Introduction & Overview: Writing an Offer to Purchase Real Estate
The purchase contract in Hawaii is a 12 page contract has lots of blanks and places to change terms. It’s important to go through every single paragraph to make sure the offer is exactly as you want it. Many of the contingencies are based on dates or specific verbage in the offer, so you really have to read the entire thing and make sure you construct the offer how you want it.
Contingencies in a Purchase Offer
There are several contingencies in the Hawaii Purchase Contract, including among others, the loan contingency, the appraisal, termite inspection, home inspection, association documents, encroachments, and deposits. Each of the contingencies creates an window of time for either the buyer or seller, which must be fulfilled according to the contract, or the contract may be nullified.
For instance if the loan is not approved by a certain date and approval delivered to the seller, the seller has the option to cancel the contract. The inspection contingency allows the buyer to have the home inspected by a professional so that he can determine if he wants to continue with the purchase. If the buyer decides that the inspection results are not acceptable, the buyer can back out. In Hawaii real estate this inspection period is called the C-51 period, and the buyer can basically back out of the transaction for almost any reason.
Let’s say you make an offer to buy a house in Aina Haina or Manoa, and during the inspection period you find that the house needs some plumbing work in the kitchen. A this point you can decide to continue on with the purchase, cancel the purchase, or ask the seller to make repairs or credit money in order to continue. It’s probably most common to ask the seller to give some money as a credit so you can get the repairs done once you move in. Since a lot of real estate in Oahu is very old, almost every home inspection results in some kind of discovery that needs to be addressed before closing.
It’s important to meet all your contingencies as a buyer since the seller earns the right to cancel the escrow of if you fail to do so.
Earnest Money Deposit
Most sellers won’t sell you a house unless you have at least about $1000 deposited with escrow. This is because they want you to have some reason to continue on with the purchase. If you have no money deposited, you have less reason to continue on if you feel like you have want to back out.
In reality, the buyer hardly ever will lose their deposit. In fact I have never seen it happen, but I guess it does happen once in a while. As a buyer you show the seller how serious you are by the amount of deposit you put in escrow. The more you put, the more comfortable the seller will feel about entering a contract with you. There is no legal minimum, but $1000 is pretty much the floor. I have seen as much as $25k-$50k, and the larger the purchase price, generally the larger the deposit.
Often in Hawaii real estate transactions a buyer will give a deposit with the initial offer to buy, and then after the inspection period he will give more.
The Closing Date
The closing date, like everything else, can be negotiated, and should be used by the buyer to try and make the contact favorable. For instance, let’s say you found a nice home in Kailua and you want to make an offer that is below the asking price. If you find that the seller needs to close by a certain date, he may be willing to let go of his nice Enchanted Lake house for a little less than asking if yo u close on the date that he requested.
It’s good to find out when the seller wants to close before you offer to buy, so you can use it to your advantage. Since Hawaii has a lot of investment homes, you may find vacant properties to buy, and usually this means the seller wants to sell fast so he can stop paying the mortgage. In these cases you can offer less but close fast, and the seller may take your offer.
Transfer of Possession
You can take possession of a property at any time the seller agrees to. Sometimes you will move in before closing, which is called “early occupancy.” In this case you become a tenant to the seller, who becomes your landlord, be it only for a few weeks. You would normally pay rent to the seller for an agreed upon amount. This is pretty rare, since a seller doesn’t want you to cancel your escrow and then up living there as a tenant.
Most commonly you get possession on the day of closing, which is when the ownership is recorded at the bureau of conveyances. In Hawaii this takes place a day after loan funding, but you can get a special recording if the escrow requests it of the bureau. It’s not a sure thing, but sometimes you can get it.