work.
