I received a call recently from a Portland area real estate agent asking how a basement kitchen, installed by the homeowner without going through the usual building permit process, will affect the appraisal of her pending sale. Basement kitchens are typical around Portland, are attractive to many homebuyers, and often are not “permitted.” Issues with unpermitted areas are complicated, are much more of an issue now than in the past, and can come down to the discretion of the lender or the appraiser. However, remember that the appraiser is just reporting the facts to the lender and analyzing the marketability of those facts. The lender is concerned with liability of an unsafe improvement and the value of the collateral. Here are five factors to remember with regard to a basement kitchen.
A basement kitchen that is not permitted could be a hazard due to fire or ventilation and therefor a liability to the lender. This is usually only a factor when there is a freestanding or built-in stove or oven. Basement kitchen sinks and refrigerators typically are not seen by lenders as risky. If a range or oven is identified as not permitted or unsafe, the lender will typically condition it to be brought up to code (or outright removal) prior to funding of the loan. The appraiser will usually be asked to return and certify that the work is completed.
The appraiser is not an expert in building code. However, the appraiser should understand local building codes enough to recognize visible issues, should research codes with the appropriate authorities, and should communicate results to the client. Basement kitchens usually require electrical, mechanical, or plumbing permits that are in excess of the normal building permit to finish a basement. Asking the right questions is important.
It is not the appraiser’s responsibility to report code violations to authorities. Appraisers have a strict ethical responsibility of confidentiality. When querying local building officials (rather than saying, “This property has a basement kitchen”), the appraiser might ask, “What permits would be necessary to install a kitchen in the basement of the subject?”
The appraiser should take plenty of pictures. A simple appraiser photograph might put a nervous lender at rest because the photo shows that there is no stove or range.
Most lenders or appraisal management companies have specific instructions for an appraiser to follow when dealing with unpermitted areas or basement kitchens. An appraiser should alert the client about issues like a basement kitchen prior to delivery of the appraisal, to make sure that lender protocol is followed.
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