Handling Permit Issues During the Closing Process

24 July 2025

Buying or selling a home is already a complex process. Now, imagine getting to the final stretch—the closing process—only to be blindsided by permit issues. Sounds like a nightmare, right? Well, it's more common than you'd think. Unresolved permits can delay or even derail a transaction entirely.

So, what do you do when permit problems rear their ugly heads? Take a deep breath—we've got you covered. This guide will walk you through handling permit issues during the closing process, ensuring your deal doesn't fall apart at the last minute.

What Are Permit Issues in Real Estate?

Permit issues arise when a property has unapproved work that wasn’t properly permitted or inspected by the local government. This could be anything from a finished basement, an added deck, or even electrical and plumbing upgrades. If these modifications don't have the necessary permits, they could cause legal and financial complications during the sale.

Why Do Permit Issues Matter During Closing?

You might wonder, "What’s the big deal? Can’t we just sell the house as-is?" Not so fast. Permit issues can create major roadblocks during closing. Here’s why:

1. They Can Delay the Sale – Lenders and buyers often require permits for all major renovations. Missing permits can slow things down while the issue gets sorted.
2. They Can Lower Property Value – If unpermitted work is uncovered, buyers may demand repairs, ask for a price reduction, or back out entirely.
3. Legal and Safety Concerns – If the work wasn't inspected, the home might not meet safety codes. This could mean potential fines or even forced removal of the unpermitted work.

Common Permit Issues Sellers Face

Before you list your home, you should understand the most common permit problems that might come up. Here are a few you might encounter:

1. Unpermitted Renovations

Many homeowners upgrade their homes without pulling permits to save time and money. However, buyers (and their lenders) may demand proof that the work was done legally.

2. Open Permits

An open permit is one that was applied for but never completed or inspected. This often happens when contractors fail to close out a permit after finishing the work.

3. Expired Permits

If a permit was pulled but never completed or approved by the city, it can expire. This means the work remains in limbo and requires attention before closing.

4. Work Out of Compliance

Even if a permit was obtained, the work might not comply with current building codes. This could mean additional inspections, corrections, or redoing the project altogether.

How to Handle Permit Issues Before Closing

Now that you know what you’re up against, let’s talk about handling these permit issues before they derail your closing.

1. Identify Permit Problems Early

The earlier you identify potential permit issues, the better. If you're selling a home, check with your local building department to see if any outstanding permits exist for your property. Buyers should also conduct due diligence and request permit records early on.

2. Work with an Experienced Real Estate Agent

A knowledgeable real estate agent can help identify potential red flags before they become major headaches. They can also advise on negotiating repairs, permit resolutions, or how to move forward if issues arise.

3. Consult a Real Estate Attorney

If permit problems are serious, a real estate attorney can help navigate the legal complexities. They can help negotiate with buyers, lenders, and even local municipalities to find the best resolution.

4. Negotiate with the Buyer

Not all buyers will walk away because of permit issues. Some may be open to accepting the home as-is, with conditions. Potential solutions include:
- Price reductions to compensate for future permit work.
- Escrow holdbacks, where a portion of the sale price is set aside until the permit issue is resolved.
- Seller handling the permits before closing, ensuring all work is legally documented.

5. Close Open or Expired Permits

For sellers, resolving open or expired permits before listing the home can save a lot of stress. Contact the local permitting office, schedule inspections, and complete any necessary fixes to close out old permits.

6. Pull New Permits If Necessary

In some cases, you might need to pull new permits for past unpermitted work. This usually involves bringing the work up to code and getting it inspected. While this may delay closing, it’s often necessary to ensure a smooth sale.

7. Buy Insurance for Permit Problems

In states where it’s available, title insurance or permit resolution insurance can help protect buyers and sellers from permit-related risks. This can provide peace of mind and financial coverage if issues arise after the sale.

Can You Sell a House with Permit Issues?

Yes, you can sell a house with permit issues, but it requires transparency and negotiation. Buyers need to know about any outstanding permits or unpermitted work, and the solution often depends on their comfort level and the lender’s requirements.

If buyers are willing to handle the permits after closing, it may not be a deal-breaker. However, some lenders may refuse to finance a home with major unresolved permit issues.

How Buyers Can Protect Themselves from Permit Issues

If you’re the one buying a home, you’ll want to avoid inheriting someone else's permit problems. Here's how you can protect yourself:

1. Check Permit Records – Request a permit history report from the local building department before finalizing the purchase.
2. Get a Home Inspection – A thorough inspection can reveal unpermitted work, helping you make an informed decision.
3. Negotiate with the Seller – If permit issues are found, negotiate repairs, escrow holdbacks, or a lower purchase price.
4. Consult with the Municipality – If you have concerns, reach out to the local permitting office and ask about possible legal or financial consequences.

Final Thoughts

Permit issues are no joke. Whether you’re buying or selling a home, dealing with unpermitted work or open permits can be a major hassle. However, it doesn’t have to derail your closing if tackled proactively.

The key is catching and addressing these issues early. Sellers should make sure their home’s permit history is up to date, and buyers should do their homework before committing to a purchase. With a proactive approach, the right professionals on your side, and smart negotiations, permit problems can be managed—keeping your real estate deal on track.