If you are buying Hawaii Real Estate you may encounter properties with unpermitted structures or open building permits.
An 'unpermitted structure' is most widely considered to be a completed building or addition that was required to have a County building permit but did not. The building may or may not have been built to code. Lenders may not automatically deny loans on properties with unpermitted structures, to the surprise of many buyers. Bank of America, for example, will allow unpermiited portions of structures, or entire unpermitted structures, as long as the unpermitted portion does not exceed 25% of the total square footage of all buildings. They will also consider any unsafe condition or poor building standards, but only if reported in the Appraisor's report. The loan value on the property will also usually be considerably less than if everything was permitted since the Appraisal will generally assign zero value to unpermitted structures. So the property will usually sell for less than if everything was permitted.
An 'open building permit' means the permit was pulled but the property didn't receive a 'final'. The construction may be incomplete or perhaps inspections were just never ordered. While this seems like it could be less of a problem than no permit at all, the opposite is true. An open building permit is usually a deal-killer for any normal loans. The reason is that if the builder wasn't paid by the former owner, he would still be able to file a mechanic's lein against the property. Title Insurance may be difficult to obtain because of this so the banks will just avoid that possibility. But a cash buyer doesn't need a loan and isn't required to have Title Insurance, so may still find this to be a viable purchase option.
In addition the possibility of an unknown mechanic's lein, the buyer should also consider that there is no guarantee of a transfer of the building permit. Consideration is given on a case by case basis.
For these reasons, properties with open building permits are usually sold for cash and often for not much more than the value of the raw land. But if the savey buyer does his homework well, such a purchase could be very rewarding in the end.
For more information about Building permits in Hawaii County, follow this link: http://www.co.hawaii.hi.us/permits/permits.htm