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Hawaii Owner-Builders Required to Wait One Year to Sell or Lease

Every time the market heats up, an increase in speculation building follows. Sellers, trying to cash in on a busy rising market, sometimes overlook the law relating to the owner-builder exemption. It’s an issue that could potentially affect sellers, buyers, landlords, and tenants alike.

Owner-builder homes not so straight forward (photo courtesy njaj/freedigitalphotos.net)

Limits to Homes Contracted by the Owner

You may already know that the state provides an exemption for owner-occupants who want to be their own contractors. Briefly, HRS 444-9.1 provides that a home built with an owner-builder exemption (exempt from using a licensed contractor) may not be sold or leased for a year following the final inspection (or verifiable date of completion).

Selling prior to the one year statutory requirement may result in a fine of $5,000 or as much as 40% of the value of the home for the first offense and up to $10,000 or 50% of the market value for subsequent offenses. Fines may be assessed against the seller and any REALTOR® involved.

The law is very clear on this point. REALTORS® could be found guilty of aiding and abetting an unlicensed contractor. They could also face license revocation. Although not specifically stated, a buyer might also find himself included in an investigation by the Department of Commerce and Consumer Affairs (DCCA).

The intent of the law is to avoid unlicensed work, but because there are no automatic exceptions built into the law, even a distressed seller could be subject to investigation and fine. Effective July 1, 2010, sellers who must sell or lease prior to the one year statutory holding period for reasons such as health, emergency relocation, and the like, may apply for relief from the owner-builder exemption. Permit valued under $10,000 are automatically exempt.

Sellers should keep in mind that listing an owner-builder property or any non-exempt property under the revised statute (if you can find an agent brave enough to do so), will result in extremely diminished interest.

Law is Designed to Prevent Unpermitted Structures from Changing Hands

On the other hand, the law is not specific as to property sold prior to the final inspection, or properties without proper permits. But logically speaking, unpermitted structures are subject to the one year statutory provision because (logically) an unpermitted structure was not built by a licensed general contractor.

Because permitting problems are so common, it is best to keep in mind that the intent of the statute is to deter unlicensed activity. DCCA has expressed that property sold prior to a final inspection would need an exemption. Remember, the law includes not only the main structure but any additions.

The owner-builder statute is not meant to be a vehicle to generate a complaint about every permit inconsistency. There are numerous reasons a permit record might be incorrect. If you need a permit correction in order to facilitate a sale, owner-builder provisions apply. Ask your REALTOR® for advice in this matter. Most do a good job in helping explain the requirements.

Verifying and correcting permits ahead of time provides everyone involved with peace of mind. Happy permitting!

About the Author

Denise Nakanishi

Denise Nakanishi is a REALTOR Broker with Hawai'i Life. Denise Nakanishi is one of Hilo's most acclaimed real estate agents. She reached the rank of Major in the US Army and is now known by many as "Major Mom." The nickname fits–not only does Denise bring the discipline and mission-oriented attitude you'd expect, she's also caring and compassionate, always looking out for her clients like they're her own family. Having made the Big Island her home since 1987, Denise combines her extensive knowledge of the area with a sharp focus on customer service and the results speak for themselves. She's the recent recipient of the Best East Hawai`i, Best of Zillow, Chairman's Circle Award, President's Circle, Top Producing Agent since 2001, and Realtor of the Year awards. Denise stays ahead of the curve because she's passionate about education–she served as Education Chair for Hawaii Island REALTORS® for many years. She's one of Big Island's best real estate resources, known for her weekly article in the Hawaii Tribune Herald. Denise leads Team Nakanishi for Hawai`i Life, who is committed to their family, work, and community. In her little time away from work, Denise is a committed runner and Grandy. She also devotes many hours to various Veterans' Organizations, the East Hawaii Cultural Center, and the Hawaii Island REALTORS®. You can email me at denise@hawaiilife.com or via phone at (808) 936-5100.

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Kristina Shugars

March 10, 2015

HI Denise-
I am representing a Buyer-and the Seller has open Owner Builder Permits-
I was wondering if the Buyer and Buyers Agents are also liable-I see by your Blog the answer is yes-
looks like I need to make a few phone calls in the morning.
mahalo
Kristina

Kristina Shugars

March 10, 2015

HI Denise-
I am representing a Buyer-and the Seller has open Owner Builder Permits-
I was wondering if the Buyer and Buyers Agents are also liable-I see by your Blog the answer is yes-
looks like I need to make a few phone calls in the morning.
mahalo
Kristina

Larry Lau

April 26, 2017

Great article, Denise! Do I have a great story for you along these lines. We got to catch up one of these days.

Aya kudo

May 7, 2020

Hi
I have a house in hauula . We rebuilt fence in front of house because it’s rotten . But still we can’t sell the house for a year?? It’s just fence tho

Thank you

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