Before plunking down your savings to buy one of the cheapest pieces of real estate on the market, it helps to know that red-tagged real estate comes with a host of warnings for the new buyer. The risks a buyer faces when purchasing red-tagged real estate begins with his lack of knowledge about the troubles that generated the red tag in the first place. Unless you can identify, fix or pay someone else to fix the issues associated with the red-tag, the property isn't worth the hassle.
Changes made to real estate require permits, fee payments and approvals from the local building jurisdiction. New buildings, renovations or additions typically need multiple permits pulled for work such as well-drilling, grading, foundation, framing, wiring, plumbing, septic system installation and decks. The building inspector initials his approval on the permit or identifies needed corrections during and after individual construction phases. After construction, the building inspector's final approval generates the certificate of occupancy. Some red-tagged permit problems can be corrected by simply fixing the issues or by paying back fees and penalties tied to the permit.
Improper Building Practices
An improperly built house easily earns a red tag. When building practices as defined by code are not adhered to during construction, the house may be structurally unsafe. Improper building practices pose hazards to people who might want to live in the house. The building department, if it is doing its proper job, won't allow people to live in a structurally unsafe home. The red tag won't be removed until any identified issues are fixed according to local building codes. When problems can't be fixed, the local building department might request the structure's removal to clear the red tag.
When a person grades real estate without following the jurisdiction's requirements, this can also trigger environmental problems. Proper tests must be completed before grading can begin to determine the soil's composition and structure. The soil's makeup drives the grading process and the type of foundation that must be built for a structure to meet code. Grading in the wrong location can also lead to other serious problems and red-tag issues. Zoning laws might designate an area of the land under environmental protection laws. Other environmental concerns include extreme mold problems, radon gas issues or non-mitigated infestations that make a home unsafe and unlivable. If the issues are not resolved, the red-tag creates a problem with the title.
Septic system complications can also generate red-tag issues on real estate. Causes related to these red tags involve broken systems or those with leach fields too close to water supplies, such as wells, lakes, rivers or streams. If a health or building department inspector discovers that a builder has installed a septic system without the appropriate percolation test, incorrectly or in a location different from submitted plans, the inspector places a red tag on the property's title.
Cloud on the Title
Red-tagged real estate typically lists "for sale" longer than any other type of real estate because people don't want to deal with the problems it indicates. While the price tag might look good, the underlying issues with the property might drive the price of the real estate beyond budget if you have to fix the problems. While some red-tag issues are easily fixed -- such as liens placed on the property by a government entity for lack of payment -- the red tag places a cloud on the title. Until the issue is addressed, the red tag will not be removed. Some red-tag issues indicate that the structures on the property are not habitable and must be removed. If you don't have construction experience, a real estate background or the advice of an expert's review, it's best to avoid making an offer on a red-tagged piece of real estate.
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