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Buying a Home in Hawaii
Buying a home in Hawaii is not much
different than buying a home anywhere else in the Southwest or West regions of the
country. There are some differences between buying a home here and the East Coast. The
main difference is we don't use lawyers to monitor and close the sale. Instead, we use
escrow companies.
Escrow companies act as a neutral third party to ensure all
monies and contracts are properly executed and transferred when the conditions of the
contract have been met. We'll talk more about escrow further on.
Also, forget about having a final closing meeting, very
rarely do the buyers and sellers even meet each other.
Real Estate Agents
In Hawaii anyone who offers to buy, sell,
or lease real property for compensation must be licensed. There are two types of licenses
given by the state: Brokers and Salespeople. Any broker or salesperson can also be
referred to as a sales agent.
It is important to remember that only Brokers can receive
compensation for the sale or lease of real property. Therefore, every salesperson must
work for a broker. Brokers can also work for another broker. When doing so, they function
as sales agents and not as the Broker of Record. The Broker of Record is the person who
assumes all responsibility for supervising the sales agents.
Agency
Agency is one of the more arcane aspects of real estate law in Hawaii. It includes sub-agency, dual-agency and buyer's
agency. Agency is in a state of flux at this moment in many parts of the country. Suffice
it to say, unless you have signed a contract delineating your agency relationship, the
agent you are working with may not owe his primary fiduciary
responsibility to you.
Finding the Right Home
This is the first task your agent will perform for you, and it is probably the least
important. Before driving all over, your agent will conduct an interview to determine if
you are ready, willing and able to buy a home. Don't take this personally, the seller
wants to know. Plus, the more ready, willing and able you are to buy a home, the better
price you will get.
It's funny how that works sometimes. We've shown people the
perfect home at the best price and they decided to wait. One day, one week, it didn't
matter. When they finally decided to buy, that house is invariably gone.
Next, the agent will inquire as to the details of the home
you are looking to buy. This way the agent can bring you directly to the most suitable
homes on the market.
If the first thing an agent wants to do is pop you in his
car, go find another agent. Driving willy-nilly around the county is an exhausting
experience. No experienced agent drives people around without a qualifying interview
first.
You do want an experienced agent, don't you?
Also, a good agent will have you begin the loan process
immediately. We're not talking about getting pre-qualified, we're talking about getting approved
for a loan. This will put you in the strongest possible negotiating position,
next to buying with all your own cash. For more information about the loan approval
process, see our financing page.
Making an Offer
Here is where your agent really begins earning his keep. After you have found the home
you want to buy, it's time to make an offer. Offers are always in writing. There's a
saying in Hawaii that an offer is only as
good as the paper it's written on. The paper used in Hawaii is called a Deposit Receipt. That's the short name. The full name is
the Residential Resale Real Estate Purchase Contract and Receipt for Deposit.
Yes, it is as long as its name. Make sure you have a copy of this contract before making
offers. Study it. You will be signing it at some point. We will provide you a copy.
All details of the offer are entered on this form, including
the description of the property, the price offered, financing terms, duration of the
offer, rights of the buyer to inspect the property, which party will pay which fees, etc.
We will assist you in setting an opening offer price by
providing a list of homes sold recently similar to the one you are interested in buying.
Along with your offer it is customary to provide a "good faith" deposit check of
at least 3% of the offered price.
We will then present the offer to the sellers and their
agent.
The Counter-Offer
There are two parts to an offer: the price and the terms. Usually you will offer less
than the asking price. If it's a seller's market, meaning there are many buyers vying for
the same property, you may offer more. In any case, there will more often than not be a
counter-offer.
The sellers will counter your offer in writing. The
counter-offer will say, in effect, "I agree with your offer except as follows:
...(enumerate the changes the seller requests)." The buyer can respond with a written
"counter-counter-offer," and the offers can go back and forth until there is
final agreement, or until one of the parties no longer responds.
Opening Escrow
Once the offer is agreed to by all parties concerned, the agent will take the written
final agreement and the deposit check and deposit them "in escrow." Escrow will
then be deemed open.
The purpose of an escrow is to enable a buyer and seller to
deal with each other without risk. Before title to the property can be transferred to the
new buyer, the buyer must deposit into escrow all monies necessary to pay for the home.
This is most commonly done when the buyer obtains a loan. Then, the seller must be paid,
the seller's old mortgage paid off, and any other liens on the property must be paid off.
All responsibility for handling funds and documents is delegated to the escrow holder, a
neutral third party, which is usually a title insurance company or escrow company.
Your title insurance officer can answer many of the
frequently asked questions about title insurance, preliminary reports, and alternative
ways of holding title to property in Hawaii.
In a simple transaction, the buyer delivers the agreed upon
funds to the escrow holder. The buyer also instructs the escrow holder to deliver to the
seller the stated sum only after all conditions have been met, and title is vested in the
buyer. Concurrently, the seller deposits his deed and other documents with the escrow
holder, authorizing their delivery when the buyer has deposited the agreed purchase price.
The contracting parties deposit funds or documents with the escrow holder, for delivery to
the respective parties upon performance of all conditions of the agreement.
Inspecting the Home
Most contracts provide that the buyer may, at his own expense, have the house inspected
by professionals. Make sure this is in your contract, and have the home inspected.
Typical inspections include pest (termite) inspection,
contractor inspection (includes electrical, plumbing, heating systems), roof inspection,
swimming pool inspection, foundation and soil inspection.
These inspections may reveal defects which were not evident
to the buyer or the agent, and which were not disclosed in the seller's disclosure
statement. Depending upon the terms of the Deposit Receipt, the buyer may request the
seller to either fix the defect, or provide funds so that the buyer can correct the defect
after close of escrow.
We can assist you in choosing competent inspectors and will
arrange their appointments and be present while the inspections are being conducted.
Some inspections become mandatory by the lending company.
Most lending companies require, at least, a termite and a roof inspection before they will
loan on the property.
Title Report and Title Insurance
In Hawaii the title of the property is
searched by a title company and a preliminary report is issued on the condition of the
title, for the buyer's approval. The report would include such information as present
ownership, legal description of the property, any existing liens or unpaid taxes, any
easements, and other covenants, conditions, or restrictions. A policy of title insurance
will usually be issued at close of escrow.
A title insurance policy insures the buyer's interest in his
purchase, and the priority and validity of any loan. It is a contract to indemnify against
loss through defects in the title.
Loan Approval
The buyer is responsible for getting a loan. When the buyer's loan is approved and
documents are ready for signature, the lender delivers the documents to the escrow holder,
usually a week before the closing date. The buyer signs all loan documents ahead of the
closing date, and the seller signs the deed a few days before closing. One or two days
before closing the buyer delivers the remainder of the down payment to the escrow holder.
To avoid delaying the closing, the buyer should transfer his down payment funds to a local
bank well ahead of close of escrow.
Close Escrow
After both the buyer and seller have complied with all agreed-upon terms, the escrow is
"closed," and the deed is recorded with the County Recorder. The escrow company
notifies the agents that the title is recorded and on that day the property belongs to the
buyer.
There is no need for a final meeting of the parties, since
all documents had been signed prior to the close of escrow, and had been delivered to the
escrow holder.
Sometimes the seller needs to remain in the property after
the close of escrow; this holding over is handled by a separate agreement. After the close
of escrow the parties will be given a settlement statement showing the charges and credits
for each party.
It's Your Home
The above description covers the customary steps in buying and selling a home in Hawaii. Most Hawaii residential transactions are completed without the assistance of an
attorney. However, buyers and sellers who have legal or tax questions are urged to obtain
advice from their attorney or tax professional.
While the above material is summarized from sources deemed
reliable, it is not guaranteed to apply to all transactions, since other conditions may
apply, and each real estate transaction has its own unique characteristics.
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