building permits and disclosures (Honolulu, Hilo: real estate, insurance, how much)

[oysterguy]

My wife and I are (or at least were) very close to making an offer on a house on the Big Island. It's an older house that has been completely gutted and nicely redone--plumbing, electric, the whole deal. We recently received disclosure documents, in which one of the questions is, were any improvements done without permit. The current owner answered yes, and then in the explanation box stated that original expansions were done in the early '70s, and permits weren't required at that time. Nothing was mentioned about the newer work, done last year. We inferred (naively, perhaps) that this meant the newer work was done under permit. We have since learned otherwise.

We asked our real estate agent what was up with that, and were told that refurbishments are often, even usually, done like that in Hawaii, and even suggested that permits are not required for this kind of "like-for-like" work. It did not take us long to search the web and find out that permits are required for any electrical or plumbing work.

Maybe it is because we are compulsively honest and law-abiding, but we're getting a really bad taste on this. We feel the disclosure should have at least mentioned that the new work was without permit, and that our agent should have pointed this out to us. We understand that lots of work is done without permit, and that this seems to be especially prevalent in Hawaii.

So, to the knowledgeable folks out there, do you think there has been an ethical breach, or is this the norm? Shouldn't we at least have been informed that this extensive refurbishing was done without permit? How much do you think this affects the value of the house? Could this affect our liability--like if the house burned down and someone were injured or the insurance company refused to pay up because the wiring was not put in under permit? Could we (or better, the current owner) get "as built" after the fact permits? Other comments or advice on how to proceed?

Thanks.

[Dreaming of Hawaii]

The first thing I'd do is call the Building Department for Hawaii County in Hilo and see if there were any permits and inspections. Secondly, I'd hire a private buiding inspector to come see the work that was done (I don't think the county inspectors will come look without a permit). There may be problems if there was electrical or plumbing that has since been covered with drywall, because that work can't be inspected. How about making permits and inspections a contingency of purchasing the property?

[oysterguy]

Thanks, Dreaming. Yes we will look into permitting as a contingency, but suspect that this may be a deal-breaker for the seller, since it is our understanding that the seller will face penalties for after the fact permitting. We will also look into how much of a comfort level we can get from a private home inspection. We have lost comfort with our agent, who we feel was less than forthcoming on both lack of and need for permits, but don't know if we have grounds to find another agent. Any agents out there care to comment?

[busybody]

That seller is the exception to the rule. Every property I have browsed on the Big Island will disclose whether its improvements are permitted or unpermitted. I would say that's quite unethical to disclose the old non-permitted activity then 'guilt-by-omission' about not telling you that the renovations and existing property is not permitted. Shame! Auwe!!

[Pointranch]

If you on't make the offer. You are not harmed! You've already expeirenced your gut feeling, intuition, educated guess, etc... Run, don't look back! J R

[JoeyT]

Point has it right. Nowadays, if it even has a whiff of dishonesty, then run--don't walk.

[hotzcatz]

If it was built without a building permit it doesn't exist as far as banks and lending folks are concerned. If it was built without using a licensed electrician and plumber it can be a nightmare to get a legal building permit after the fact. You will need to get the licensed trades to sign off on work they didn't do and they will charge for that.

It didn't used to be such a difficulty and folks used to just look the other way but they are starting to enforce things built without permits. Worst case scenario is you get to tear it down and there is no grandfather clause about "it was that way when you bought it." The only time a building can get grandfathered in is if it was built prior to 1915 and has documentation prior to 1930, I think it is. At least, on Hawaii County, it might be different for Maui, Honolulu, or Kauai.

[Calico Salsa]

Be careful! Maui is cracking down on improvements done without permits. Could be that is also going on for other islands.

My friend here is going through the process of getting his improvements permitted. First comes the SMA (Special Management Area), because he is in a flood zone. Just for that, he is facing a fine of $1000. penalty (was $500 until not long ago) plus up to 30% of the improvement value. So for an improvement valued at $50k, you could end up with $16,000 to just get the SMA! That is not refundable if they don't approve you to go forward with the permitting process. And it is only the first step... you still need to get the building permit approved.

Plus you need house plans (architect time), permit application fees, inspections... you could be looking at a lot of money to get yourself to the legal side of the fence.

You mention that this could be a deal breaker because the seller will face penalties. But YOU will pay those penalties if you buy the house. The improvements do NOT get grandfathered in. And yes, it can affect your liability with insurance coverage.

Personally I wouldn't go for it. The price you are offering to pay on the house is more than you think because of the after costs.