Category: Blog

The standard Hawaii Information Service Purchase Contract used on the Big Island of Hawaii and Kauai has provisions for various inspections including your personal inspection, a professional Home Inspection, a separate Termite Inspection and a survey.  The question always is, “who pays for these inspections?”  While everything is negotiable, there are certain norms that everyone has come to except.

SURVEY.  Let me start with the survey.  Only residences and raw land are surveyed; condos don’t require a survey.  There are two ways to go about surveying a Hawaiian property you are purchasing.  First is a full survey.  In cases where there is a house on the property, houses on the lots next door, and the properties are surrounded by fences or rock walls, you will want a full survey.  The full survey will plot the position of the house on the lot, delineate the setback lines and map the location of fences and rock walls.  The Survey Report will state if there are any encroachments along the property lines or within the setbacks.  Setbacks are imaginary lines, set back from the property lines a certain number of feet, created by County Ordinance, wherein no structures are supposed to intrude (encroach).  Generally it is accepted that the seller will pay for this survey.  The second type of survey is called “staking”.  With a staking, the surveyor only marks the location of the property’s boundary pins.  Usually with raw land, a staking is all that is necessary.  The seller usually pays for the staking.  If there are rock walls and fences, and the buyer wants a full survey, then who pays is a matter of negotiation.  If a seller refuses to pay for all or a portion of a survey or staking, and the buyer is willing to cover the cost, I always suggest that the seller pay up front, and the buyer agree to credit the cost to the seller out of escrow at closing.  That way, if the escrow fails to close, the buyer hasn’t paid for a survey he can’t use and the seller now has a survey for the next buyer.

HOME INSPECTION.  The Big Island Purchase Contract allows the buyer unlimited inspections over an agreed upon period of time; usually 15 days (negotiable).  The buyer can inspect themselves and/or pay for any professional inspection they choose.  Property inspection companies have sprung up all over the country to fill this need.  There are dozens of them on the Big Island.  The buyer chooses the inspection company and pays for the home inspection.  If the inspection turns up something serious enough to cause the buyer to want to cancel escrow, they can do so without cause during the inspection period and get their deposit back.  However, the home inspector has to be paid by the buyer whether they decide do purchase the property or not.

TERMITE INSPECTION.  Of course everything is negotiable, but the Purchase Contract calls for the seller to pay for the termite inspection and treatment if needed.  However, the buyer can choose the company they want to do the inspection.  If treatment is required by the Inspection Report, the seller can choose the company to the work.  The seller is also expected to pay for any treatment whether it be spot treatment or a full tenting.  If the seller should refuse, then it becomes a matter of negotiation.  Treatment is only required if live infestations are discovered.  In Hawaii, the seller is under no obligation to repair any termite damage that may be discovered.

ESCROW FEES.  The method by which the escrow fees are divided are posted at the top of page 4 of the Hawaii Association of Realtors Purchase Contract.  Charged to the Buyer (if applicable) are 40% of the title insurance premium, cost of drafting the note and mortgage, cost of obtaining buyer’s consents, Buyer’s notary fees, 50% of the escrow companies fee, condominium or subdivision fees charged by AOAO (Association Of Apartment Owners) or HOA (Home Owner’s Association) to transfer their paperwork from the seller to the buyer.  Charged to the Seller (if applicable) are 60% of the title insurance premium, cost of drafting conveyance documents, cost of obtaining seller’s consents, 50% of the escrow fee, seller’s notary fees, cost of required staking or survey, recording fees to clear seller’s title, conveyance taxes and Federal and/or State withholding for any capital gains that may be owed.  Yes, you read that right, the seller pays for 60% of the cost of the buyer’s title insurance.

For a variety of reasons people add to their homes without applying for a permit.  It’s quite common on the Big Island.  Sometimes it’s not possible to tell, but if the tax records show a two bedroom house with a garage, and there are three bedrooms in the house and no garage, you can pretty well be sure that someone converted the garage to a bedroom without a permit.  If the buyer is getting a bank loan, and the appraiser figures out that a portion of the house was built without permits, he will make a note of it in the appraisal and the bank will deduct the estimated value of that section from the amount they are willing to loan on the property.  If the entire house was built without permits then no bank will loan on it.  In situations like that any sale must be for cash and the unpermitted status of the structure disclosed.

In a seminar I attended recently with the Planning Director, I asked the Director if the County of Hawaii had ever made anybody tear down or remove any unpermitted area of a house, and he said no.  That doesn’t mean in the future the County might change their minds.  He also said, that if the Real Property Tax Office finds out about an unpermitted structure (or area within a structure), they will add the value to your tax bill.  He also said the Tax Office does not pass the information they discover along to the Building Division.

The most common unpermitted addition is an additional kitchen in a guest quarters.  The building code only allows for one kitchen in a single family residence.  So an owner who wants to add a guest quarters with a kitchen, knowing that he can’t get a permit for another kitchen, will build it without permits.  In Hawaii County, what constitutes a “kitchen” is a stove and a full size sink.  If you have kitchen cabinets with a small bar sink, fridge, microwave, hot plate, toaster, coffee maker, blender, etc., but no stove, it’s a “recreation room”.  So some people apply for, and receive, a permit for a guest quarters with a “recreation room”.  Then after the building inspector leaves the final time they add a larger sink and stove.  Any Realtor can tell this was done, and must disclose it in the listing.  Thus you will see “some areas not permitted” in quite a few listings.  Another term used quite often is “non-conforming”.  When the owner wants to sell the house, he will generally be told to move the stove out before the bank’s appraiser arrives.

There has been some confusion expressed over the difference between the various items labeled as “zones”. In Hawaii there are at least four descriptions of land area that use the word “zone”.
STATE LAND USE ZONES: The state of Hawaii has designated certain areas for certain uses called “Districts”.

URBAN DISTRICT: First there is the “Urban Zone”. The Urban Zone generally includes lands characterized by “city-like” concentrations of people, structures and services. This Zone also includes vacant areas for future development.

RURAL DISTRICT: Next there is the “Rural Zone”. The Rural Zones are composed primarily of small farms intermixed with low-density residential lots with a minimum size of one-half acre. Jurisdiction over Rural Districts is shared by the State Land Use Commission and county governments. Permitted uses include those relating to or compatible with agricultural use and low-density residential lots.

AGRICULTURAL DISTRICT: Then there is Agricultural District includes lands for the cultivation of crops, aquaculture, raising livestock, wind energy facility, timber cultivation, agriculture-support activities (i.e., mills, employee quarters, etc.) and land with significant potential for agriculture uses. Golf courses and golf-related activities may also be included in this district, provided the land is not in the highest productivity categories (A or B) of the Land Study Bureau’s detailed classification system. Uses permitted in the highest productivity agricultural categories are governed by statute. Uses in the lower-productivity categories – C, D, E or U – are established by the Real Estate Commission and include those allowed on A or B lands as well as those stated under Section 205-4.5, Hawaii Revised Statutes. Important Agricultural Land (IAL) designation information http://hdoa.hawaii.gov/chairpersons-office/new-agriculture-initiatives/important-ag-lands-ial/

CONSERVATION DISTRICT: Lastly there is the Conservation District. Conservation lands are comprised primarily of lands in existing forest and water reserve zones and include areas necessary for protecting watersheds and water sources, scenic and historic areas, parks, wilderness, open space, recreational areas, habitats of endemic plants, fish and wildlife, and all submerged lands seaward of the shoreline. The conservation District also includes lands subject to flooding and soil erosion. Conservation Districts are administrated by the State Board of Land and Natural Resources and uses are governed by rules promulgated by the State Department of Land and Natural Resources.

ZONING, AS USED TO DESCRIBE “LAND USE”: The County of Hawaii has also incorporated various Land Use Zones as defined in Chapter 25 of the Hawaii County Codes. Go to http://www.hawaiicounty.gov/lb-countycode/#countycode and scroll down to Chapter 25. Click Adobe icon to read what is allowed in the various land use designations.

On the MLS Data Sheet, under “Zoning”, this is the County of Hawaii land use zone. It looks like this: RS-7.5. The letters stand for the land use designation; RS=residential, A=agricultural. Then there are various commercial designations like CV, commercial-village, etc. But most of us need only concern ourselves with Res and Ag. The numbers are the minimum square footage or minimum acreage of land. RS-7.5 means residential, minimum land area 7,500sq.ft.. RS-10 is residential, minimum land area 10,000sq.ft.. RS-.5 would be residential, minimum land area half an acre. A-20A means agricultural, minimum land area 20 acres. Likewise, A-1A is agricultural, minimum land area one acre. There is one unusual designation: RA, residential agricultural. It combines some of the aspects of both designations. Only half acre and one acre lots are ever given this designation.

HAWAII COUNTY TAXKEY ZONES: Another group of areas that are designated with the word “zone” are the Taxkey zones. The word doesn’t appear on the MLS Data Sheet, but under Taxkey, the second number is the zone. 3-7-4-4-32. The first number (3) is the number for the Island of Hawaii. The number “7” is Zone 7 (North Kona). In a nutshell, the island is divided into 9 zones. Each zone is divided into nine sections (the third number). The first two numbers of every address on the island are the zone & section numbers followed by a dash and the street address (74-5905 Old Palani Road). The nine zones in order are Puna, South Hilo, North Hilo, Hamakua, North Kohala, South Kohala, North Kona, South Kona and Kau. You can read the complete explanation for Taxkey zones (including a map) at this link to my website: http://www.konarealestateagent.com/map.htm

LAVA HAZARD ZONES: The next group of areas designated with the word “zone” are the Lava Hazard Zones; also numbered 1 through 9. Zone one is the most likely to experience lava hazards, Zone 9 the least likely. These do not appear on the MLS data sheet, and the only way to find which zone a particular property is in, is to send me the MLS#, Taxkey or address of the property. I can generate a map that shows which Lava Hazard Zone it’s in and email it to you. You can read the complete explanation of the Lava Hazard Zones (with a map) at this link on my website: http://www.konarealestateagent.com/volcanic.htm

HAWAII MORE EXPENSIVE? I don’t think the statisticians take everything into account when they do their figuring.

It’s a common misconception that Hawaii is more expensive than anywhere in the country.  I think Honolulu is number 7 of 11 big cities ranked by Huffington Post; and Honolulu is the most expensive in Hawaii.  The Big Island isn’t that bad.  Gas is more expensive here than anywhere, that I do know, but you don’t have to drive as far as you do on the mainland and no stop & go traffic for hours on the freeway; there is no freeway!!  Also, there are benefits of living in paradise that many people overlook.   You don’t need to buy new winter clothes every year for your growing kids. You don’t have to own a coat here.  Coats can get pretty expensive.  And on the Mainland don’t you have to buy new winter outfits every year because the old ones go out of style?  Here you can wear the same outfits all year long year after year (shorts and aloha shirt).  You don’t need to buy heating oil or spend money on any kind of heating because homes don’t have heaters.  Most people don’t have air-conditioners either because of the gentle ocean breezes and mild temperatures; saves on summer electric bills.  Building a house is cheaper because you don’t need insulation, multiple pane windows, heating ducts, etc.  Building permits are way cheaper, and building restrictions are far less than most places on the mainland.  And what about winterizing your car and switching to studded snow tires and then back again every year?   And even in the summer, don’t you have to buy expensive suits, several of them, to look stylish?  And shoes!! Boy are they expensive.  Here you can go to work in shorts and aloha shirt and wear the same pair of “sleepahs” (sandals, flip flops) until they wear out.

I didn’t add homeowner’s insurance to my article because I didn’t have any experience with it.  Then I bought a house for my daughter in North Carolina.  I was shocked that the insurance for the house there was three times more than the insurance for my own home in Kona.

Back in the old days things were more expensive because there was no competition and venders were all mom & pop stores.  It’s this out-of-date information that keeps people thinking Hawaii is an expensive place to live.  Now we have Lowe’s, Home Depot, Wal-Mart, Kmart, Costco, Macy’s and the largest Safeway in the state.  More stuff, especially lumber, is being shipped over in such large quantities that the retail prices are about the same as anywhere on the Mainland.

Hawaii Property taxes are lower than most places on the Mainland except probably Arkansas and Mississippi.  But much lower than anywhere in Washington State or California, New York, Main, Vermont Massachusetts, etc.  I had a client from Main who was paying around $10,000/year for a regular house.  Here it’s about $2,500.  Food is more expensive here, especially milk, but the four or five thousand dollars the average person will save on property taxes will certainly buy a lot of milk!!  And now CostCo has organic milk really cheap.  In fact, Costco has everything cheap.

Now you tell me what this is worth: Summer temperatures average between 80 & 90 with humidity between 30 & 60.  Winter temps are between 75 & 85 with about the same humidity.  You can swim in the ocean 365 days a year; the water temp is perfect, not cold but never tepid like in the Caribbean. We have an 8,600 foot high mountain that rises up from the ocean right behind town.  It rains about 10 to 25 inches a year in town and maybe 30 to 50 inches the higher you move up slope.  The sun evaporates moisture off the ocean and convection currents carry the moist warm air up slope starting about 9AM.  Every morning around 9AM I have to shut my dormer windows to keep papers from blowing off my desk.  When this warm moist air mass gets up around the 4000′ to 5,000′ elevation on Mt. Hualalai clouds begin to form.  Starting around 11AM the cloud layer begins to fan out over an inversion layer and by 2PM it’s shading my house.  By 4PM it’s shading town. Also around 4PM I’ll have a light rain lasting about an hour up at my place (1,167′ elevation).  Around 6PM everything gets really still for about an hour as the sun sets brilliantly over the beautiful blue Pacific.  Then the cold air from 8000′ begins to slide down the mountain and cools things off all night long. Around 7AM it gets calm for about an hour and then it starts all over again. ALL YEAR LONG!!  Oh sure, sometimes we have droughts and it doesn’t rain at night for months at time.  Sometimes we have storms and it will rain every day for a week.  But even when it’s raining it’s between 70 & 80 degrees outside, so who cares??!!  If I want to work outside when it’s raining I put on a bathing suit!:-)  Ask yourself what THAT’S worth?

Mahalo, Harry

Here are four of the more amazing snorkeling spots I have been to (numbered south to north). Expert swimmers only; not for the faint hearted:

1. Keei Beach. You turn left at the bottom of Napoopoo Road at Kealakekua Bay, take the second dirt road past the last paved road on your right. Park in front of the only house you will come to on the ocean side of the road.  It’s surrounded by a 6′ high rock wall.  Walk to the end of the road, then around the right side of the rock wall on the ocean.  You will see the beach by this time. Just after you get on the beach you will see an underwater strip of sand about 3 or 4 feet wide heading out to the rocks.  Swim out here with your mask in the water.  You will come to an S curve just deep enough and just wide enough for a person to swim through.  Once you are through this passage you are in the open ocean.  It’s 4 to 10 feet deep most of the way as you head straight out.  Lots of fish and colorful coral.  After you are about 100 yards or so out, the shelf drops off at least 100 feet.  It takes your breath away.  Hugh schools of big fish everywhere.  There’s an underwater arch too if you swim along the drop-off ledge.  Do not attempt if the surf is up.  There will be surf off the point to your left, but you swim out where there are no waves.  If the waves are breaking all the way across the bay, don’t go out!!

2. Makalawena. Heading north past the airport, take the first left turn lane you come to; Kekaha Kai State Park. At the end is a large parking lot. But you should see cars parked at the side of the road before the end. On the right (north side) of the road there are two metal posts in the ground with a cable between them blocking off a road heading to the big red house at the end of Mahaiula Beach. You walk down the road to the house, past the house on the ocean side; keep going, you may even have to go in the water.  Look for the trail between the trees heading north.  Once you get through the trees that is a trail straight as an arrow heading across the lava field.  Once you get across the lava the trail goes into some trees.  Walk through the trees and look for the place where the trail goes over the sand dunes.  Once over the sand dunes you are at what is arguably the most beautiful beach on the island (if not the world).  Plenty of snorkeling spots here (as well as surf spots).  Wear tennis shoes, plenty of sun screen, bring plenty of water, Boogie boards and a picnic lunch.  I take those chairs that double as back-packs.  Spend the day.

3. Wailea Bay (Beach 69). Head for Hapuna, but go past the Hapuna parking lot entrance heading south on the little road. The next paved parking lot is Wailea Bay.  Two beautiful beaches to the north & south at the end of the beach path.  Walk past the bathrooms to the beach and turn right at the sand.  Go to the end of the north beach.  Swim out and head to the right.  You can see the shadows of the coral heads underwater in the distance.  Actually, they are in front of the nude beach.  Until you get to the coral, the bottom is sandy.  Don’t go out in surf too high to swim through.  In the summer it’s mostly flat.

4. Spencer Beach; the easiest & O.K. for novices. There is a big sandy beach. The water close to shore is usually murky due to wave action.  Swim straight out.  Amazing coral heads but not many fish.  Spencer Beach is a popular campground and location of the popular Alaskan solstice party.  Great beach for kids.

There is an issue that comes up all the time when a property is in escrow and someone asks me what it sold for.  First of all, it’s not sold; it’s in escrow.  It’s only “sold” when escrow closes and the title transfers from the seller to the buyer.  Second, it’s against the law for the listing agent to divulge to ANYONE what price the seller accepted from the buyer.  There is nothing to stop the buyer and seller from telling, but an agent could lose his or her license for doing so.  I sometimes get the feeling that people think I’m making this up but I’m not.  The purpose of the law is to protect the seller’s best interest.  If everyone knows that the seller took $50K less than the asking price, and the buyer backs out of the transaction for any reason, what chance will the seller have of getting more money when the property is re-listed?   As an example, let’s say it was listed for $400K, but the seller accepted a price of $350K.  The listing agent tells every other agent in town.  But it turns out later that the buyer can’t get financing.  The deal is said to “fall out of escrow”; that is, the escrow is cancelled.  Now what?  The seller wants to put the property back on the market for $400K, but every agent in town knows it was under contract for $350K.  The seller finds out this happened and files a grievance against his agent and that agent is fined and has his license suspended or revoked.  The deal is, if no one knows what the accepted price was, the seller can put the property back on the Market at $400K and this time he might get $375K.  That’s the bottom line; to protect the customer’s best interests.  It’s called a “fiduciary responsibility”; the agent is responsible for his client’s financial wellbeing.

What is Escrow?  Some of you from States like New York or Virginia may not be familiar with what an escrow is.  In escrow states like Hawaii, large companies have been set up to facilitate the transfer of property from one person to another.  Most of these companies have been set up by title insurance companies, but not all.  These companies are bonded and insured to protect the clients funds deposited with them.  This way you don’t have to give a hefty deposit to a seller and trust that he will transfer the property into your name.  The seller doesn’t have to trust that the buyer will come through with the rest of the cash after title transfers.  The escrow company also sorts and organizes all the paperwork and notifies all the parties when certain things are due, like a termite report or a survey.  They also distribute funds from the deposits they have collected to pay the termite inspector, home inspector, condo association, surveyor, etc.  They also make sure that attorneys draft all the deeds and conveyance documents for recordation at the Hawaii State Bureau of Conveyances on Oahu.  There is a fee to the both the buyers and the sellers associated with the escrow, so in effect, the escrow company is working for both the buyer and seller.  At the end (called “closing” in Hawaii), a breakdown of all the monies collected and disbursed is provided to all parties.

I have a hard time explaining just what the UPdate is.  There are about 1,000 agents on this island.  There is a company called Hawaii Information Service that’s been around for about 30 years that began amassing a data base of all the property tax records on the island when they were first incorporated by the Kona Board of Realtors.  Also, for a fee, they allowed agents to fax (when fax machines used continuous rolls of a funny type of paper) them their listing data and they would transcribe it into a big book about the size of a 2″ think phone book.

Over the years they separated from the Kona Board, formed their own corporation and branched out to include the Hilo Board and the Kauai Board.  This was the first Big Island MLS (Multiple Listing Service).  Maui and Oahu have their own MLS.  As the digital age progressed they began to post the listings online; first in black & white, later in color (no more books).  So now you have about 1,000 agents posting and updating their listings from their own computers every day; new listings, price changes, back on the market & sales (also expired & withdrawn listings, but I don’t copy those).

All the activity that gets inputted from midnight AM to midnight PM is posted as an update at 12:01AM that morning.  The activity for the previous 24 hour period only appears on the UPdate first thing the morning after.  The next day, all the listings that have appeared before the last 24 hour period, are still in the data base, but they must be accessed by a regular property search (Custom List), and will not appear on the UPdate again unless, and until, something changes with a particular listing.

You may have noticed some Back On the Market listings have DOM’s (Days On the Market) of two or three hundred days.  That’s because they have been in the data base for months as Active listings, then as Contingent or Under contract listings, until something went wrong and they came back on the market.  There are thousands of listings in the data base either still Active, Contingent or Under contract.

Like I said, only when something changes with one of those listing will that listing appear on the Daily UPdate the next day.  When I re-read this it makes sense to me, but I work with the data base every day and have done so for 25 years.  I mentioned last week, that if you want to see listings that match your parameters (set of criteria), you must send me those parameters so I can create a Custom List for you.  The Custom List will have all the listings in the data base, that match the criteria you have given me, regardless of the date they were listed.  I hope this has shed some light on the subject.