What's involved in buying a home?
（Please relax! We will guide you through the process.）
Open a local bank account
If you happend to be from a foreign county and don't have any bank account in the US, then it is highly recommended to open a local bank account if you don't have one yet. It is much safer and convenient to use bank issued checks than dealing with cash. You can open a bank account under individual name with your passport from $100 per account. For a corporate account, there will be a certain documentaion requirement. (Please ask us for details.) After purchase, you can use that account for automatic payments for utilities and/or maintenance fees. (Property tax payment can be done only by checks or credit cards and there is a fee for credit card payment) Once you open the bank account, you can wire additional funds from your home bank later.
Selection of a Real Estate Broker/Agent
There are so many ads by real estate agents in local papers and magazines and also online.
It is so difficult to select one from so many. Sometimes, it helps to ask bankers, CPAs, or attorneys who are regularly dealing with these professionals. Also, visit open house and meet agents and talk to them.
If you find one, then try to work with only the one you decided to work with. The source of information is the same MLS provided by the local Board of Realtors.
Consultation with a Real Estate Broker/Agent
The initial consultation is very important. You will be telling your agent what you are looking for and how you are going to finance the purchase. The agent can give you his or her professional advice and also refer you to a loan officer if you need a loan and if you do't have loan officer yet.
Consultation with a Loan Officer
If you are applying for a loan to purchase a home, ask a loan officer for advice how to finance the purchase. He will familiarize you with different loan programs and how to prepare yourself.
The loan officer will give you a list of documents you need to provide and once you submit those documents and the loan officer pulls out your credit score, then he or she will be able to produce a pre-approval letter which you can submit when you place an offer to purchase a home. It is critical to have this process beforehand and have the letter ready especially when the property is so attractive and the seller is receiving multiple offers. Before going through this process, your loan officer may able to produce a pre-qualification letter by gathering information from you but it is recommended to have the pre-approval process if you don't want to miss out a deal.
Home hunting. Let's the fun begin!
Once you selected your real estate agent and have your financials taken care of, then the fun parts starts.
You can go online and find properties on your own but consult your agent. An experienced agents can tell you about the neighborhood and/or the building. Once you narrow down your criteria, your agent can set you up on an e-mail alert when something comes up on the market that you are focusing on. Your agent can show you the properties that he/she can recommend or upon your request. Before going out, keep in mind that some properties are owner occupied or tenant occupied. You have to give at least 48 hour notice to get to see the property if its tenant occupied. If owner occupied, then usually one day notice would work. For vacant properties, usually your agent can show with a short notice but sometimes the listing agent has to be present for showings.
Placing an offer to purchase
Once you find a home you want to purchase, your agent will write up an offer to purchase for you. Usually the most recent standard forms issued by Hawaii Association of Realtors are used used. Your agent will fill out a form called "Purchase Contract" and other necessary forms (addenda) with the information you provided and also the terms and conditions that you are requesting. Your agent will then submit the forms along with a copy of your earnest money check and also a pre-approval letter if a financing is required. You will give the Seller a certain period of time to respond to your offer. If Seller is agreeing to all your terms and conditions, then he/she will check "Acceptance", sign and date the documents and send them back to you and submit a copy to Escrow mutually agreed to use. If Seller counters your offer, then you will receive a form called "Counter Offer" stating any changes to the original Purchase Contract and the Purchased Contract itself with "Counter Offer" checked, initialed (each page) and signed by Seller as a proof that he/she reviewed it. Once both parties reach an agreement on all the terms and conditions, then the original Purchase Contract along with the addenda and the last Counter Offer fully executed are submitted to the selected Escrow along with your earnest money check. Then a time line starts from the Acceptance Date on which the final counter offer is accepted and signed.
Some of you may not be familiar with Escrow system involved in sales transaction of real properties. Escrow companies are privately owned companies and hold fair position to both parties. They hold funds in their trust bank account until all the conditions per Purchase Contract are met and the transaction is recorded and disburse funds to parties involved in the sales transaction per the Purchase Contract and written agreements. Escrow companies usually have its own title department or holds (or affiliated with) a separate title company who underwrites title insurance. Once a new transaction account is open, Escrow will run a title search on the property and issue a document called "Preliminary title report". (See below regarding the report).
All in writing
Paper trail is very important in real estate transactions in order to avoid troubles arising from misunderstanding or miscommunication. You may find tedious or cumbersome sometimes, but it is very important.
You can be overwhelmed with so many pages of contracts and addenda to initial and sign but you must do it. If you have an e-mail account, you can use a digital signing program called "Docusign" which allows you to sign or initial documents by just clicking of a mouse. But you can't use this form of signing for the documents that require notarization.
Escrow (its title department or a separate but affiliated title company) will provide both parties with a document called "Preliminary Title Report" the written report of the title to the property, including a property description, names of titleholders and how title is held (joint tenancy, etc.), tax rate, encumbrances (mortgages, liens, deeds of trusts, recorded judgments), and real property taxes due. A title report made when report is ordered is called a "preliminary report," or a "prelim," and at time of recording an up-to-date report is issued which is the final title report. Normally a title report's accuracy is insured by title insurance which will require the insurance company to either correct any error or pay damages resulting from a "cloud on title," encumbrances or title flaw in the title which was not reported. In general, Seller pays 60% and Buyer pays 40% of the title insurance premium upon closing.
Seller's Real Property Disclosure Statement
By law, a seller of residential real property is obligated to fully and accurately disclose in writing to a buyer all "material facts" concerning the property. "Material facts" are defined as "any fact, defect, or condition, past or present, that would be expected to measurably affect the value to a reasonable person of the residential real property being offered for sale." Seller has a certain time frame per the Purchase Contract to submit the Seller's Real Property Disclosure Statement to Buyer and Buyer has a certain time frame per the Contract to review the statement and has the right to cancel the Purchase Contract based on the findings from the statement if its within the time frame.
Buyer has the right to have the subject property inspected by third parties. The due date for completion of the inspection and reviewing the result (inspection report) is negotiated between the parties. It is usually done within the first two weeks of the transaction. If there are items requiring repairs or replacing, both parties negotiate on what to do unless an "As Is" Addendum is in place and Seller doesn't want to fix or replace anything. Oftentimes, however, parties still try to negotiate if both parties want to keep the transaction alive.
If the property is a condominium unit, Seller must provide you with series of documents we call "condominium documents" within a certain time frame per the purchase contract as part of the property disclosure. Buyer has a certain time frame to review the documents and responds to Seller whether she/he will proceed withe sales transaction. The condominium documents include, but not limited to, declaration, articles of incorporation, by-laws and their amendments, house rules, insurance study, operating budget, reserve study, minutes of annual meetings and board meeting, etc. Even if the home is a single family home, if there is a homeowners' association, Seller has to provide you with such documents. A certain properties belong to multiple associations.
Leasehold Disclosure Documents
If you are purchasing a leasehold property, then Seller has to provide you with master lease, apartment lease, and any other related documents (if any) within a certain time frame per the purchase contract.
A termite inspection is ordered close to the end of the transaction. Termite inspection report is good for only 15 days. If the purchase contract requires, then Seller will order an inspection to be conducted prior to closing by a company that you designated once the Escrow opens. Even at condominium properties, termites can be feasting on doors, kitchen cabinets, etc. Usually, termite treatment for a condominium unit is done by a spot treatment, but there is a precedence where an entire high rise building was tented for fumigation, which was a very unusual case. For a single family home, if the termite inspection report states a fumigation is required for an active termite infestation, Seller has to have the house tented for a fumigation (usually it takes 24 hours) before closing of the sales transaction.
Unless there is any issue with the appraisal of the property and or your financial status or even with the property, and if most of the conditions are satisfied, then a conditional commitment letter will be issued with some conditions. If all the conditions are met, then a final loan approval will be issued and finally the funding will take place after signing loan documents and payment of the down payment by the buyer.
Final Walk Through
Before you go in for signing Escrow closing documents and loan documents, you will conduct a final walk through of the property. If there was any additional agreement to repair or replace any items, then you want to inspect if those items are completed and the cleaning (if required by the contract) is properly done.
Signing (Signing in front of a notary public)
If and when most of all the conditions are met, the closing documents including the conveyance document are prepared. Both Buyer and Seller must sign the conveyance documents and loan documents (Buyer only except for a certain document requiring Seller to sign) and get the documents notarized by US certified notary public. If you are in town, then you can do this in Escrow. If you are outside the state but within the US, then you can have the documents notarized by a notary public at a bank or a notary public office and send them back to Escrow.
This signing can be done outside the US at an American Embassy or a Consulate. (for Apostiile, please contact us)
Recordation and Sales Proceeds
Recordation takes place after two days after all the executed contract documents and all the funds from Buyer are
in Escrow's hand. Escrow submits the conveyance documents to the Bureau of Conveyance and/or Land Court for recordation and then disburse the funds to individual parties. Escrow will inform your agent upon recordation and you will receive the keys on the day. Make sure you have a homeowner's insurance (or dwelling and fire insurance) in place and also the utilities are on when you move in.
FiRPTA and HARPTA
HARPTA is an acronym for "Hawaii Rela Property Tax Act"and FIRPTA is an acronym for "Foreign Investment in Real Property Tax Act". For legal explanation of these Acts, please go to http://files.hawaii.gov/dcca/reb/real_ed/re_ed/ce_prelic/harpta_firpta_handout_-_final.pdf
On behalf of Buyers, Escrow withholds a certain percentage of the "amount realized" on sale, which is normally 10% to 15% (depending on the value of the property and the owner occupant status) of the sales price for FIRPTA and 5% for HARPTA unless Seller provides with Buyer a certification that Seller is exempt from the withholding in certain period of time. Please consult your CPA for the details.
Make sure you will notify the property tax office of your residential status.
You can also go to https://www.realpropertyhonolulu.com/ for more information.