Learn this word before heading to the permit counter

When you remodel, one significant cost you’ll have on your project is the building permit fee. Sadly, many people waste hundreds, if not thousands, of dollars on their permit because they don’t know the rules.

When you apply for a permit, you’ll be asked to fill out a permit application form. Some of the questions are fairly simple, and others are more complex, with lots of boxes to fill out. But the one section that you need to pay very close attention to is the “valuation” or “construction cost.” Your permit fees are largely based on this single number.

Obviously, you’ll want to keep this number as low as possible. If you ask the person at the building permit counter what this number represents, they may simply tell you that it is the cost of your project. They may even suggest that you should put in the number that the contractor told you the project would cost — but you need to be aware of what that number might include.

Section R108.3 of the California Residential Code says: “Building permit valuations shall include total value of the work for which a permit is being issued, such as electrical, gas, mechanical, plumbing equipment and other permanent systems, including materials and labor.” Note that this definition does not include the contractor’s overhead and profit, a port-a-potty and a host of other typical costs. It is not your “contract cost.”

This same building code suggests that the building official is responsible for setting the valuation so that it is applied equally to everyone. While there is almost always a standard valuation available in each city for new building construction, there often isn’t for remodeling.

So where might a reasonable valuation come from? Some building departments already have dollars-to-square-footage numbers for different types of remodeling work. For example, they might have one number for kitchen remodeling or bathrooms, and a different number for added square footage. (Valuation numbers can usually be found on a city’s master fee schedule.) The city of Palo Alto uses a system that bases permit fees on a percentage of the construction value. For instance, according to the 2020 Municipal Fee Schedule, a project with a construction value under $4 million would be charged a permit fee of 1.50% of its construction value.

It’s your job to suggest a reasonable (but low) valuation number that is credible, but high enough that the building department will accept it. I would start by asking what the valuation is for new residential square footage. Almost every building department has this. You will find that these numbers are ridiculously low and don’t represent average building costs in your area. But if they give you a price of, let’s say, $150 per square foot, it might be reasonable to suggest that remodeling costs for an existing space might be, oh, one-half to two-thirds of that. After all, you aren’t doing a new foundation, floor framing, roofing, etc. At least, that’s where I’d start.

You can also check the online Building Valuation Data Archives for the International Codes Council. These are the numbers that the people who wrote the building code suggest using on a national basis, with local geographical adjustments. As of February 2019, standard residential construction in an R-3 (single family) group with a V-B fire rating (which is standard wood-frame residential construction) has a valuation of $122.46 per square foot. This is maybe one- to two-thirds of actual average construction costs in the Bay Area. Keep in mind that you aren’t including the contractor’s overhead and profit or other miscellaneous costs of the job. This is only the cost of labor and materials.

Square footage for garages and carports have a much lower cost per square foot. And you also don’t necessarily have to include work in areas that don’t require a permit. If driveways or patios are not included in the permit then you shouldn’t be including them as part of the valuation. If you are only refinishing the floor or adding carpet, say, then that work shouldn’t be included in the valuation. You need to be diligent that work is not incorrectly included in that valuation number.

If the person at the counter asks you what price your contractor gave you, I would just say, “Well, I don’t have a final price yet.” Then ask them what their standard valuation numbers are. Those numbers will always be lower than your contractor’s.

What happens if the person at the counter doesn’t like your valuation number? Well, that’s just a negotiation. I would ask them what they think is reasonable, and what they are basing it on. I regularly have had projects that may have had a contract cost of over $300,000, yet the valuation number was less than $150,000. If permit costs are roughly 1% to 2% of the valuation, you can see that for projects of this scale, my client may have saved $1,500 or more, just by being assertive.

If your $80,000 kitchen has a valuation of $40,000, then you have saved on the order of $400 or more in permit fees.

The bottom line is that you need to be assertive in coming up with that valuation number for your building permit. Armed with these tips, now you can be.

Richard Morrison is a residential architect and interior designer with a Bay Area practice specializing in home remodeling. His website is richardmorrison.com.

For more information

To find generic national building code remodeling valuation numbers, visit iccsafe.org.