Pictured home: 16-4018 Ohiohi St. Keaau, HI 96749
Sellers naturally become concerned when they perceive their bottom line is shrinking. Whether prices rise or fall, the issue of an owner-builder exemption presents itself in very interesting ways. It’s an issue that could potentially affect sellers, buyers, agents, landlords, and tenants alike.
Remember, the State provides an exemption for an owner-occupant who wants to be their own contractor. Briefly, HRS 444-9.1 provides that a home built with an owner-builder exemption/permit may not be sold or leased for a year following the final inspection (or from a verifiable date when the home was completed). Multiple owner-builder permits should not be issued concurrently. Selling prior to the one-year statutory requirement may result in a fine of $5,000 or 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 REALTORS® involved. The law is very clear on this point. If sold prior to one year, REALTORS® could be fined for aiding and abetting an unlicensed contractor. They could even face license revocation. Although not specifically stated, a buyer might also find themselves included in an investigation by the Department of Commerce and Consumer Affairs.
Before 2010, the law was silent about situations where a hardship or mitigating circumstances forced early sale. It was also not specific as to property sold prior to the final inspection or properties without permits. Any property sold prior to the one-year anniversary with an owner-builder exemption (exempt from using a contractor) falls under the provisions of the statute. In a busy market, it’s not uncommon to find non-compliant homes for sale.
The intent of the law is to avoid unlicensed work, but without exceptions built into the law, an already unfortunate situation (illness or death, for instance) could be easily exacerbated. DCCA is required to investigate every complaint, but the statute now provides a vehicle for a distressed owner to request an exemption prior to selling.
Permit amounts under $10,000 are automatically exempt. Sellers should keep in mind that listing an owner-builder property without an exemption (if you can find an agent brave enough to do so) will result in extremely diminished showing interest.
Issues related to unpermitted structures or areas are always foggy. Because permitting problems are so common, it is best to keep in mind that the intent of the statute is to deter unlicensed activity. It would certainly not be a stretch to assume the provisions of the statute apply. The owner-builder statute is not meant to be a vehicle to generate a complaint about every permit inconsistency.
Verify and Correct
There are numerous reasons a permit record might be incorrect. If you need a permit correction to facilitate a sale, remember, owner-builder provisions apply. Ask your agent for advice on 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!