March 2, 2011

Unpermitted Structures and open building Permits

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

 

Stephen Sheldon, R/S
808-937-7882
steve@bridgehi.com
Bridge Real Estate Hawaii
East Hawaii Real Estate Expert
Foreclosure Specialist

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Loren E Clive March 4, 2011

Great article, Steve, on an issue that plagues the Hawaiian Islands. Properties without permitting problems are practically non-existent, with the exception of recently developed gated communities. Nice work!

Kimberley Rossiter Jan. 13, 2013

If you purchase an NON- Permitted building/cabin/home can you have it permitted? As in: inspected to see if its up to code and then permitted before you buy? What would it cost? or would it be worth the effort? Also is it "legal" or allowed to live of grid on the Big Island? As in: no electricity, water catchment, solar compost tiolet? Thank You in Advance,

STEVE Jan. 16, 2013

Aloha Kimberly, Thanks for your comment on my Blog. And thanks for using www.bpghi.com for all your Hawaii property searches! You can indeed hire someone before you buy a property to inspect it for compliance to code. But it would be hard to get any kind of guarantee so you would use that just to measure your risk. One problem often found is that the structure may have met code for the time it was built but to be permitted now it would have to meet today's more stringent codes. But you could indeed determine most of that pre-purchase if you are willing to invest money before even making an offer. Many people live off-grid here but few by choice. Your location dictates what you have. There are a few subdivisions that HELCO serves but not everyone there has hooked up to it. But in most cases people live off solar and generators here because it is too expensive or even impossible to get power to their house. (The exception is the new photvoltaic systems, which homeowners are installing at huge expense so run their meter backwards and get free electricity.) Water is seldom off-grid by choice. There simply is no water source on much of the island so anywhere out of the main cities will require you furnish your own water. I'm not sure about the compost toilet. I see portable Jiffy Johnny toilets up in the hinterland of some of these subdivisions so that makes me think they must be required. You would have to do some more research on that. Location, location, location! If you want to live off-grid in unpermitted structures and do your own thing it is entirely possible here. Just make sure it is somewhere deep in the jungle of Puna or maybe in Ocean View where you can be left alone! Thanks for your comment! Steve

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