When homeowners go rogue (© Steven Errico/Getty Images)

© Steven Errico/Getty Images

Rules, permits, licenses, insurance. Our grandparents didn't need all of it when they built and remodeled their home. Should we bother? Why not just forge ahead and cope with any fallout later?

It's sure tempting, for one big reason: It's cheaper. But you could pay a steep price for the savings.

With construction prices high, homeowners working within a budget may ask themselves, "What's the harm in skipping all the red tape?" Permits and licenses cost money in a couple of ways. Alerting authorities that you've added 500 square feet to your house is likely to raise the assessment of your home's value, for one thing. A bigger value equals higher taxes. And the permits themselves cost hundreds or even thousands of dollars, depending on your project and the fees where you live. (Bing: Whom should you contact for remodeling permits?)

Homeowners may try to save by hiring unlicensed contractors. Some work for 20% to 50% less — big savings on, say, a $30,000 remodel. Unlicensed workers don't have the expense of a state license, continuing-education classes, liability insurance and workers' compensation coverage.

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Tear it up, do it over
Despite the lure of these savings, you're gambling by cutting corners. Maybe you won't get caught. Municipalities often don't look aggressively for offenses. But all it takes is someone — usually a disgruntled neighbor — to alert them and then you're in for an expensive headache.

Each city and county enforces its rules differently, so it's hard to know what will happen if you are busted. You'll probably have to submit to an inspection. If the work was done to code but not permitted, you may only need to purchase the permit. But if the work is faulty, or if it's hidden behind a wall, your expenses will start to climb.

"Let's say [the homeowners] have illegally remodeled. They have to tear down portions of the wall so the city can see the electrical and plumbing to see if it was done to code. … Sometimes they just have to tear the whole thing out," says attorney Linda Pieczynski, a contracting prosecutor for 12 municipalities in DuPage County, Ill., west of Chicago. Going after violators is part of her work.

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Why do cities crack down so hard on violators? "The issue is safety," Pieczynski says. A neighbor's property could catch fire, or someone who buys the home later on could be hurt.

A few rural counties in the U.S. still have no building codes, but most places do. Yet the codes vary from city to city, county to county and state to state. The International Code Council, an industry group, offers its 2012 model code for cities, counties and states to copy. Most states have adopted it whole or with modifications. 

States can require their cities and counties to follow their version. Local governments can sometimes make their codes even stricter. (Learn more on building codes from the council's PDF fact sheet.)

Unsure? Just ask
If you're unsure whether you need a permit for a project, call your city or county government and ask – anonymously, if you like. Describe your project and ask what the law requires. But be frank about your plans, Pieczynski says. She wrote "The Building Process Simplified: A Homeowner's and Contractor's Guide to Codes, Permits, and Inspections."

Occasionally, a homeowner doesn't fully describe the project, Pieczynski says. "They'll say, 'Do I need a permit to replace a window?' And the answer is, 'No, not normally.' But if you're really going to replace windows and add a sunroom, then, yes, you need a permit." When they're caught, they complain they were told they didn't need a permit.

But getting caught may be the least of their problems. Construction done on the sly can haunt you for years because there's nowhere to turn if:

  • A bank declines to lend money on the home.
  • Your contractor did a poor job.
  • Problems appear after you've sold the home.
  • A worker is injured on your job site.

The bank snubs you
A remodel or addition done without permits may cause you no trouble at all until you decide to sell or refinance. At that point, the lender considering mortgaging the home will hire an appraiser who examines the structure.

Appraiser Randolph Kinney, in Carlsbad, Calif., sometimes uncovers illegal additions when a lender asks him to appraise a home. Kinney measures each home, calculating the square footage and comparing his results with county records. If his total is greater than the public record, it's a tip-off that something's wrong. He searches for permits issued to the home's address. If he finds none, the bank may decline to issue a loan on the home.

Before the real-estate bubble and crash, lenders sometimes accepted construction done without permits. "But now they won't," Kinney says, because illegal construction is a risk for the lender. A fire insurance carrier, for example, may refuse to honor a claim. "If there's a wiring problem or something happens to where it burns the structure to the ground, it voids the insurance," Kinney says.

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Even if a bank agrees to lend on your home, your problems are just beginning. When you try to sell, illegal construction can become an issue. Smart homebuyers and their agents are learning to search county records for details on homes they're interested in. Illegal construction is likely to turn off potential buyers. The offers you do get may be lowballs, since buyers will want to account for the cost of fixing the home to code.

Innocent, and stuck
Even if you play by the rules, you could be hurt by illegal construction. If you innocently bought a home with building-code errors or violations, you will probably be held accountable.

"Most people we try to work with, we realize that you didn't do the work, this was the previous owner. But you're the one who's responsible for making it safe," Pieczynski says.

It is a lesson that a young single mom in Sarasota, Fla., learned the hard way. Greg Yantorno, chief building official for Sarasota County, tells the story.

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The homeowner, whom Yantorno did not name, paid $98,000 in November 2011 in a short sale for her first home: a three-bedroom, two-bath ranch for herself and her young son. Since 2006, the small house had been bought and sold several times, including for $190,000 in 2006, and for $26,000, in early 2011. Along the way, the original two-bedroom, one-bath structure acquired a third bedroom and a second bath.

Soon after moving in, she called a plumber because sewage had backed up into her child's bathtub. The plumber, finding code violations, summoned a contractor who alerted the county. The additions were done, it turns out, without permits, by enclosing a carport.

"Based on what I've observed, it certainly wasn't a licensed person doing the work," Yantorno says. A load-bearing support post had been removed, putting the roof at risk of collapse.

Correcting the problems — reinstalling plumbing and removing and restoring a wall to reach it, hooking up to city sewers, reinstalling windows and rebuilding a lanai — will cost the homeowner $25,000 to $30,000, the contractor estimates.