Here’s a couple of red-flags that might help weed out real from scam. Below market rent offers the first hint that the ad may be bogus. As negotiations progress, a request for wired funds is, of course, the most telling. It’s good to know that State law requires that every landlord have an on-island representative so logically, every rental should have someone local who can collect rent or at least vouch for owner credentials. If there are real doubts, check ownership with a REALTOR® or the tax office. Then ask for positive ID. Unfortunately, Craig’s List isn’t the only place tenants are running into trouble. An unexpected consequence of rampant foreclosures is the potential impact on tenants. And while new rules protect tenants with a valid lease, there are no protections for those whose lease is not valid. This might include a tenant who moves in after the auction but before the new deed records. Tenants on a month-to-month lease or those without a written lease will likely face a 90 day eviction. Good luck trying to recover a security deposit from a foreclosed owner. When property is purchased by an owner who is going to owner-occupy, the 90 day eviction rule applies even with a valid lease. Trouble is, tenants have no effective method of determining whether a foreclosure is under way prior to moving in. Of course, homeownership it the best way to avoid these issues altogether but for those who must continue renting, it’s best to seek out local owners with a long history of ownership. 

Working with a reputable, licensed property manager is another great way to for tenants to avoid problems with bogus owners or a foreclosure eviction. So, if you in the market for new digs, take time to dig deeper. Know as much about your landlord or rental agent as they know about you!

Team Nakanishi
Hilo, HI Real Estate
Hilo, HI Community Information
www.HawaiianRealty.com
Team Nakanishi, Proudly providing superior real estate services to Hilo, Hi.

Picture this.  It’s almost moving day.  It’s your first home.  Your agent explains the purpose of this last visit is to simply make sure the home has been left reasonably clean and that it has been maintained as it was when you viewed it initially.  It’s been a lot of work to get to this point.  There were offers, counter-offers, the loan process, escrow; a barely-understandable whirlwind experience at best.  You are relieved it’s almost yours!  When you open the door you are shocked that the sellers have removed light-fixtures, ceiling fans, one of the medicine cabinets and even the stair rail!  Trust me, it happens!  

When selling you home, things attached to the structure (other than personal items) are considered fixtures.  They always remain with the house unless specifically excluded in the listing and sales contract.  Malibu lighting, yard lighting, outdoor speakers, installed water filtration, and anything integral to the functioning of the catchment system is also expected to stay.  Spas, Jacuzzis, portable saunas, and furniture built to fit specific spaces should be individually addressed.  It is critical to be very clear from the beginning what things are EXCLUDED.  While appliances and window coverings are commonly included in a sale, buyers sometimes request that furniture, lawn equipment and even an adjacent lot be included.  Including such items can be tricky, especially if a loan is involved.  Appliances are considered integral to the functioning of the home.  Including them in a loan is not a problem.  

Mortgage companies, will not, however, loan money for furniture.  Most home mortgages loans only allow a single parcel to be held as security for the mortgage.  It is possible to include these extras but doing so requires special care in drafting the contract.  It’s really best to handle these things outside the sales contract if possible.  Including them unnecessarily complicates an already complex transaction.  Consider, for example, how much worse the situation above might have been if the buyers had also included furniture!

Buyers on Hawaii Island often forget that as an owner occupant if they don’t submit an exemption form with the real property tax office before June 30 or December 31st, their taxes could increase. Any previous exemption will end. Truthfully, many don’t even understand the concept of a homestead exemption. Simply stated, owners who occupy their dwellings as a principal residence (and file for the exemption) are not taxed on a portion of the assessed value of their property. Not every state is a homestead state. California, for instance, is not a homestead state. In fact, some local owners have been paying the wrong tax amount for years. The tax payment is included in their house payment so they assume it is correct. 

In this State, each County establishes their own tax rate and exemptions. Taxes are not immediately reassessed upon sale. The basic homeowner’s exemption in Hawaii County is $40,000. No tax is collected on the first $40,000 of the home’s value. Once an owner turns 60, the exemption doubles (up to a maximum of $80,000) and owners who reach 70 before the end each calendar year have an increased exemption entitlement of $100,000.  Homeowners are taxed at a lower rate than other classes of property ($5.55 per thousand instead of $8.10). Additional exemptions are available for those who are blind, deaf, totally disabled or those with Hansens’ Disease. Veterans with a 100% service related disability need only pay the minimum tax (currently $100). The exemption extends to surviving spouses as well. To qualify for additional exemptions, the basic homeowner’s exemption must be filed first.

Remember, if your property was purchased during the first half of the year, you should file by June 30th in order to insure the exemption becomes effective as quickly as possible. Otherwise, you must file by the end of the year. To find out if your exemption is in effect, give the helpful folks at the real property tax office a call. You can also check the County of Hawaii website or call your REALTOR®. Talking taxes today may lead to big savings in the future!

Stop by Big Island Candies and you’ll immediately understand the concept.  Not unlike a pair of Nikes, a Cadillac, or a pair of designer jeans; today’s sellers must sell a lifestyle.  The buyer must want the lifestyle.  It’s important for the home to be attractive, inviting, comfortable and perhaps even exciting.  Agent incentives such as a bonus are marginally effective.  Buyer incentives such as paying closing costs can help increase showings.  The more showings, the better the chance a sale will result.  While there are many little things that help, next to pricing, agent choice is key.  Agents who focus on listings as their main source of income have a huge advantage.  Cross-showings, that is, suggesting showings of similar properties can really increase showing activity.  The on-line presence of the agent is another part of the success equation.  To insure the property achieves the “2000 club”, the agent must have a personal website (few agents in our market do) that ranks high on the search engines.  Search engine placement is as much a function of time on the web as content.  Most agents depend on their office website or worse, our MLS.  

Your property should have broad and prominent exposure on the net.  As wonderful as our Multiple Listing Service is, it does not historically present itself in Google or Yahoo! searches.  Remember, we can’t sell it if it’s a secret.  Make sure your listing has curb appeal and shouts out to all buyers no matter where they are and when they are searching!

Team Nakanishi
Hilo, HI Real Estate
Hilo, HI Community Information
www.HawaiianRealty.com
Team Nakanishi, Proudly providing superior real estate services to Hilo, Hi.

If you are purchasing or intend to develop a property with multiple living units, understanding Ohana permit issues could be important.  Each County implements and creates rules for administration of their Ohana permit requirements.  The requirements on the Big Island differ dramatically from other islands.  There is no requirement on the Big Island for a family member to inhabit an Ohana dwelling.  While previous implementations of Rule 12 of the Rules of and Procedure as Practice well as Chapter 25 of the Hawaii County Code allowed an Ohana permit to be obtained without restriction as to property use, current rules do not allow an Ohana permit to be issued on Agricultural land unless related to farming activity.  Additional dwellings on Ag land must be now be related to farm activity.  Permits, once approved, are only valid for one year (with one 30 day extension).  

While Ohana permits are generally not transferrable, some older permits were said to run with the land, are freely transferrable and do not expire. Currently, Ohana permits are not transferrable.  They are specific to the applicant who must be the legal owner.  Once built, of course, the homes can be freely sold and the related permit transfers.  Only one application is granted at a time.  An applicant cannot receive a new Ohana permit for 2 years following the completion of the project on which an Ohana permit was used.  Minimum lot size for an Ohana dwelling is 10,000 sf.  with  adequate wastewater disposal, fire protection, etc.  For dwellings on catchment, at least 80 inches of annual rainfall is recommended.  Ohana dwellings are not permissible on a property with any type of variance.  They are also not allowed in conjunction with existing multi-family dwellings or care-homes.  Setbacks are more restrictive for the second unit than for the principal residence.  On properties with existing dwellings, it’s interesting that the original unit was often significantly smaller than the Ohana  dwelling.  In these cases,  the smaller dwellings was  built first and is therefore, the principal residence. 

When purchasing a property with an existing Ohana dwelling, be sure to check with the Planning Department to insure the appropriate permit was obtained.  If purchasing vacant land advertised with an existing permit, remember, the permit may not transfer upon sale.  Be sure to check.  Lilo was right, Ohana does mean family but now you know that this particular family of dwellings is one with a very specific set of “house rules”!


Team Nakanishi
Hilo, HI Real Estate
Hilo, HI Community Information
www.HawaiianRealty.com
Team Nakanishi, Proudly providing superior real estate services to Hilo, Hi.

A close look at East Hawaii neighborhoods shows that inventory is decreasing.  Sales are very steady or on the rebound. Price increases will likely follow.   My friends in the catchment business are extremely busy.  Catchment systems are being replaced in homes sold to investors who are purchasing to fix and re-sell.  Inventory at the lower price points gets picked over quickly.  Most local REALTORS® expect a bump in foreclosure numbers in the months to come as lenders rework foreclosures under the auspices of Act 48.  Once this inventory is cleared, things should return to normal. For now, residential inventory is down. 

Remember, interest rates are usually part of the buying equation.   A small change in the rate can make a big difference over the life of the loan.  A $300,000 home will cost $47,000 more at 4.5% than this year’s 3.75%.     House payments are often on par or less than rent.   Seems clear that if you are in the market and something catches your eye, there’s no compelling reason to wait. There are still great values especially in Nanawale, up the Volcano corridor and at the higher price points.  In fact, those able to move into higher priced properties are getting a real bang for their buck. Of note, vacant land sales in Hilo are up 66% so far this year.  New inventory and strong values are fueling these sales.   Puna land sales numbers are down 26% but the price they are fetching is up 24%. Here’s how East Hawaii numbers (selected areas) are shaking out at the moment:

Foreclosure notices designate dates when the property will be held “open” for inspection as well as a date for the scheduled auction. The lender’s representative will always attend the auction. The representative will overbid anyone who bids below a predetermined price. Most times they will “buy” the property back by bidding as much as their credit letter allows. This letter represents the amount they have into the property, however, they are still unlikely to bid more than any opinion of value they have been given. The foreclosed property is normally re-marketed with a REALTOR®. For this reason, it may be possible to get a fair price at auction but it may not be a “steal”. 

There are things to remember and stats to consider. First, not every home will be held open and if an open house actually happens, it offers only a cursory opportunity to view the home before the auction. There is no owner’s disclosure so learning the true condition of the property can be a challenge. Successful bids often go to a confirmation hearing at which time bidding can be re-opened. Any money spent on inspections and financing will be put in jeopardy. Properties are always conveyed “as is” even if the condition changes after the auction.  There may be no outs, even for vandalism. One of the most common reasons to forego an open house, of course, is that the property is still occupied. It’s normally up to new owners to clear the property. 

Time was in Hawaii, foreclosed properties were considered to have the “cleanest” title. Two things changed this. Mergers and dissolutions of original mortgage lenders required complicated agreements. Sadly, flaws in the pooling and servicing agreements have indefinitely delayed closing in (especially) land court. In situations where a property was foreclosed through a non-judicial foreclosure (no judge is involved), and an owner signed the property back to the bankm(deed-in-lieu) or when an owner mailed the keys back to the lender (jingle mail), title companies become so concerned about off record claims that they often refuse to issue a title policy. Conditions for issuance of a title policy normally involve the assistance of the foreclosed owner. Good luck with that one. No title insurance, no sale. 

So, how bad is the situation in East Hawaii? That’s my homework, yours is to come back next week for an update.

Team Nakanishi
Hilo, HI Real Estate
Hilo, HI Community Information
www.HawaiianRealty.com
Team Nakanishi, Proudly providing superior real estate services to Hilo, Hi.

In today’s market, sellers with no gain or those with a loss should be a red flag to the REALTORS® involved.  A HARPTA exemption request should be received by the State at least 10 days prior to the scheduled closing date.  Foreign sellers should allow 6 weeks for approval of a withholding exemption from the Federal Government.  If withholding is required, sellers with no other State or Federal income can file for a refund early.  Most will be able to reclaim much of the withholding.  The State extends residency courtesy for one year from the date the resident relocates outside the State.  The assumption is that sellers leaving the Hawaii will need to file at least one more tax return as residents.  Sellers participating in a 1031 exchange are not subject to HARPTA/FIRPTA withholding because they are deferring their gain.  Seller financed sales may be subject to either incremental withholding or lump sum withholding, depending on whether or not legal title passes.  It’s important to consider how the HARPTA/FIRPTA withholding will impact the required down payment on any seller-financed contract.  Resident aliens are regarded as residents for the purposes of withholding.  

So, if a move is in your future, be sure your agent checks current seller residency early on.  Unfiled exemptions can delay closing which could, in turn, affect the buyers loan.  Sellers gaining even one penny on a sale should always be aware of how HARPTA/FIRPTA will impact their bottom line! When it comes to real estate sales, surprises are rarely a good thing!

Team Nakanishi
Hilo, HI Real Estate
Hilo, HI Community Information
www.HawaiianRealty.com
Team Nakanishi, Proudly providing superior real estate services to Hilo, Hi.

Imagine for a moment that the mainland owner was not aware or over time just forgot about the problem. Sellers must disclose all material facts about property. Hawaii has a large number of absentee owners so at times REALTORS® have historical or direct knowledge about required disclosures that the seller may not know. When this happens, a supplemental agent’s disclosure is required. As licensed agents, we have no choice. Naturally, the agent should inform the seller so that in the alternative the seller might include the disclosure along with his or her own. Things get sticky when and if a seller makes a conscious decision to withhold proper disclosure. REALTORS® must disclose or walk away from the listing. 

However, what if neither the agent nor the seller has direct knowledge of things that should be disclosed? Sellers and their agents have a duty to fully disclose information that would materially affect the value of the property. In my mind, this includes information that would affect a buyer’s decision to proceed with a purchase. Absent direct knowledge of a potential disclosure issue, disclosure becomes a judgment call. That’s why inspections and supplemental addenda to the contract are so important. REALTORS® and (especially) absentee owners can’t know every detail about the property. Remember, when new information is discovered or conditions change about a property, updated disclosure is required. 

Interestingly, death is not a material fact and disclosure is not required. It’s a good illustration of how the small town factor might affect a transaction. Potential buyers typically speak to the neighbors, the police department and even other REALTORS®. The fact that disclosure of a death in the property is not technically required may not carry much weight with a potential purchaser who has strong feelings about such things. They’ll probably just wonder if other disclosures were withheld. So, unlike that old Garry Moore TV show, when it comes to real estate and proper disclosure, telling all you know is no laughing matter. 

 In real estate, there’s no such thing as “I’ve Got a Secret”. It’s best to just tell everything you know…and hope it’s enough!

Team Nakanishi
Hilo, HI Real Estate
Hilo, HI Community Information
www.HawaiianRealty.com
Team Nakanishi, Proudly providing superior real estate services to Hilo, Hi.

Brands represent consistent quality and a familiarity to which we gravitate. Hence, real estate franchises capture much of the incoming business.  This is especially true in Hawaii because most property searches begin miles across the sea.  “Capturing” incoming buyers is, in fact, the name of the game for today’s listing agents.  While sign calls sometimes generate business and a few buyers actually walk in the door, buyers today either find their agent on-line or they are referred by another agent or by a previously happy customer.  

Mealoha and I are off to Orlando for our national convention this week.  It’s a place we’ll focus on networking with agents from our “feeder markets”.   Benefiting from the referrals they send is crucial.  Understanding that he who controls the buyer, wins, seems self-evident and yet, sellers still find comfort in seeing their property listed in print advertising. Shelf life in print ads is so short that advertising a particular property is basically a stab in the dark.  Agents often make inappropriate and expensive marketing errors because of seller pressure.  Buyers are usually introduced to the property they purchase by their agent so it’s the agent, not the property or print ad, that’s central to getting the property sold.  While property ads can be informative, the reality is that advertisements should focus on capturing buyers which in reality is agent-centric and not a  property-centric activity.   

Watch this, last week I wrote an offer on one of my listings for a buyer who found me on-line.  I woke this morning to two new buyer leads from our website.  I currently have two properties listings and a buyer referral from out-of-area REALTORS®.   Remember, busy agents are busy for a reason and the reasons, at least these days, have very little to do with seeing listings in print.    

Team Nakanishi
Hilo, HI Real Estate
Hilo, HI Community Information
www.HawaiianRealty.com
Team Nakanishi, Proudly providing superior real estate services to Hilo, Hi.

A special or limited warranty deed, on the other hand, only warrants that the owner has the right to convey the property and nothing has been done during their ownership to cause a defect in the title. Grantors such as bankruptcy trustees, personal representatives, lenders or successor trustees take title only for the legal purposes. They routinely convey by way of a limited warranty deed. The increased use of a limited (special) warranty deed may be a sign of the times. In times past, these were mostly used by C. Brewer or other large land owners. For residential real estate, use of a special warranty deed was the exception, not the rule. Foreclosures have changed this. Buyers (grantees) of foreclosed properties sometimes become concerned when they learn they are not getting a general warranty deed. The perception is that they are exposed to greater risk. With any foreclosure, all third party claims should be wiped clean. Recent concerns with (especially) non-judicial foreclosures make this less certain. With this deed, I recommend that buyers pay a bit extra for an upgraded title policy. 

Quit claim deeds are a highly misunderstood and often misused conveyance. With a quit claim, the grantor conveys anything they own, even if it is nothing. These are commonly used to correct title defects or between siblings who wish to convey their interest to a brother or sister. Be sure to arrange title insurance early on if a quit claim was the last conveyance. As with a deed-in-lieu, the deed may transfer title but the title insurer won’t issue an insurance policy unless they are given positive assurances that all parties were fully informed with no undue pressure. 

Bottom line,  hope for a warranty deed, accept a special warranty deed and be cautious with a quit claim. Knowing when to expect different types of deeds can be as important as what’s actually in the deed. Your REALTOR® will be able to recommend a good local real estate attorney who can best advise you in your situation!

Team Nakanishi
Hilo, HI Real Estate
Hilo, HI Community Information
www.HawaiianRealty.com
Team Nakanishi, Proudly providing superior real estate services to Hilo, Hi.

Much like a UPC code, Quick Response Codes encode digitized information. Unlike UPC codes which are commonly read by a commercial UPC scanner, QR codes can be read with any camera phone equipped with an easy to install reader. Most commonly found on smart phones, the appropriate application captures the QR image which opens a website, connects to a You Tube video or displays whatever information the originator desires. Move over George Jetson! It’s snazzy tool to be sure! 

Some QR codes display static data while others are more robust. Take for instance the code on the attached house ad. One click and the words in the ad come to life. Opening the QR code on the sign posted outside this home takes you on a virtual walk inside. Buyers no longer need to sit outside a listing and call agents for additional information. Remember, the purpose of advertising is to “get the phone to ring”. Because sign calls are some of the strongest calls we receive, the idea that we are giving away so much information runs counter to the core concept of lead generation that agents learn from time we get our license. After all, no call, no appointment. 

There was a time real estate listing information was closely guarded. As commonplace as it is now, the idea of putting listings on-line was initially considered completely radical. To put it mildly, not all REALTORS® embraced the idea of making the entire Multiple Listing Service self-service. Public perception was that providing access to listings was our core value. In fact, it was predicted that real estate agents would become obsolete. Truth is, being the gatekeeper of listing information was never our value proposition. For me, arming the public with MLS information has made my job easier. Buyers are better educated about the inventory, the property and the process. Armed with a QR code reader, a buyer calling after taking a virtual tour linked to a QR code is a stronger, more mentally qualified buyer than those slugging along the old fashioned way. 

So go ahead, click away, take the tour, “break the code “ but by all means, if you have questions or want to take a look inside, there’s still a human anxious for you to call.

Team Nakanishi
Hilo, HI Real Estate
Hilo, HI Community Information
www.HawaiianRealty.com
Team Nakanishi, Proudly providing superior real estate services to Hilo, Hi.

“You’ll wonder where the yellow went!” “See the USA in a Chevrolet!” “Double your pleasure, double your fun!” …… When that Chevy sat on top of that mountain every Sunday night, we remembered.  Those twins put Doublemint gum on the map and I’m not even sure Pepsodent is still in production but I certainly recall their slogan more than 40 years later! 

Messages repeated again and again, stick.  Studies tell us that it takes a minimum of 7 impressions to cause an impact.  With a direct mail campaign, for instance, we know that if we aren’t willing to mail at least 7 pieces within a short period, we may as well not send any at all.  But is advertising the same as marketing and if not, at what point does advertising stop and marketing begin? 

In simplest terms, advertising is a basic component of marketing.  Marketing really refers to a systematic plan that incorporates various forms of advertising (print, photos, radio, direct mail, internet) along with other forms of exposure.  The goal of both, of course, is to reach a desired sales goal.  In my mind, successful marketing is as much a function of quality as quantity.  The most effective ads help move the buyer mentally into the property.  Anyone can compose a sterile ad with a list of features but good advertising evokes emotion. 

The more advertising touches the needs and desires of the buyer, the higher the probability the Realtors® phone will ring.  After all, when it comes to real estate, causing the phone to ring or an email to be sent is really the goal; nothing more, nothing less.  Whether it’s photos, text or something as simple of sign placement, I spend a good deal of time capturing the essence of what’s special about a property.  It really pays off.  That’s the quality part.  Coupled with the quantity created through an aggressive marketing effort, a well –priced product should sell.  The tough part is that any component of the marketing plan can be critical. 

The open houses, social networking, board caravans, broad web presence, property brochures  even the accessibility of the agent and the person answering the phone at the office all weave together to become part of the plan for marketing the property; the marketing plan.  In a broad sense, it’s a plan for addressing the real task of capturing buyers by systematically implementing specific components of the plan.  If it’s true that “when you fail to plan, you plan to fail” then the plan for marketing the property creates a road map to success.   So when you decide to go “to market”, look for a plan.   Because, after all, without a plan everything else is just advertising!

Quite frequently, I am asked why title insurance premiums must be paid over and over. Good question. Title policies extend coverage through the seller’s ownership period. Even if for only one day, each time title changes, a new policy must be issued or technically a break in coverage exists. 

Title insurance premiums are based on sales price. In Hawaii, the seller normally pays 60%, the buyer 40%. With a sale, title insurance is the insurance carrier’s guarantee that the seller has clear title. In general, common title problems such as breaks in the ownership chain (watch for the word “exceptions” in Schedule A), child support liens, and legal access tax liens, failure to properly obtain a release of mortgage, and the like are cleared before transfer. 

Title policies come in basically two varieties; lender’s policies and owner’s policies. The amount of coverage afforded a lender reduces as the mortgage balance declines. Therefore, a lender’s policy is less expensive. Owners’ policies cover problems which may not be discovered for generations. 

Most title policy claims stem from access problems. Correctly recording access is a common problem especially when new subdivisions are formed. For example, at least one local farm community conveyed the bulk of their properties without reserving access for the remaining parcels. Had conveyance on a remaining parcel occurred prior to resolution of the problem, the title insurer would likely be on the hook. Also common is historical access that has never been formally acknowledged and included in the deed. Such problems don’t usually come to light until an ownership change occurs, often in a neighboring property. 

Interestingly, I reviewed a deed the other day and noted that access is via a government road that has never existed. It’s entirely possible for a property to have legal access without having physical access. Title insurance covers only legal access. This makes perfect sense. It’s impossible for a title searcher to determine if actual physical access exists. Other types of covered claims include claims arising as a result of forged deeds, incompetence of the grantor, questionable notary acknowledgements or questionable conveyance authority. Title policies do not normally cover issues related to encroachments, boundary disputes, unrecorded liens or zoning violations. 

Remember, while sellers benefit indirectly, title policies actually cover the new owner. Unlike other forms of insurance, title insurance is a one time charge. When you think of it like that, the cost seems relatively inexpensive. Of course, it’s understandable that someone would complain about paying over and over for something they’ll probably never get to use. Guess that’s why Miles told me to stop buying those size 2 jeans. I probably never need them, but they’re in my closet…just in case!

You may be surprised to learn that homes all over the world depend on catchment systems. The report “Guidelines on Rainwater Catchment Systems for Hawaii”, estimated that in 2010, some 30-60,000 people in this state rely on catchment systems for their basic water needs. Time was, catchment systems were deemed inferior to “piped” public water. In the past, limited inventory coupled with the desire of (especially) off-island purchasers to obtain respite from cramped housing spaces has made the issue of catchment very much a “non-issue”. This is especially true in East Hawaii where rainfall amounts generally insure tanks are kept generously full. While I don’t pretend to be an expert on the technicalities of catchment systems, there are a few practical considerations related to value to which I can speak with some authority.

 First, size matters. Smaller tanks may provide sufficient supply but most insurance companies require a tank of at least 6-8000 gallons. Types, styles and filtration systems are personal preference. Doughboy tanks are most popular, least expensive and easiest to install. Galvanized tanks are considered an up-grade and tend to last longer. Other variations such as cement, hollow tile, fiberglass and plastic tanks are generally enclosed and felt to provide superior tasting water. Additionally, they seem to provide added protection against intrusion by leaves and rodents. The best systems include “screening” for the gutter systems, use particulate in-line filters, and provide additional purification or disinfection appliances. UV systems have increased in popularity over the past few years as price and functionality have become more user-friendly. And, by-the-way, cute little birds using the” pond” on the cover as a bird bath is not a good thing. Redwood tanks, not in common use any longer, are found in some older homes.  Most were installed prior to 1978 so the possibility that lead-based paint was used on the interior exists.  

Several laboratories test water quality.  These are listed in the phonebook (under Laboratories) or call the Department of Health at 974-4000 ext. 64258 for assistance. Most REALTORS® can explain the basics but better yet, hire a professional home inspector who will explain maintenance and function. Some will even perform basic analysis and testing. To view the complete and updated guidelines, visit www.ircsa.org/factsheets.htm or ask your REALTOR ® for a copy. It’s not likely to show up on any best-seller list, but it should certainly be required reading for even the most catchment savvy households! 

Team Nakanishi
Hilo, HI Real Estate
Hilo, HI Community Information
www.HawaiianRealty.com
Team Nakanishi, Proudly providing superior real estate services to Hilo, Hi.

The tax consequences of trading spaces are fairly painless if you participate in an Internal Revenue Code Section 1031 tax deferred exchange. Such exchanges allow sellers to defer taxable gain on investment properties.The key to this concept is that taxes are deferred which means, of course, that at some point, they must be paid. While specific rules are but a quick “Google” or “Yahoo” search away, there are critical reminders and suggestions which aren’t part of any published guidelines.

Your purchase agreement is one of the first places an exchange can get into trouble. It’s fairly common for me to receive offers on my listings without the required language. In order to comply with IRS requirements, specific language indicating both parties agree to participate must be included in the purchase agreement or the exchange could be disqualified by the Internal Revenue Service. This could be a very expensive omission if the exchange is later ruled invalid. A simple recitation of the agreement will suffice but expanded language is required to fully protect the seller, especially on the buying “leg” of the exchange. Remember, an exchange must be like-kind for like-kind which simply stated means real estate for real estate; land for house, house for condo, etc, etc.

 A second caution which thwarts many local buyers and sellers involves foreigners. The IRS now requires all foreigners involved in real property transactions to have a Tax ID number. Because there are strict time limits (45 days to designate and 180 days to close) related to the exchange, a foreigner involved in a tax deferred exchange could cause the process to exceed the allowable timelines. It’s wise to ensure a foreign participant applies for a tax ID number early on. It’s also a good idea to designate multiple exchange properties.  Because of the number of title and survey problems in this State, delays in resolving these could also extend closing beyond the allowable time. Be very careful when designating REO or short sale properties. Title or short sale approval delays could result in a failed exchange.  

Remember, the key to every exchange is the concept of “control of funds”.  The party relinquishing the funds (the seller, then buyer)  is not allowed to touch either proceeds of the sale (the first leg) or funds being held to complete the purchase (the second leg). An Exchange Accommodator must be used. Exchange accommodators are not regulated in Hawaii, so choose your third party intermediary carefully. Even though taxes are deferred, it is widely held that an investment property may be converted to personal use after a period of investment use.  Investment use for one to two years is probably fine. Anything less might disqualify the exchange, resulting in tax consequences of up to 20% (in Hawaii).  Most exchanges are fairly straightforward, but it’s always advisable to consult our financial advisor as well as an attorney versed in such exchanges. Remember, builders of spec homes are dealers. Such sales do not qualify for 1031 tax deferred exchanges. When it comes time for your next exchange remember to use a Realtor® who understands the basics, especially as related to our Hawaii market!

Team Nakanishi
Hilo, HI Real Estate
Hilo, HI Community Information
www.HawaiianRealty.com
Team Nakanishi, Proudly providing superior real estate services to Hilo, Hi.

Like most folks, my first impressions of a living near an active volcano came from an old “B” movie. Those of us who live on Hawaii Island would certainly take exception to that “run for your life” characterization. Years ago, water catchment was an immediate disqualifier for many buyers. The “B” movie effect elevated lava zones to the same level. The thing is, then, as now, buyers focus on privacy, ambiance….and price! In East Hawaii, what they seek is often found in Puna where catchment is the norm and well, as they say, lava happens. These days, REALTORS® rarely hear complaints about catchment, but turmoil related to lava, loans and insurance continues to affect sales.

Technical information regarding lava zones can be found in the USGS website or in a brochure entitled “Volcanic and Seismic Hazards on the Island of Hawaii.” Through what was formerly known as the “State” or “HPIA” plan, homes can be fully covered up to $350,000. There are alternatives to HPIA especially for coverage over $350,000. Admittedly, over time, some larger insurance carriers (State Farm, Allstate, USAA) have pulled out of these areas but others have stepped in to fill the gap. Although pricing will never again compete with that outside Zones 1&2, perhaps the fact that properties are much more affordable makes it a wash. Of larger impact to homeowners is the issue of exclusion by Fannie Mae and now Ginnie Mae (VA, FHA, Rural Development) loans in zones 1&2. This exclusion severely limits lending in these areas. In my mind, the Fannie/Ginnie exclusion issue is a zoning issue and should never have become a lender issue. Because lenders are fully insured, our local zoning authorities should determine when an area is too dangerous for habitation.

Limited lending causes property values to decline by driving up inventory and decreasing demand. Puna (and HOVE) are the most affordable areas in the State. Buyers need as many loan programs as possible available to them. The current exclusion forces buyers into inferior, more expensive loan programs. Most of Kapoho, Leilani Estates and Lanipuna Gardens are in Zone 1. Interestingly, Kalapana, Kehena, Kaimu, the Hawaiian Beaches complex, and even parts of now covered Royal Gardens, are in Zone 2. Ainaloa, HPP and Hilo are all Zone 3. Zones in East Hawaii are delineated relative to the East Rift Zone. Hawaiian Ocean View Estates sits along the West Rift Zone and is also Zone 1.

I always recommend that buyers work with a local mortgage broker (our local banks exclude zones 1 & 2). Mainland underwriters seem to get jittery when they see the word “lava” in an appraisal report. They ask for “lava coverage”. It doesn’t exist. Homes are covered under the normal fire policy. Never mind that the rest of the world faces the daily possibility of a variety of unpredictable natural disasters, those faded “B” movie memories seem to survive common sense. Seems to me they need to understand that here on Hawaii Island, we just learn to “go with the flow”!

When it comes to real estate, it’s easy to see how the term “high touch” can have a double meaning.  Attorneys, accountants, escrow people, title folks, architects, pest control people, home inspectors, insurance agents, surveyors, contractors, electricians, plumbers, home warranty insurers, engineers, property managers, 1031 exchange accommodators, estate planners, wastewater engineers, even environmental engineers and land use planners get involved.   Buying or selling is rather like taking an airplane flight.  Even the best pilots can’t guarantee a smooth ride.  Market shifts and swings cause constant route changes. One lender cautioned me that the day will come when termite inspections and (probably) surveys will likely soon be required with every loan. For the past few years, these have been negotiable.  Prior to that, termite inspections were absolutely required.

Mortgage companies now independently re-verify jobs, income, credit and even buyer identity just before funding.  The days of large buyer credits and rebates have disappeared.   Ever heard the adage that “buyers are liars”?  Some say they have cash but don’t. Some have it and spend it. Some say they are selling property to get their down payment, but don’t consider that their pending divorce will delay everything indefinitely.  Buyers change jobs or buy new cars right before closing. Some forget about child support liens or judgments that must be cleared.  Sellers can be just as bad.  They “forget” to tell their agents about title or ownership problems.  Of course, permit problems are never good news.  Home inspectors sometimes report problems inaccurately, causing the buyer to re-think the entire purchase.  No house is perfect, not even a new one. 

Appraisals have become a huge problem. Fall-out from the over-heated market of 2004-2006 caused rule changes related to how appraisals are ordered. Appraisers have become overly conservative. Short value usually means no transaction.  Sellers (and their agents) who fail to adjust pricing to the current market probably start a chain of events that dooms a sale before it begins. As unbelievable as it seems, Realtors® still forget to pre-qualify their buyers (both financially and mentally). Some agents allow timelines to slip past, putting the entire transaction in jeopardy.  Surveys reveal set-back and encroachment issues, termite companies discover un-disclosed termite damage, attorneys make errors on conveyance documents, insurance rates can be so high that the buyer can’t qualify even if they are approved for their loan. Even the cable guy, who isn’t able to provide broadband service, can spoil a sale.   Agents must be problem solvers.  Buyers and Sellers must have absolute confidence in their agent’s ability! Trust me, with so many things that could go wrong, fifty opportunities to keep a transaction on the right path may not be such a bad thing after all!

Team Nakanishi
Hilo, HI Real Estate
Hilo, HI Community Information
www.HawaiianRealty.com
Team Nakanishi, Proudly providing superior real estate services to Hilo, Hi.

Last week’s front page article, related to a bill winding its way through our State legislature, may have confused those needing a primer on the basics of foreclosures. While many states limit foreclosure proceedings to either judicial or non-judicial, most Hawaii homes may be subject to either. Interestingly, the homeowner has no say in the type of procedure initiated, but the lender does. The unintended consequence of the non-judicial process has caused the legislature to re-think this unilateral arrangement. Non-judicial foreclosure laws in Hawaii have been in effect for only about 10 years, and yet most foreclosures today follow these abbreviated procedures, which basically require only a notice of default, posting in the newspaper for 3 consecutive weeks and an auction.

Older mortgages do not contain the right to use the streamlined non-judicial procedures, so the foreclosure must go before a judge prior to auction. Most properties currently in jeopardy involve recent mortgages, so non-judicial procedures apply. We’ve all heard the horror stories of homes auctioned in error. Judicial oversight provided by a judicial foreclosure would have slowed the process enough so that cooler heads could prevail. Use of the non-judicial process was originally touted as a way to save time and money. While attorneys’ fees are supposed to be less, this hasn’t always been true. There is no limit or oversight related to what attorneys can charge. In fact, we often see both a mainland and Hawaii attorney (and escrow) involved.

There is no deficiency judgment related to non-judicial foreclosures, so a homeowner generally walks away. Any lender holding a note may choose a judicial foreclosure. The primary reason for doing so would be to position the lender to seek a deficiency judgment against someone with other assets to attach. Because the non-judicial process is supposed to be faster, the property should return to the bank faster and in better condition; however, delays are common. Unfortunately, news reports sometimes give the false impression that a homeowner’s attorney can easily stop the entire process. While an attorney may be able to delay the inevitable, the reality is that when a mortgage is in default, the property will eventually foreclose. Even though there is recent legislation targeting unscrupulous mortgage rescuers, we still see questionable mortgage rescue ads. We also see ads from attorneys who would apparently take a retainer, but are normally unable to influence the outcome.

Last week’s article also notes that lenders may be ramping up their efforts in order to complete the process in anticipation of the new elective process. If rumors related to the numbers of foreclosures still in the pipeline are correct, it will be awhile before we see an end to this problem. Real property rights are some of the most basic rights we are afforded as Americans. There’s no denying that we need to return our real estate market to normal as quickly as possible but, in my opinion, every effort to preserve basic rights of homeowners should carefully considered.

Team Nakanishi
Hilo, HI Real Estate
Hilo, HI Community Information
www.HawaiianRealty.com
Team Nakanishi, Proudly providing superior real estate services to Hilo, Hi.

It’s Super Sunday! Today’s winner takes home all the marbles! Do kids even play marbles anymore?  Is there an electronic version? Even though that particular game isn’t as popular as it once was, like football, seller financing is always in vogue. In fact, if I had a marble for every reason a seller might offer to finance, I’d have a sock full. I’d have a “no other way to finance” marble and one for “I want to earn the interest”. There’d even be an “outside the ring” marble for distressed sellers. But not all marbles are regulation marbles. In fact, players sometimes “fudge” by playing a “non-regulation” marble. When this happens, the “pros “generally feel it’s time to take their marbles and go home! Here’s the thing. Even in times when seller financing is less risky for buyers, knowing why a seller is willing to finance is critical. 

The mortgage meltdown left us with few options for vacant land loans, especially for an out-of-state buyer. At times, sellers also opt to offer financing so that they can make extra money on their sale.  Permit issues are a popular reason for offering financing as well. These are all fairly common and straight-forward reasons for offering financing. But what happens when the sellers owe more on the property than it’s worth, or when their property is otherwise distressed, or when the property simply will not appraise for the purchase price? These are situations when sellers tend to explore every sales approach. For a buyer, these offers should be considered with caution, because there could be a “fudging” seller involved. Sales with an existing mortgage on the property are conveyed by way of an “agreement of sale”. This involves “wrapping” the mortgage, which basically means that the buyer pays the seller and the seller continues to pay their note. Not all lenders embrace this concept because such a sale further encumbers title. While it’s possible to wrap the mortgage without lender permission, most title companies will not provide title insurance without it. But the difficulty presented in gaining lender permission pales in comparison with the problems created when a seller stops making payments on the underlying mortgage. This begins a chain of events that leaves everyone distressed.  Of course, there are ways to address risks but it’s never foolproof. 

Seller financed properties generally do not (but can) include a formal appraisal, so carefully consider information about comparable sales. There may be times when seller financing works best, but be sure to consider the players and understand why they are playing. And by all means, hire a REALTOR® who understands this type of financing and can advise you about the advantages and pitfalls. In this Super Bowl of transactions, it’s time to put aside kids’ games and equip yourself to play with the big boys! Enjoy the game!

Real Estate ads are subject to a couple of sets of regulations. One recently amended State requirement continues to generate numerous questions.  Disclosing the value of an estate is fairly unique to Hawaii. Until 2003, designation of estate quality as fee simple (FS) or leasehold (LH) was required on all forms of advertisement. While leasehold ownership must still be specifically noted, properties not so designated are now assumed to be fee simple. Because the concept of leasehold ownership is fairly unique, it should be no surprise that people always question the distinction between the two. 

In the most basic terms, fee simple means you own the property. As the name implies, leasehold properties include a lease as part of the conveyance. There are various forms of leases. Every lease is different. Conveyance of a leasehold property may include not only a transfer but a possible renegotiation of the ground lease as well. Additionally, leasehold conveyances involve both a lease transfer and a conveyance of the real property interests.  Sales of leasehold properties are much more involved than fee simple transfers.  Disclosures are more extensive. Leasehold prosperities in East Hawaii are basically limited to Hawaiian Homes, condo units along Banyan Drive and homes along Oceanview Drive. There may also be a few remaining leasehold units in Hale Moana Condominiums as well. 

A common belief is that leasehold properties belong to either the State or one of the larger Estates. In fact, churches or individual families own many. As relates to ownership, property is always conveyed with a “bundle of rights” regarded as the ownership “estate”. Fee simple ownership rights include the right to use the property for any legal purpose not otherwise limited by deed or subdivision restrictions. A lease could add further restrictions. Fee simple ownership exists indefinitely. Leasehold estates have a definite duration. While the ownership concepts are simple, the details of any property transfer are not. Understanding the differences is key in choosing not only the property but also the agent who will help guide you through this not so simple process!

Nothing sparks a livelier conversation than the issue of surveys. That’s one reason I mention it so often. It’s interesting that even the most seasoned sellers still object to the idea of paying for a survey. A new survey absolutely provides the best protection for all involved. Even though the benefits are covered with sellers many times prior to accepting an offer, the expense still seems to cause controversy. After over a thousand transactions over the past 21 years, here’s my take on the subject. Always check with your agent, their opinion and your situation may be different, but here’s mine: you must survey. 

Buyers need to know what they are buying. On rare occasions it may be acceptable to waive the survey. An owner able to produce a recent survey and can verify all pins may have a good argument for not re-surveying. Older surveys should probably be re-done.  Sellers of newly built homes often suggest the buyer should rely on the pins that were placed when the property was purchased. I disagree. This provides little assurance that the new improvements are properly situated.  Remember, the County of Hawaii does not check setbacks compliance during construction. In fact, they don’t even determine that improvements (buildings) are placed on the correct lot. Recently subdivided parcels should not need to be re-surveyed especially if there are no improvements on the property. Economic considerations sometimes dictate the possible shifting of survey cost and responsibility. For instance, here on the Big Island, vacant land parcels sell for as little as $3000. A simple staking of the property could leave the seller coming out of pocket in order to close.

Sellers sometimes want to use pin-finders as a way of cutting costs. Pin-finders are unlicensed “contractors”. REALTORS® cannot recommend them. Doing so subjects us to investigation and fine. Most pin-finders ultimately rely on a metal detector to find pins. The pins could be for some other purpose such as electrical poles. 

Buyers and sellers wishing to waive the survey requirement will likely be asked to sign a very strong notice advising them of the importance of doing the survey. Interestingly, property surveys are not always common practice in other markets around the county.  Hence, out-of-area sellers aren’t always so keen to survey. All things considered, it certainly seems that everyone should be in agreement on this issue. Buyers want absolute assurance that the boundary pins are correct. Sellers want peace of mind knowing they have properly represented the property. To tell the truth, the whole issue leaves me scratching my head and wondering the same thing that little old lady did as she drove thru the fast-food window: “Where’s the beef?”

Because all real estate is local, charts and graphs may not accurately reflect what’s going on with the East Hawaii market. None-the-less, it’s clearly the method consumers have come to rely on for a snapshot of market trends. Graphical information unfortunately fails to incorporate important considerations that are key to accurately reading the market. The key component of market direction at this point, is inventory levels. Actually, a decline in the median sales price is still to be expected. After all, the condition of many properties is so poor that such sales are artificially dragging down the rest of the market. Some neighborhoods are heavily affected by foreclosures and short sales, but all areas are affected by buyer sentiment, which seems to fully embrace the idea that every home on the market is in distress, and thus offers deep discounts which are bound to grow deeper the longer a property remains on the market.

While it is true that some sellers are waiting for a better market, not every sale is a distressed property. Interestingly, investors are returning in dribs and drabs and sales of homes over $500,000 have definitely picked up. But it is still the local buyer who is driving the market. Recent market updates have focused on quarterly changes. The chart below includes some year-over-year data, as well. (All information derived from Hawaii Information Service):

If you study this chart (along with other unpublished data) geographically, there’s a nuance that is impossible to quantify. The tendency for agents to group showings geographically in areas where inventory is plentiful plays a factor in which properties sell. This has affected sales in Orchidland and along the Volcano Highway corridor. Bargain hunters will likely find the great values in these areas and for other reasons, in Nanawale and much of lower Puna. For more specifics, email us at majormom@majormom.com.

“Twas the night before Christmas, when all thru the house, Papa was searching on-line with his mouse.  This time it was different than in the past.  This time he was looking on how to sell fast!

The Buyers were nestled all snug in their beds, while visions of palm trees swayed in their heads.     

The REALTORS® were stressing because they all knew, buyers were out there just not yet in view.

When out on the lawn there arose such a clatter, our Papa sprang up to see what was the matter.

Away at the window we saw right at dawn, their freckle-faced REALTOR® pulled up on their lawn!

The bright-eyed reflection on that confident face, gave a luster of knowledge they couldn’t erase!

When what to their wondering ears did they hear, great reasons for selling at this time of year!

Good buyers, not lookers, cold weather over there… Some who must purchase in this tax year!

To take time to look instead of just tanning, shows serious intent to be here for buyin’

And then, in a twinkle, they heard loud and clear, that buyers are serious this time of year!

With sellers quite busy and delaying their listing, new inventory is flat, another real blessing!

The REALTOR®, though chubby and freckled of face, had Papa on task in record pace!

We heard her exclaim ‘ere she drove out of sight, “Happy Christmas to all, I’ll find that buyer by Night!”

Team Nakanishi
Hilo, HI Real Estate
Hilo, HI Community Information
www.HawaiianRealty.com
Team Nakanishi, Produly providing superior real estate services to Hilo, Hi.

April 30th marked the end of the tax credits. The tax credit helped fuel our market but more importantly, it helped bring confidence back to home buying. It will be interesting to see what lies ahead. Lending practices have stabilized and while we still face challenges trying to figure out the rules of the road from time-to-time, interest rates and relatively low pricing should continue to encourage homebuyers on their quest for home-ownership. After all, as the old saying goes, you have to live somewhere.

Interest rates are so low, in fact, that buying can once again be cheaper than renting. Take for example a median priced sold home in HPP. At $202,000 and rates hovering around 5%, an easy way to “guestimate” payment is to just cut the price in half. In this example, a guestimated payment would be around $1000 per month. Remember, supply and demand determine price direction.

A quick look at the number of active listings shows a serious decline in all areas except Hilo. Even though Hilo listing numbers increased, sales during the 3 month comparison period almost doubled. All other areas experienced serious inventory declines. Contingent and sold numbers are up across the board. Pricing dropped as expected but if market absorption continues inventory will continue to decrease causing prices to inch up. Keep in mind, sold data is for a very narrow 3 month window.

In separate reports on the subject, three prominent Hawaii economists each reported their belief that the market is no longer declining. Bill Chee, owner of Prudential Locations on Oahu had this sage advice in his recent newsletter “Let interest rates be your friend in 2010.”

Remember, unless you are paying cash, interest rates can have as much effect on your payments as the asking price. Even though the tax credit is history, buyers can be confident that it’s still a great time to purchase! And as always, if you don’t see your Big Island neighborhood represented, let us know and we’ll generate a report for you!

Team Nakanishi
Hilo, HI Real Estate
Hilo, HI Community Information
www.HawaiianRealty.com
Team Nakanishi, Produly providing superior real estate services to Hilo, Hi.