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!