Everyone wants to know the home they’re purchasing is safe to live in. That’s why some municipalities go a step beyond the standard home inspection and require a special permit, called a certificate of occupancy, to ensure the houses in their area meet safety codes. To obtain the permit, an additional inspection must be done. Read on to learn what the inspection covers, who pays for it, and the effect it could have on the real estate settlement process.
What is a certificate of occupancy?
Simply put, a certificate of occupancy—sometimes referred to as a use-and-occupancy certificate, or a U&O—is a document that says a building is safe to be lived in. Not all municipalities require them, but in the ones that do, these permits are usually issued by a local building or zoning authority. The permit affirms that the property has been built and maintained according to the standards laid out by local government officials.
Typically, these certificates are first issued when a property is built, and additional inspections are performed any time the property changes hands.
Certificate of occupancy inspection
The inspection will typically focus on things like making sure the home meets fire codes and that all electrical work has been properly done. But since the exact requirements will vary according to the municipality, there may be more.
“The scope of a U&O ranges from small safety measures such as the installation of railings and smoke detectors to bigger items like ensuring that the proper permitting is in place for renovations,” explains Michael Kelczewski, a real estate agent in Pennsylvania.
Some U&O permits also require that inspections be performed on specific amenities in the home to verify that they are still in good condition. For example, a chimney inspection, a heating inspection, and even a sprinkler system inspection could all fall under the use-and-occupancy umbrella.
Who pays for a certificate of occupancy inspection?
Sellers typically bear the brunt of the certificate of occupancy inspection process. If this permit is required by a city, the seller will pay a fee for the initial inspection, as part of a charge by the real estate agent for the process of transferring property. (Don’t have an agent yet? Here’s how to find a real estate agent in your area.) The seller will also be responsible for conducting any subsequent inspections requested by the zoning authority in order to have the permit issued.
Who pays for the house repairs?
Once the results of the inspections come back, both parties will negotiate who will handle any necessary repairs. Ideally, these repairs will be completed before settlement, and an agent of the municipality will be brought out to reinspect the property before issuing the permit. However, as long as all sides are in agreement, a conditional U&O may be issued under the assumption that work will be done after closing. In the event that no agreement can be reached, both the buyer and seller have the right to dissolve the transaction.
“As is” or bank-owned homes
Keep in mind that properties being sold “as is” or that are bank-owed are an exception to the above scenario. In these cases, by submitting an offer, the buyer often agrees to accept financial responsibility for this requirement and any associated repairs. When dealing with this type of transaction, be sure to read the purchase agreement carefully so that you’re aware of the scope of your responsibilities before committing to buying the property.
A note for renters
Certificates of occupancy aren’t just for homeowners. Some areas require landlords to keep them on file for their residents and to have subsequent inspections performed at regular intervals. This ordinance is aimed at making sure that rental properties aren’t allowed to lapse into such a state of disrepair that they become uninhabitable.
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