Without full credit for the additional square footage, the house would appraise for much less than the contract purchase price. The buyer wouldn't pay the price he'd offered if the house didn't appraise for that price.

To remedy the situation, the seller went to the city building department and took out permits. Penalties were assessed so the permit fees were higher than they would have been if he'd taken permits out to begin with. This seller actually got off easy. The city building inspector could have required that walls be opened up to check the electrical and plumbing installations, which would have cost even more.

HOME SELLER TIP: It doesn't make good financial sense to spend a lot of money on a major renovation without obtaining the building permits that are required by law. The value of the work can be diminished if required permits aren't obtained. In some places, you might be required to undo work that was done without permits. And, you could be stopped from completing a job until you obtain the necessary permits.

To make sure that you don't get into trouble when you sell you home, check with your local city or county building department to find out what, if any, permits are required before you start a home renovation project. Not all projects require permits, and this will vary somewhat from one place to the next.

Generally, permits are required for work that might impact the health and safety of a building occupant, like running a new gas line so that you can relocate your furnace. Structural modifications or additions also usually require permits. You may need several permits for such things as foundation, electrical and mechanical.

Permits can be obtained by homeowners or their contractor. You may be able to save money if you take out the permits yourself and agree to be present for inspections. Some contractors have been known to talk homeowners out of the permit process because it saves the contractor time.

Make sure if you do ask your contractor to take out permits that he actually does it. Some unsuspecting homeowners have discovered after a job was complete that the permits were never obtained. Keep copies of permits and make copies available to buyers when you sell your home.

Sometimes permits for work are obtained, but the final approval is never received. This can have implications for the next person who tries to take out a permit to do work on the house. A San Francisco Bay Area home buyer discovered after closing that a permit to change the furnace had never received the final approval.

She hired a contractor to do termite work, which required a permit. When the contractor went to the city to obtain a permit, he was denied. The outstanding permit needed final approval before a new building permit would be issued.

THE CLOSING: Sellers who do work without required permits, or who don't have permitted work signed off, should disclose this to the buyers before closing to avoid legal problems with the buyers after closing

Dian Hymer is author of "House Hunting, The Take-Along Workbook for Home Buyers" and "Starting Out, The Complete Home Buyer's Guide," Chronicle Books.

Copyright 2007 Dian Hymer