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Improve Salability Of Home Riddled With Permit Issues

Ginny… I’m having trouble selling my place because I added a second kitchen in what was the garage without permits. My bad, but I will have to take it out to get conventional lending. It’s a two-story house with one bedroom (with a walk-in closet), a living room and kitchen in the upstairs unit. The downstairs has a kitchen and dining area in the converted garage space, another room that can be used as a bedroom with closet space under the stairwell, and a three-quarter bath.

This is on one acre of horse property on a dirt road with a section of state land across the street. It was listed last summer and had four offers within a month, but because I didn’t have the permits for the second kitchen no lender will finance the place.
Here’s my question: Should I spend the money to install a real closet in the downstairs bedroom, or just leave it as it is?  Peter Q., Pecos, NM

Peter…It sounds like the big selling point of your place is its fundamentals, the land, the horse zoning and the location near the undeveloped/state land. But as you’ve been through this odyssey with trying to get this place sold, I can tell that you are in danger of getting off track and unfocused with respect to how you move forward. Here’s how I’d suggest you avoid that:

1. Solve for the real problem. Stay focused on solving for the real problem that stopped you from selling the place the first go-round. If you had four offers right off the bat when you listed it, I would say that adding a closet is really not going to increase your chances of selling the place this go-round. Stay strategic and devote your additional investment and preparation efforts to what really matters: rendering the place mortgage-worthy and salable by either removing the second kitchen or obtaining permits for it.

That said, if you happen to know that the downstairs kitchen was a big selling point for the buyers who made offers before and you decide to remove it before relisting the place, then I’d say you can put the closet conversation back on the table. It might, in fact, limit how some buyers might like to use that living space, but I’d first talk with your agent and get her sense for whether the earlier buyer feedback suggests that a closet would be greatly valuable in that room to the average buyer for your property. I just doubt that a closet will be a major deal maker or breaker on a property that already had such a high level of buyer interest without the closet.

2. Don’t make the same mistake twice. To carve out an exception to my earlier advice, if installing a closet gets you an additional, legal bedroom, then you should consider doing it. That would allow you to list the home as a two-bedroom vs. a one-bedroom — and that does have major, incremental buyer-attracting value. But for that to happen, you’d have to apply for permits to turn the space into a bedroom with a closet. The fact that it is under a stairwell makes me suspect that it might not qualify for bedroom status, but talk that over with your agent and a local, licensed contractor.

And be aware that if you do apply for permits to turn the open space into a bedroom, you could be opening up a can of worms by inviting inspectors into the property who may begin to require other upgrades of the property to current building code standards. Given that you’ve heavily modified the home already without permits, this could be a train you’ll wish desperately you could put back in the station — and might not be worth the risk, even if you do think you could get an extra legal bedroom out of a closet addition.

3. Don’t assume removing the kitchen is the only solution. Allow me to add one more layer of complexity to this decision tree you face. Is it possible that you can get permits for the downstairs kitchen? Talk with your agent. If she feels like the property will get just as much buyer interest and just as many offers if you just pull the kitchen out, because of the nature of the place, then I’d say you should do that.

But if the downstairs “unit” was a primary reason buyers were interested last time, talk with your agent and contractor about whether it’s possible to cost-effectively get the kitchen permitted. If so, consider going that route, but do keep in mind the reality that applying for permits on the kitchen might expose you to additional inspector demands, like upgrades to electrical and other systems. So make sure you have a trusted, legitimate contractor on board who can tell you in advance what such demands would likely be.