Code violations occur when some aspect of a property violates the local building codes, permitting regulations, or safety ordinances established by the city or county. Some common examples of this include unpermitted additions, old electrical or plumbing systems not up to current code standards, improperly installed fixtures or appliances, and so forth.

While selling a home with outstanding code violations is certainly possible, it presents some unique challenges that prospective sellers need to be aware of and strategies they'll likely need to employ depending on what the violations are. When violations have been present for some time, city or county fines can compound and turn into property liens that must be paid off before a property can be sold. Furthermore, if you're facing financial distress and falling behind on your mortgage, time is of the essence to prevent foreclosure.

Disclose the Violations Upfront

In most states like Texas, real estate laws require sellers to disclose any known material defects or issues with the property being listed for sale. Code violations fall under this requirement for full disclosure to any prospective buyer before advancing too far in the sale process.

Trying to hide or cover up known violations is unethical and illegal. Violations can easily be uncovered during the buyer's inspection contingency period and ruin the transaction. If discovered by the buyer after closing, you as the seller can be held liable.

Set expectations in the listing and market the home accordingly. Just be upfront about the violations as it’s easier on both parties over the long run. Ethical real estate professionals must also advise full transparency - any who suggests otherwise does not have your best interests at heart.

Understand the Buyer's Financing Impact

Lenders generally require that properties are livable in their current condition before approving loans, as unaddressed violations that are severe or structural present potential liability and risk to their investment. Effectively, this applies to any buyer getting a mortgage, which is most of them.

This significantly narrows the buyer pool to only those paying in full cash, able to secure alternative investment property or portfolio loans, or willing to facilitate the violations being remedied before or after closing using other sources of funds. For many traditional homebuyers who plan to finance with standard mortgages, a property with code violations may be automatically eliminated from their search.

In these scenarios, selling to a cash investor or pursuing alternative options like selling for the underlying lot value may be the most viable paths forward, since no lender requirements have to be met. In the Austin and Central Texas areas, we buy houses in any condition with fast, fair cash offers. If this interests you, don’t hesitate to reach out!

Option to Make Repairs Before Listing

In some cases where the violations are relatively straightforward to resolve and financing is a concern, it may make sense for the seller to go through the process of remediating the issues in question and paying off any fines prior to listing.

To properly address violations, an inspector or code official should outline exactly what work needs to be completed. This often requires securing permits, hiring licensed trade contractors to do the work correctly, conducting interim and final inspections by the local authority, and ultimately obtaining the necessary certificates or approvals to confirm compliance.

Making these code repairs upfront does involve temporarily investing more money into the property. However, it generally pays for itself as you’ll be able to capture a higher asking price on the market. You have to remember that the presence of issues like code violations means that buyers will ask themselves “What else is wrong with this property?”

Seller Concessions and Credits

If proceeding with an "as-is" listing that fully discloses the violations upfront rather than fixing them, sellers can negotiate terms with buyers to account for the costs to remedy them after closing. This is generally done in the form of cash credits or concessions to the buyer at closing. The idea is this credit amount helps offset the costs the new owner will incur to fix any outstanding violations after they take possession of the property.

Common negotiation points include:

• Seller paying an agreed portion or percentage of the estimated repair costs
• Seller providing a concession by buying down the buyer's interest rate or prepaying taxes/insurance
• Seller covering some or all of the buyer's closing costs out-of-pocket
• Seller simply agrees to sell the property for less

This option allows the deal to proceed in the presence of violations but defers the actual repair work to the new owner based on their schedule and contractors. As long as both parties are content with the result of the negotiation, this is a perfectly amenable solution.

Properly Price the Home

Setting an appropriate and market-valued price for a property with code violations is a must. If you ask for a full price on par with move-in ready homes, be prepared for your property to sit on the MLS, unless you’re in a red-hot market.

Analyze similar recent comparable sales in the area and recognize that buyers will have to spend extra out of pocket to remediate issues. The more significant the violations, the larger the price discount will likely need to be to attract viable offers.

I recommend pricing slightly below market but within a reasonable fair market range and ideally drum up a bidding war. Low prices get eyeballs! Don’t chase the market down with price reduction after reduction as the listing goes overexposed and buyers start to wonder what’s wrong with the property.

Concluding Thoughts

Selling a house with code violations does present some unique circumstances. As a seller, you must remain objective and reasonable about the condition of your property. Choosing an unethical or unrealistic path forward is a great way to get yourself in trouble.

With some due diligence, getting a property not fully up to code successfully sold is achievable. As I mentioned earlier, if you’re in the Austin or Central Texas area and have a home you’d like to sell with code violations, we offer fast, cash offers without fees, realtors, or fees. Reach out today!