What You Should Know About a Certificate of Occupancy

It’s very exciting when your real estate deal closes, but it’s imperative not to rush the process until you’ve dotted all your “i’s” and crossed all your “t’s”. There are a few key documents that need to be reviewed before you move in, including the certificate of occupancy (CO). Whether you’re buying an existing home or are purchasing new construction from a builder, obtaining a copy of this document is extremely helpful.

This unassuming little piece of paper is actually quite powerful and holds a lot of weight when it comes to legal protection, negotiating, and ensuring a home loan is approved.

So, what exactly is a certificate of occupancy, and why is it so important?

Certificate of Occupancy – Defined

You want to make sure that the home you move into is safe to live in, right? Well, a certificate of occupancy will verify this fact. Usually, these permits are issued by the city’s building authority and confirm that a particular property has been constructed and maintained according to local government standards. They’re typically first issued when a home or building is first built, and whenever title is transferred to a new owner, additional inspections are performed accordingly.

For new-construction homes, the certificate of occupancy will be issued to your builder after they’ve requested the permit to construct the house. Once the home has gone through and passed the proper inspection process, the certificate is then issued.

Every newly constructed home goes through a number of inspections throughout the entire building process to make sure that every phase is compliant with local building codes. These inspections generally cover things such as ensuring electrical and plumbing work is done properly, or that the home meets fire codes, to name a few. If the builder does not pass an inspection at any particular stage, then the builder legally cannot proceed with construction until the issues are resolved.

When the home construction is complete, a final inspection is done. At that point, a certificate of occupancy can be issued to the builder if the home passes, which should then be provided to the buyer at closing.

A certificate of occupancy also applies to existing homes that have been renovated by previous homeowners. For instance, if a new addition was constructed at some point in the past, a certificate of occupancy should have been issued after that work was done to make sure it was constructed according to building codes. If you are not given this document, it would be tough to decipher if the work performed was done properly and if the home is deemed safe as a result.

What Happens if There Are Issues With the Property in Question?

If you’re buying a brand new home from a builder, a certificate of occupancy is an absolute must. In fact, it should be part of the entire home buying package that you receive from the builder, as it offers proof that you’re not moving yourself or your family into a shoddy structure that could pose a hazard.

If you’re buying resale, then the seller should provide this permit to you before the deal is sealed. The seller will pay a fee to have the initial inspection conducted as part of the process of transferring title. The seller will also have to conduct any further inspections required by the local zoning authority before the permit is issued.

If the inspection comes back with issues that need to be resolved, you can negotiate with the seller. The ideal scenario would involve the seller making any repairs and paying for them before a settlement is reached, after which the property will be reinspected again to make sure the issues in question have been resolved.

However, you could also negotiate a lower price for the home to compensate for the costs involved in bringing the home back up to par yourself. As long as both you and the seller agree, a conditional certificate of occupancy can be issued, assuming the necessary work will be done once the deal closes.

If there is a problem with obtaining a certificate of occupancy, you could have problems getting approved for a mortgage and home insurance, as both entities will often require one before a deal can go through.

The Bottom Line

While the visual appeal of a home is certainly something that may attract you to a home and entice you to put in an offer, what’s more important is that the property is structurally sound and safe for occupancy. That’s precisely what the purpose of a certificate of occupancy is, and why you should obtain a copy for the home you’re planning to buy.