Owner-Built Home Sold As New Construction?

Question

Hey, all. Question for you experts...

Can a tradesperson build their own home in Minnesota, live in it for several months, and then sell as new construction? We are looking at a property that was being built by someone to be their own home but now a few months after completion, they have listed it as new construction. The sales agent said he's built and sold other homes through her, so at first, it seemed like he is more like a GC who does this on the reg, but now it sounds like he and his family used the property last summer for family gatherings, etc. and actually lived there for awhile.

So this doesn't seem right to me...if I see "new construction" as a buyer, I:

a) assume the home has never been occupied, and

b) that licensed contractors were used to build all aspects to state code, to offset the lack of required inspections.

I know homeowners can do their own work, but shouldn't that imply occupancy and be listed as previously owned home vs. new construction? Otherwise, it seems like a loop hole to avoid licensure, insurance, cap gains, etc...which feels deceptive.

Am I wrong here? Anyone been in this situation? The home looks beautiful, but ya know...looks can be deceiving. We were going to buy this as a rental prop.

Thanks!

Dan H. · Answer

In the jurisdiction that I own, owner builder is not exclusive to owner occupied.  I can owner build rental properties but must disclose any non-Licensed work on sale (I do not sell so not relevant in my case).

Many rehabs in my market do not use a GC and are owner builder permits

I just completed my most costly unit rehab.  As usual, but possibly for the last time, we acted as the GC.  The rehab was done owner builder.  I used licensed plumbers, electrician, and framing contractors (most of what required permits had licensed contractors).

In the case of the OP, if seller in disclosure disclosed that owner builder was used and not all work was performed by licensed contractors, he would be compliant with the rules in my markets.

Best wishes

Kevin Sobilo · Answer

@Mike Adams, a few comments:

a) I think that the home not being occupied is a reasonable assumption. However, there may not be a clear technical or legal definition of "new construction". The person listing it might just be using a basic definition of something like "less than 1 year old".

b) Whether a licensed and insured contractor was used doesn't change inspection requirements. All the same permits and inspections should be required whether the home owner does the work or not.

One important difference is WARRANTY! New homes built by a contractor often include a warranty to cover things that might crop up. You probably won't be getting that with a home built by a homeowner. I would ask.

c) The issue as to whether they should occupy the home is largely immaterial to you. For the municipality issuing permits they would only typically allow a homeowner to build for a primary residence of their own, BUT they have little ability to enforce that after the fact. If they used a loan for a primary residence, there may be some ability to enforce something but that really doesn't impact your decision.

d) There is no effect on capital gains since they didn't use it as their primary residence for 2 years. So, they will be paying that.

e) How are you claiming deception when they have clearly they deceived you? In most places there is a sellers disclosure required and in my state that typically states when the home was last occupied etc. So, clearly they have told you how it was used.

Also, how did they "use the property" for family gatherings last summer when it was just completed recently? I mean did they just use the yard for a couple family picnics? That hardly makes the house "used" by most any standard. I mean if that was the case once the agent holds an open house the house would not be new construction by your definition.

f) I think you are getting hung up on the technical use of the word "new construction". You know how the home was built and how it was or wasn't used from the sound. So, while you can debate the usage of the word it doesn't sound like you are being deceived.

Brittany Kuschel · Answer

@Mike Adams

I agree that this sounds fishy, but to what end? Ethically, if the property has been occupied or lived in by anyone, it should be disclosed and listed as previously owned. If the builder never transferred title, they might try to argue that its comparable to selling a model home within a new construction developement (new home, but has had thousands of folks walking in and out for months...sometimes years).

I would be confused as to why someone would offer it as new construction when it had been lived in unless their aim is to avoid capital gains, but you say lived in a few months and not two years so that does not track. Nevertheless, I would inquire and ensure that the home is being sold with the typical new construction Statutory Warranties, and I would want to ensure that the warranty start date would be the date you take possession. The MN New Construction Statutory Warranties are outlined here: https://www.revisor.mn.gov/statutes/cite/327A.02

Jacob Sherman · Answer

hmm new construction would definitely be to the 1st occupant in my opinion

Mike Adams · Answer

Valid point. We really think the property is amazing, but the risks with the home may just not be worth it. FWIW, I found out that only about 16 of MN's 87 counties have adopted the state building code... :/

Jamie Markel · Answer

In Minnesota, you must have owned the home and your primary residence for at least two years to not incur capital gains.

Homeowners are allowed to build their homes. It is required to have a building permit/inspection and hire licensed professionals for Electrical, Mechanical, Plumbing, and structural engineering for load bearing, gas line work, and septic systems. If you are within Minneapolis limits, the metropolitan council is more heavily code-regulated than the outskirts.

Kevin Sobilo · Answer

So, your issue is with the county government based on what you just said because a home built by a licensed contractor would also have not been inspected.

I'd be JUST as concerned about a contractor built home with no inspections as I would a homeowner built home with no inspections.

Perhaps, you just want to avoid that entire county since it seems like your main concern is how they handle permits and inspections.

Theresa Harris · Answer

What Kevin said!!

Mike Adams · Answer

Thanks, @Jacob Sherman. Seems like he might be intentionally skirting licensing/insurance requirements to me. We're going to skip this one.

Thanks to all who responded, your advice is truly appreciated!

Mike Adams · Answer

Thanks, @Brittany Kuschel!

Owner-Built Home Sold As New Construction?

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