This stupid real estate mistake cost me $700,000 —here's how to avoid it

After 20 years in real estate and $6 billion in sales, you learn a thing or two. But sometimes, even I get it wrong.

A stupid mistake ended up costing me nearly $700,000.

Here's what happened.

Before pic of the backyard and pool pre-renovation.
Before pic of the backyard and pool pre-renovation.

How a stupid mistake cost me $700,000

I bought a house for $3 million. It needed some renovations, so I launched the construction project. What happened next was unthinkable.

The city shut me down.

Why? What had happened to cause them to take such drastic action?

It turns out that because I didn't pull the permits BEFORE buying the property, I didn't know the seller had illegally extended the house.

This created a nightmare scenario for me. I'd planned to renovate part of the home, but when I found out that a portion of the master bedroom and bathroom, a closet and a second bedroom weren't permitted, I was devastated. The city was asking me to take away almost 600 square feet of the house.

Kirman's house under construction
Aaron Kirman
Kirman's house under construction

It took me a year to determine what to do. I was forced to restructure the house, which cost nearly $300,000. It took almost another year to complete the renovations.

In addition, I was stuck in a rental property much longer than anticipated, so I was paying $12,000 a month for that while carrying the mortgage payments on the house.

The renovated backyard and new pool
Aaron Kirman Group
The renovated backyard and new pool

In the end, I was into this disaster for nearly $700,000 AND two years of my life. Such a drastic mistake is stressful. It's heart-wrenching. I have so much invested in the property that I'll need to live in it a while to recoup the losses. But, the market will appreciate -- real estate is always a good investment.

The living room after the renovation
Aaron Kirman Group
The living room after the renovation

What can you learn from my mistake?

ALWAYS do your due diligence when buying a house. Check the permits -- which is free to do. Be sure that what you're buying has been approved by the city. If it isn't – you're going to be liable for it.

Why would a homeowner remodel without permits, here's a few reasons:

· It costs money.

· Sometimes city inspectors force the homeowner to do additional work they don't want to do (or pay for).

· Remodeling permits can cause delays.

· The process can be a head ache filled with red tape.

· And the biggest reason? Homeowners don't think they'll get caught. And in the case of my property, they didn't. I did.

The backyard pool of Aaron Kirman's Beverly Hills home after the renovation.
Aaron Kirman Group
The backyard pool of Aaron Kirman's Beverly Hills home after the renovation.

Don't make a $700K mistake

Pull the permits. Be sure to know what improvements have been made to the property. Were they permitted? If not, the seller can be forced to address them – or you can find out how much it will cost you to handle them. In some cases, that cost isn't enough to make you walk away. But if it is, at least you'll have found out before walking into a disaster.

Hire a home inspector to look for potential issues so they can be addressed before you close the sale.

Research the house, the neighborhood, the area. Look at the schools and hospitals that serve the area.

Bottom line: You can never do too much research. Know what you're getting into before you buy. You have much more leverage before you close the sale. After the deal is done, you're likely stuck with whatever problems may exist.

You don't want to make the same dumb mistake I did. So do your homework. An experienced agent can help you. This is the biggest transaction of your life. Don't skip the research.

Aaron Kirman is a Los Angeles-based real estate agent and founder of the Aaron Kirman Group. He has sold about $6 billion worth of real estate over his 25-year career. Aaron also stars in the CNBC primetime show "Listing Impossible." Follow him on instagram @AaronKirman .

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