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 It’s this out-of-date information that keeps people thinking Hawaii is an expensive place to live.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?
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:
- 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!!
- 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.
- 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.
- 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.
I receive quite a few questions regarding the Contingent status. The best definition in Webster’s Dictionary for “contingent” is “dependent on or conditioned by something else”. Before I get into contingent status I feel I need to explain what an escrow is. Many states do not use escrow companies, but use attorneys instead. So many people do not know what “escrow” is. An escrow company is set up to safeguard the interests of the parties to a sale. In the old days, you could hand over your deposit to a seller only to find out two weeks later that he had “sold” his property to ten other people and absconded to South America with all their deposits. The escrow company’s job is to hold the Buyer’s funds in an “escrow” account while making sure that all the paper work is in order and all the documents get properly recorded at the state Bureau of Conveyances on the day of “closing”. On the mainland closing may be called “recordation”. This is the day that the title transfers from the seller to the buyer. The escrow company than distributes the funds as the Purchase Contract stipulates. The whole process is called “Escrow”.
Here’s how the sale works. The buyer’s agent helps the buyer draft an offer, which when completed, the buyer signs. The buyer’s agent sends the offer over to the listing agent who presents it to the seller for his consideration. If the seller accepts the offer he also signs it. Once both parties have agreed on the price and terms of a Purchase Contract and signed it, they have consummated the deal. Their agents then take the signed contract to the escrow company and an escrow account is opened. At that point the sellers agent is required by their Multiple Listing Service to change the status of the listing in the MLS data base. The status was “A” for “Active”. At this point there are two choices, “C” for Contingent, and “U” for Under Contract. Here’s where the confusion starts. A contingent offer is also under contract, but with a contingency. That is, there are conditions that must be met before the seller must turn the property over to the buyer. The most common contingency is the home inspection. The buyer is allowed time to fully inspect all aspects of the property. If he finds something he doesn’t like within the allotted time period, he can cancel escrow and get his deposit back. The Purchase Contract is then voided and the property goes “Back On The Market”, and the status is changed back to “A”, active. The process is similar with any other contingency. The next most common contingency if financing. This can last from 30 to 45 days.
The point is, when you see a “Contingent” listing, it’s in escrow, in effect it is sold, but there are contingencies. The only difference is, unlike a listing that has the “U” designation, a “C” listing could come back on the market at a later date. When it does, it will show up in the “Back On The Market” category of the UPdate. But while it is “C” it is not available to purchase. It is possible to make “back-up” offers on contingent listings but back-up offers stay dormant and are voided if the original escrow closes. If, however, a contingency is not met and the present escrow “falls out”, then the back-up offer automatically goes into first place and takes over the previous offers position in escrow. Back-up offers are successful about 10% of the time.
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.
There is considerable misunderstanding of the concept of a lease with an option to buy. People seem to think you can just rent a place and then buy it later any time you want. You can actually lease a property and buyer it later, but there is more to it than that. First, you have to offer some “option money”. Option money is usually $10,000 to $20,000 held in an escrow account. The amount of time is usually one year. At the end of the year, if the renter/buyer decides buy the property, the option money becomes part of the down payment. When the renter/buyer decides to buy the property it is said that he/she has decided to “exercise” his/her option. If the renter/buyer decides not to buy the property, then he/she forfeits all of the option money to the seller/landlord. In addition to the option money there is monthly leaserent. What happens to the leaserent is a matter of negotiation. All of it can go to the seller/landlord, or buyer and seller may agree that a portion, or even all, of the leaserent will also go toward the down payment. That is if the buyer decides to exercise his/her option. If the buyer doesn’t exercise his/her option, then all of the lease rent remains with the seller/landlord.
Number 3, price per square foot, is especially interesting to me. The advice doesn’t go far enough. The problem is, price per square foot is a number people can relate to; it’s something tangible, so baring any other factors they can understand, they fixate on price square foot. But there are so many variables that negate the usefulness of this figure. How much did it cost for site prep? If a huge hill had to be moved or a huge hole had to be filled, the cost of site prep could have been bumped way up and is included in the price per square foot. Likewise the cost of the land. Site prep and the lot price have nothing to do with the quality of the house. Another factor is the quality of the materials. Roofing, flooring, fixtures, countertops, doors, windows, hardware, even the material used for the interior and exterior walls; they all run the gamut from low to high quality. If a person rejects a home with a high price per square foot, they may be rejecting a high quality home and end up with a low quality home. So what to do? Go by the CMA, the Comparative Market Analysis. See what similar homes in the area sold for within the past 6 to 12 months. That’s the best way to tell if you are paying the right price. An appraisal is even better. If you are getting a loan your bank will order an appraisal and you will be able to tell if you are getting a deal or paying too much. If you are paying cash, the extra $500 to $700 for an appraisal could save you from making a grave error or buy you some comforting peace of mind.
I want to thank all those loyal UPdate members who have referred their friends to the UPdate over the years and in the last few months. I can’t adequately express how much this means to me!!