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The Process of Buying Real Estate in Hawaii
This short dissertation is meant to simplify and order the steps we’ll take together to find the property you’re looking for. My experience has shown that an organized approach rather than a haphazard one will find your property in the shortest amount of time with the least amount of frustration. Here is my recommended procedure:
1. A meeting to gather information to help focus our search
2. Discuss Agency
3. Financing your purchase
4. An overview of how we will conduct the search
5. Putting together and negotiating a Purchase Contract
6. What happens after the offer is made
7. Your protections & obligations within the Purchase Contract
8. Home and other inspections
9. Understanding escrow and how I track them for you
10. What is a "Client for Life"
1. Gathering Information: Our first meeting is both an introduction and an interview. If you’re buying a home there’s a good deal of information about what you have in mind that I need to understand in order to help you accomplish your goal. I want to know what you picture when you think about your new property i.e., number of bedrooms, bathrooms, type of flooring, surroundings, how much land you want, how big is the home or condo, one story or two, how long you intend to live here, how old should your new home be, etc.? I want to know your long range plans for the property and how skilled you are if we’re looking for a "fixer". I want to know how much time you want to spend maintaining your yard or how you feel about hearing your neighbors. Do you mind driving steep hills, how far do you want to commute each day to work or the store or town or the beach. It may sound nosy and demanding but the more I know about your needs the easier our job of locating the right property becomes. What we’re doing is combining your needs with my knowledge to make this as enjoyable as possible.
2. Agency: Agency is nothing more than who represents whom. Hawaii state law requires full disclosure of agency in any real estate transaction. Almost all brokerage offices carry listings of properties which makes them representatives of the seller. Regardless of who in the office has taken the listing, they all belong to the broker and since every agent in the office works under the broker’s license, they all represent the seller.
There is a situation called LIMITED DUAL AGENCY in which the agent "represents" both buyer and seller, a difficult task at best. It’s called "limited" because there is limited representation for both parties. As your agent, part of my responsibility is to find out everything I can about the property you’re interested in and report back to you. Anything I can learn you will know which in some cases will help us in putting together an offer.
In a LIMITED DUAL AGENCY position, the agent can not reveal confidential information about either party nor can they suggest an offer price. We will provide you with exactly the same market information the seller is given and we will provide you with all public record information and any other information that will have any material effect on the value of the property. Instead of taking the side of one party or the other, we act as a mediator providing all available information to both parties then assisting them in reaching agreement.
When working with Ferrari Pacific Realty Corporation you will have a choice of us working exclusively as your agent or, if we find ourselves in a LIMITED DUAL AGENCY situation and you prefer your own representation, we will refer you to another company, if you choose. If you choose LIMITED DUAL AGENCY, you will be represented honestly and fully to the extent the law allows.
3. Financing: If you are going to use some type of commercial financing there are some things you should know about the loan process. I only touch on the subject because this is an ever changing market with rates moving each day and new loan packages being offered all the time. What is important is that you know how much you are comfortable spending on your mortgage. In most cases, a person will be qualified for more than they are willing to spend each month for housing. Knowing your monthly housing budget then working backwards from there we can arrive at a purchase price that will meet your needs.
There are costs above and beyond the purchase price that you will have to contend with. For example, there are attorney’s fees, recording fees, escrow fees, loan origination fees, points, sometimes, private mortgage insurance, PMI, is required for those putting down less than 20% of the purchase price. All of these fees are usually wrapped up in the loan package but it means that you will have to come up with more money than just the amount you intend to "put down". It’s no fun facing that surprise when you walk in to sign the final papers so we want to know all the facts before we even begin looking.
I’m going to suggest a few different lenders to you, all of whom I have worked with and had satisfactory results in the past. I work with them because I know them to be honest and reachable when I need answers. If you intend to use someone you know on the mainland be certain that they can loan in Hawaii, not all lenders can. In addition, property in Hawaii is unique and many mainland lenders are not familiar with this meaning endless delays in processing loans and sometimes, additional costs that may not be required by someone familiar with our market.
The loan is a two part process; first is qualifying you, the buyer and then the property you’re buying. There are loans known as "No doc" loans that are availably to people with excellent credit, assets and job longevity that don’t require all the paper work of a conventional loan. These loans may require a larger down payment, also.
For conventional loans, the lender will want at least 2 years tax returns, verification of employment, assets and income and run a credit check. This is the longest part of the process. To qualify the property, the lender will require an appraisal from one of their preferred appraisers. As long as the appraisal meets or exceeds the agreed to price the property will qualify and the lender then gives final loan approval, usually with some conditions that we then clear up within the last 10 days before closing.
To read more about financing and see the list of lenders I've worked with successfully, click here.
4. Searching: Using the information from Step 1, we will do a complete search of the Multiple Listing Service data base using your criteria as the search parameters. In addition, I will be contacting other agents to find out if they have "pocket listings" that fit your description. Pocket listings are sellers who may not be ready to list yet but let their agent know they would consider an offer. In some cases, I will contact the owners of similar properties to ask if they have considered selling. Even in a case like this, I do NOT represent the seller: I suggest they get their own agent or choose to represent themselves.
Once we have a list of the properties you’re interested in we will discuss neighborhoods or condo complexes and in most cases physically inspect these areas. We’ll discuss any maintenance fees or association fees you may have to consider.
When you’re ready to actually look at property, we’ll set showing appointments. In some cases we can get right into a property but usually there is a 24 or sometimes a 48 hour notice required to be given by the listing agent. State law does give a tenant up to 48 hours.
Then the showings are set we’ll have a schedule to follow and being on time is important because in many cases, people will be expecting us at a certain time. Unlike the phone company we can’t just tell them we’ll be there between 8:00 and 5:00 and expect them to wait. There are some properties where you may want to see more of than time allows; if that’s the case then we will either try to move the next showing if we can contact the agent or return to the one of interest later in the day. I’ll take you back to a property of interest as many times as you feel are necessary to make your decision.
My job during this part is two fold. I’m there to point out those things you may not see, sometimes being the pessimist. I want you to be aware of the negatives as well as the positives. Secondly, I’m there to sometimes remind you of what you originally had intended. While this may sound elementary, people occasionally get off on a tangent while looking at properties and being introduced to new ideas or possibilities.
In most cases we will find what you’re looking for in a day or two. There are times when we walk into the right property the first time and there are the other extremes as well.
5. Purchase Contract: Once we have found the property yo want we have to determine a fair market value and a strategy for your offer. We will find fair market value by looking at similar properties that have sold in the last few months and by looking at current market activity. Once we decide on the value then we consider an offer. In many cases, especially in a buyer’s market, we want to make a fair offer since others will be looking for the same "good deal" that we’re looking for and there may be a large inventory but few homes that are just right.
It is of the utmost importance that you remember this; just because you put in an offer doesn’t mean you have to buy the house, even if the seller accepts your offer. Putting in an offer and getting it accepted by the seller gets your foot in the door so someone else doesn’t get there first. There’s nothing worse than finding the right property, thinking about it for a day or two then finding out it went into escrow. I suggest putting down a $5,000 deposit to show your intention to purchase. You may be able to put down less but a sizable deposit makes you offer stronger than a small deposit will. That check is held by the broker until we get acceptance by the seller. At that time, it goes to the escrow company and is used to open escrow.
In our offer to purchase property, a Purchase Contract, there is an inspection period titled C-51 which gives a specific amount of time, normally 14 to 21 days from acceptance, for you to choose not to proceed with the purchase. You will have your deposit returned and continue looking for another property if you choose. We’ll talk more about C-51 as well as a number of other clauses and contingencies that have to be met by you and the seller prior to a final commitment to buy.
6. After the Offer is Made: A couple of things can happen to the offer once presented to the seller. One, they may accept it as written. Two, they may outright reject the offer. This may happen if the offer is too low and the seller feels insulted. Three, they may contour the offer with one of their own changing the price or one of the other contingencies we may have added at the time we made the offer.
If necessary, we will negotiate with the seller, through their agent, to find a workable agreement that is satisfactory to both parities. Once that’s down and we have an accepted offer, we open escrow.
7. Protections & Obligations: Hawaii’s Purchase Contract is an ever changing document meant to protect both the buyer and the seller in any real estate transaction. It does this through the use of contingencies, obligations agreed to by both parities that have to be met in a timely manner in order to complete the purchase.
We’ll go over the Purchase Contract in detail when we put together an offer but here I want to highlight a few of the features meant to protect you, the buyer. I mentioned C-51 above; this one is the Inspection clause that allows you to perform as many inspections as you feel necessary on the property. In most cases this involves a certified home inspector (there are no licensed inspectors in Hawaii). Sometimes and engineer is called in, sometimes a pool inspector may be required or we’ve had instances of calling in an expert on tennis court surfaces to evaluate an existing tennis court and sometimes a cess pool or septic tank inspection may be necessary, whatever you deem important to making your decision to buy. The 14 to 21 day period is usually sufficient to conduct these inspections. If at any time or for any reason you choose to walk away during this time you just say so and the offer is voided.
There are also contingency clauses, C-23 through 26 that protect you should you not be able to acquire the funding your funding as described in the offer. C-35, C-36 & C-37 require that the title be free and clear and transferable to you before you’re committed to buy. On any property with structures we will ask that the seller provide a survey, C-42. If there are problems with setbacks or encroachments that the seller can not correct to you satisfaction you may choose not to proceed. C-44 and C-44A require complete disclosure of any knowledge the seller has on the property. You have to accept the disclosure or, again, choose to rescind the offer to purchase.
As mentioned earlier, just because you have an accepted offer doesn’t mean you have to buy the property. It’s only after all contingencies are satisfied that you are committed to finalize the purchase.
8. Home & Other Inspections: Once we get an accepted offer we formally open escrow (see next section for Escrow), this is done with your deposit check after both you and the seller are satisfied with the terms of the Purchase Contract.
One of the first things we will do when buying a house or condo is to order the home inspection. There are many good home inspectors here; I work with three most of the time and can recommend their work. I can not guarantee their work but can tell you that in the past they have done good work for my clients.
David Gropp, Isle Inspection Service, LLC
Cell: 808-756-2733
Email: isleinspection@hotmail.com
Chuck Cartwright, Big Island Inspection Services
Phone: 808-324-0722
Email: chuck@bigislandinspectionservices.com
Daniel Leyva, Foresight Building Inspections
Phone: 808-895-4249
Email: fbi@foresitehawaii.com
Depending on the outcome of the inspection, we have three options. First, if you’re not satisfied with the condition of the home you can cancel the Purchase Contract. Second, if there are problems we can request that the seller repair all or some of the problems or, third, you can accept it as is.
If we request repairs, the seller can agree to all or some of them. If we don’t get a satisfactory response to the request, again you can cancel the offer. The results of the inspection can reopen negotiations on the property.
If you buying a home rather than a condo, more than likely we’ll order a survey of the property. This involves marking all corners on the property and locating all improvements (house, outbuildings, etc.) on the property to insure they are within the setback requirements of the county. If there are problems, we again renegotiate the offer and the same is true if there are problems with the title that can’t be rectified.
When buying raw land, instead of a survey we’ll normally order a staking, C-41, on the Purchase Contract. This locates the corners of the property but since we’re not dealing with improvements we’re not worried about setback violations. We may want a survey if there is a question about neighbors encroaching onto the subject property.
By the time you are committed to proceed with the purchase, you should be satisfied with the condition of the property, the survey and the title so that you know exactly what you’re getting.
9. Escrow: Escrow is defined as, " . . . a disinterested third party . . .". Escrow is a neutral party to the transaction. They’re the ones that hold the money until all the contingencies of the contract are met by both parties, any liens are cleared, all taxes are paid and any money held for buyer’s needs are satisfied. When all contingencies have been met they record the transfer of title at the Bureau of Conveyances, transfer the money due to the sellers and the deed to you.
When we open escrow I will request an estimated buyer’s expense sheet so we’ll see approximately what your costs will be at closing. Once escrow is opened, you will receive a set of "Escrow Instructions" in the mail. This will describe more in detail what escrow is doing for you. You’ll also receive a description of the types of tenancy available in Hawaii. There are 4 options for holding title here; Joint Tenancy, Tenants in Common, Tenants in Severalty and Tenants by the Entirety.
Tenants in Severalty is for a single person holding title in their name only. Tenants by the Entirety is for married couples; in this arrangement title is held by the relationship not one individual or the other. It’s best to talk to an attorney or your financial planner to determine which method is best for you.
Closing is when the actual change of ownership takes place. We will usually close on a Tuesday through Friday, not on a Monday. The reason is that your loan is "funded" (you begin paying interest) the day before you close. If the closing is on a Monday, the loan is funded on the Friday preceding which means you’re paying two day of interest and not owning anything new.
10. Clients for Life: Our service doesn’t stop just because we closed the sale. I, Ferrari Pacific Realty Corporation and all it’s agents remain available to answer any questions you may have after the sale or help out in anyway we can. In some cases we become friends, in other cases we’re just acquaintances but we want to be your RealtorÆ forever. Much of our business is built on referrals to friends or relatives looking for property here. We intend to provide exemplary service, the kind you would want other people you care about to have so if there is ever anything we can do to improve, we want to know about it.
Earl Nightingale defined success and, "The progressive realization of any worthwhile goal or ideal". Our goal is to continually improve the service we provide to our clients. Your feedback helps us to achieve that goal and in doing so, remain successful and provide the services you need.
Having you as a client for life means we’re doing our job right. If we can do it better, with your help, we all benefit Thank you for choosing Ferrari Pacific Realty Corporation Corporation.
Any comments may be directed to Robert Ferrari, Principal Broker at Robert@FerrariPacificRealty.com
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