Frequently Asked Questions

Hawaii Real Estate FAQs

Whether a prospective buyer, seller, or simply someone curious about Hawaii real estate, this resource aims to provide valuable information and answers to frequently asked questions about the Big Island, Kauai, Maui, and Oahu. Understanding the buying process and local regulations to exploring investment opportunities and lifestyle considerations, is essential to any property search. FAQs about buying, selling, investing, and living in Hawaii, will be addressed, providing the knowledge needed to navigate the local market.

FAQs :: Table of Contents

  1. Real Estate questions about contingencies, IRC 1031, purchase contract, inspections...
  2. Condo questions about co-ops, maintenance fees, monthly costs, parking...
  3. Escrow and title questions about closing costs, duties, fees, tenancy, insurance...
  4. Financing questions about condo classifications, lenders, pre-qualified, pre-approval...
  5. General questions about pet quarantine, rainwater catchment, vog and its risks...
  6. Tax questions about 2023 property tax rates, GET, TAT, and conveyance taxes.

Real Estate Questions

Fee simple is the most familiar form of ownership of real estate in Hawaii. Also known as fee simple absolute, this entitles the property owner 100% ownership of the land and all improvements thereon. A fee simple owner has the right to possess, use and dispose of the land, as well as donate, trade, or lease it. In the event of the owner's death, fee simple allows the property to be passed onto its heirs.

Leasehold is where the property owner, or lessee, owns 100% of the buildings but none of the land. The lessee agrees to pay lease rent to the land owner, or lessor, for the remaining years of the lease. Three outcomes are possible with leasehold: 1) Prior to the expiration of the lease, the lessor may sell the land to the AOAO which in turn would offer the fee purchase to the lessee. The lessee can either purchase the fee and convert it to fee simple, or continue to pay lease rent to the AOAO; 2) Upon the expiration of the lease, the land and all improvements would return to the lessor; 3) Prior to the expiration of the lease, the lessor renews the lease.

The seller has agreed to pay a percentage of the sales price to the listing office upon the close of escrow. The listing office then splits this amount 50/50 with the selling office representing the buyer.

Comparative Market Analysis, or CMA, is an analysis of recently closed sales on the MLS that are similar to the subject property. The report includes the bathrooms, bedrooms, closed sales price, days on the market, interior sqft, list price, and median sales price. Buyers use a CMA to determine a fair price to offer on a property. Sellers use it to determine the market value of their property to arrive at an appropriate list price. Mortgage and appraisal companies utilize it for refinancing and appraisal purposes.

A contingency is a condition or requirement that must be met for the contract to proceed and become binding. Contingencies are safeguards for buyers and sellers to protect their interests and provide a way to cancel or renegotiate the contract if certain conditions are not met. Several contingency examples in a contract include home inspection, seller disclosure, financing, appraisal, and title:

  • Home Inspection - this contingency gives the buyer the opportunity to conduct a professional home inspection. If the inspection uncovers significant issues or defects, the buyer may request repairs, credits, or negotiate a lower purchase price. If the parties are unable to reach an agreement, the buyer can choose to cancel escrow.
  • Seller Disclosure - this contingency is a provision that allows the buyer to receive and review certain disclosures and reports from the seller regarding the condition of the property. This contingency is typically included to protect the buyer and provide them with important information about the property before proceeding with the purchase.
  • Financing - this contingency allows the buyer a specified amount of time to secure a mortgage loan. If the buyer is unable to obtain financing within the agreed-upon timeframe, they can back out of the contract without penalty.
  • Appraisal - this contingency allows the buyer to ensure that the property's appraised value meets or exceeds the agreed-upon purchase price. If the property appraises for less than the purchase price, the buyer can negotiate with the seller for a price reduction or choose to cancel the contract.
  • Title - this contingency ensures that the property has a clear and marketable title. If title issues are discovered, such as liens or disputes, the buyer may request the seller to resolve these issues. If unsuccessful, the buyer can choose to cancel.

Yes, but we do suggest you try to view the property prior to submitting an offer. If that is not possible, you will need to submit a Site Unseen Addendum with the Purchase Contract.

Upon the acceptance of the offer or counteroffer, escrow will be opened. The following paragraphs of the Purchase Contract are part of a typical escrow with financing, as of the acceptance date:

  1. H4(a) - submit loan application in 2 days.
  2. B1 - earnest money deposit in 3 days.
  3. H4(b) - pre-qualification letter in 3 days.
  4. H1(a) - verify buyer cash in 3 days.
  5. E3 - inventory delivered in 5 days.
  6. I1 - seller disclosure delivered in 5 days.
  7. N2 - rental docs delivered in 5 days.
  8. G1 - title report delivered in 7 days.
  9. G3 - buyer tenancy selected in 10 days.
  10. M1 - HOA docs delivered in 10 days.
  11. J1 - home inspection approval in 10 days.
  12. D2 - 2nd buyer deposit upon J1 approval.
  13. K2 - survey delivered in 30 days.
  14. H4(c) - conditional loan approval in 30 days.
  15. H4(d) - loan conditions satisfied in 37 days.
  16. L2 - termite report 10 days prior to close.
  17. J8 - remove seller items 5 days prior to close.
  18. J9 - interior cleaning 4 days prior to close.
  19. J10 - pet treatment 4 days prior to close.
  20. J3 - final inspection 3 days prior to close.
  21. D2 - loan monies 2 days prior to close.
  22. F2 - escrow closes and key release.

A 1031 Tax Deferred Exchange allows a property owner to defer paying capital gains tax when selling an investment property by using the proceeds from the sale to purchase another like-kind property. Instead of receiving the proceeds, the owner uses a qualified intermediary to hold the funds. Within 45 days of the sale, the owner must identify a like-kind replacement property, and within 180 days of the sale, the owner must close on the purchase of the replacement property using the funds held by the intermediary. It's important to note that there are strict rules and guidelines to be followed in order to qualify for a 1031 Exchange, and it's recommended to work with a qualified intermediary and tax professional. Read more.

In most cases the seller is responsible for payment of the survey and termite inspection. Both charges will appear on the HUD statement, provided by escrow, as a debit from the seller's sales proceeds.

In Hawaii, there are typically three main types of sewer systems used for wastewater management: county sewer, individual septic systems, and cesspools.

  • Septic is an on-site sewage treatment and disposal system in the ground with a septic tank and a soil absorption area, commonly found in rural areas. Organic solid material, or scum, floats to the surface and is converted to a liquid by the bacteria. Inorganic material, or sludge, and the byproducts of the bacterial digestion sink to the bottom of the tank. Only clear water is to overflow into the absorption area. You should avoid allowing the following to enter the septic system as it will harm the bacteria: acids, bleaches, caustic drain openers, cleaning compounds, detergents, disinfectants, polishes, and toilet cleaners. Accumulated sludge and scum should be removed regularly.
  • Cesspools, also known as leaching pools, are large pits in the ground encased within either cement block, brick, or concrete. Wastewater enters the cesspool and drains through the perforated walls into the surrounding soil, leaving the solids in the pool. Cesspools risk contaminating groundwater, the reason the state banned new installations of such since 1991.

Yes, non-residents can buy real estate in Hawaii. There are no restrictions on foreign ownership of property, and non-residents can purchase and own property just as residents do. They may have a harder time obtaining financing for a property, as some lenders may require a larger down payment or proof of income in the U.S. They may also be subject to different tax rules and rates, so it's important to consult with a tax professional. Off-island owners will need to hire a property manager to manage a rental property.

The major structural components, plumbing, heating, and electrical systems are inspected for visual signs of nonfunctional performance, excessive wear, and general condition are checked during the home inspection. Items inspected include the air conditioning, appliances, breaker panel, cabinets, ceilings, disposal, doors, exterior siding, floors, foundation, framing, heating system, insulation, outlets, roof, showers, sinks, smoke detectors, stairs, switches, toilets, tubs, walls, water heater, and windows.

It is where you would own an undivided fractional interest in a fee simple property. All owners would hold the title as Tenancy in Common. All owners would share in the operating costs (AOAO/HOA, utilities, taxes, cleaning, insurance, management) according to their deeded interest percentage. Typically you would have a set period of time during the calendar year during which you may use the property.

You should contact your current insurance company to see if they offer policies in Hawaii. If they do not, contact the following:

Condo Questions

The costs of owning a condo in Hawaii depend on a variety of factors, such as location, size, age, and amenities. AOAO fees cover the maintenance of the common areas, such as the pool, landscaping, and security. Property taxes range from 0.19% to 1.5% of the assessed value. Utilities include electricity, gas, cable, phone, and sometimes water. Homeowners insurance covers the interior of the unit, personal belongings, and liability. Owners are responsible for maintaining and repairing the interior, such as appliances, plumbing, and electrical. Overall, the monthly costs of owning a condo in Hawaii can vary from several hundred to thousands.

A co-op is a corporation holding title to an apartment building that offers shares for purchase. In exchange for purchasing stock shares in the corporation, each owner receives a lease to occupy, not own, a certain unit in the building. Co-op owners are responsible for their share of the corporation's expenses: maintenance, mortgage, payroll, taxes, etc.

  • A condo-tel is a type of property that combines the features of both a condominium and a hotel. In the context of Hawaii, a condo-tel refers to a condominium unit that is operated and managed like a hotel.
  • A non-warrantable condo has an owner-occupied ratio below 50%, a ratio of owner-delinquent HOA dues that is too high, pending litigation, insufficient insurance coverage by the AOAO, and in some cases new construction.
  • A warrantable condo has strong AOAO reserves and budget, at least 50% owner occupied, no pending litigation, and appropriate AOAO insurance coverage including liability.

A property that is a CPR, or Condominium Property Regime, is one where each owner has ownership of a certain unit with a percentage of the undivided interest in the common elements. Common elements may include land, lobbies, pools, roads, and roofs. CPRs include apartment buildings, as well as land that has been condominiumized. An example would be a property owner with multiple residential structures wishing to subdivide and cannot, so the owner would then create a CPR and each structure would be assigned a unit number. CPRs have an association with covenants and restrictions. In most cases, a CPR will have monthly maintenance fees.

Maui's West Side has two resorts, Kaanapali and Kapalua, with some of the most luxurious condos on the island. On the South Side is the resort community of Wailea with world-class beaches. Kauai has three resorts, one on the North Shore in Princeville with picturesque scenery, Kukuiula on the South Shore with warm beaches, and Hokuala in Central. The resorts on the Big Island are along the Kona and Kohala Coasts. The resorts of Hualalai, Keauhou, Kohanaiki, and Kukio are located in Kailua Kona. Along the Kohala Coast are the resorts of Mauna Kea, Mauna Lani, and Waikoloa.

Maintenance fees of condos in Hawaii typically cover the cost of maintaining and operating the common areas and shared facilities. Property maintenance includes landscaping, pool and spa, building exterior, and repair of common areas such as hallways, elevators, and parking garages. Utilities included are often water, sewer, garbage, and rarely electric. Insurance on the exterior of the building and common areas, but owners will need to purchase a homeowners policy with liability to cover from the walls into the unit. Contribution to the reserve fund to be used to pay for repairs and upgrades to the complex over time.

Fee simple owners own an equal share of the land and common elements. Some owners are responsible for a greater share of the association's maintenance expenses (building exterior, grounds, pools, roads, roof, security, staff) typically due to their property being larger than other owners' property.

The responsibilities of rental management vary from company to company, but the most common tasks include advertising, booking, processing payments, guest services, house cleaning, and the payment of GET and TAT. Additional tasks include the payment of AOAO/HOA dues, real property taxes, and electric bills. If the guest has any issues with the property, they would contact the rental management company for assistance.

Short-term, or vacation rental, management fees typically range from 22%-50% of the gross rents received, depending on services included and whether the front desk is on-site or off-site. Long-term management fees average 10% of the gross rents received.

Escrow Questions

Escrow is a confidential and impartial third party who holds money and documents in safekeeping until such time that all conditions and terms have been satisfied. They represent neither the buyer nor the seller. Escrow's duties include: receiving and holding deposits, ordering title searches/conveyance documents, processing loan documents, clearing title, making pay-offs to existing lenders, providing a settlement statement, coordination with both parties for document signings, handling closings with buyers and sellers, recording documents, and disbursing all funds at the close of escrow.

The length of time it takes to close escrow in Hawaii depends on the complexity of the transaction, responsiveness of parties, and type of financing. For cash offers, expect 21 to 30 days, financed offers will be 45 to 60 days. During escrow, the buyer and seller will work to complete all tasks and documentation, including obtaining inspections, securing financing, and signing legal documents. Once all requirements have been met, escrow will distribute funds and transfer ownership of the property. The escrow company acts as a neutral third party to ensure that all aspects of the transaction are completed accurately and on time.

Escrow fees are split 50/50 between the seller and buyer. Title fees are split 60% to the seller and 40% to the buyer.

Closing costs depend on a number of factors, including the purchase price, type of property, and location, but there are common costs to expect. Lender fees can include origination, points, PMI, prepaid interest, application, credit report, and appraisal fees. A title search will be done to verify that the seller has a clear title, and title insurance may be required to protect against any title defects. Escrow is responsible for handling the closing process and ensuring that all documents are signed and funds transferred, so expect fees. Recording fees are charged by the county to record the transfer of ownership. Inspection fees can include home, mold, and sometimes termite. If the property is part of an association, you will have pro-rated HOA fees and a pre-payment for the following month.

Title insurance insures a property owner against loss resulting from a defect in the title. The title insurance company will perform a search of public records and will assume the risk on certain items, such as:

  • Someone else owns an interest in your title.
  • Someone else has rights affecting your title arising out of leases, contracts, or options.
  • Someone else claims to have rights affecting your title arising out of forgery.
  • Someone else has an easement on the land.
  • Someone else has a recorded right to limit your use of the land.
  • Someone else has a recorded lien or encumbrance on your title.
  • You are forced to correct or remove an existing violation of any covenant, condition, or restriction affecting the land.
  • Because of an existing violation of a subdivision law or regulation affecting the land: you are unable to obtain a building permit; you are forced to correct or remove the violation; someone else has a legal right to, and does, refuse to perform a contract to purchase the land, lease it or make a mortgage loan on it.
  • You are forced to remove or remedy your existing structures, or any part of them because any portion was built without obtaining a building permit.
  • You are forced to remove or remedy your existing structures, or any part of them because they violate an existing zoning law or zoning regulation.
  • Your existing improvements made after the policy date, including lawns, shrubbery, or trees, are damaged because of the future exercise of a right to use the surface of the land for the extraction development of minerals, water, or any other substance.
  • Someone else tried to enforce a discriminatory covenant, condition, or restriction which is based on race, color, religion, sex, handicap, familial status, or national origin.
  • A document upon which your title is based is invalid because it was not properly signed, sealed, acknowledged, delivered, or recorded.
  • The residence with the address shown is not located on the land.
  • Joint Tenancy is when two, or more persons have the same interest, commence at the same time, by the same conveyance, and held by the same possession. Allows the right of survivorship where the surviving joint tenant assumes the interest of the deceased tenant.
  • Tenancy in Common is when two, or more persons have undivided interest, equal or unequal. Each tenant is entitled to their proportionate share of undivided possession of the property and is subject to the other tenant's rights of possession. The tenants are able to sell their interests without the consent of the other tenants. No rights of survivorship.
  • Tenancy in Severalty only applies when one person has total interest in the property, severed from all others. Generally used by corporations. Upon the death of the owner, the property goes to probate and passes to its heirs or devisee. Also known as Several Tenancy or Sole Tenancy.
  • Tenants by the Entirety is available to married couples, civil union partners, and reciprocal beneficiaries, where each has an equal, undivided interest. Neither spouse can convey, or partition their interest without the other's consent. Only severed by divorce, joint conveyance, or mutual agreement. Upon death, the surviving spouse succeeds to the entire property without the need for probate.

HARPTA, or Hawaii Real Property Tax Act, requires 7.25% of the sales price to be withheld for the payment of Hawaiian State Tax on the gain realized for all non-Hawaii residents. It is presumed that every seller is a non-resident and subject to withholding. If the seller is a Hawaii resident, Form N289 can be completed and delivered to the buyer to waive HARPTA collection. If there will be a loss on the sale, escrow can submit Form N-288B to waive this collection. If there is an overpayment of HARPTA, the balance will be returned within a couple of months after escrow closes in most cases.

FIRPTA, or Foreign Investment in Real Property Tax Act, requires 15% of the sales price to be withheld for the payment of US Federal Taxes for all non-US citizens.

Financing Questions

Underwriters do not verify employment information or credit history for pre-qualification. With pre-approval, you will be required to submit a loan application with required documentation (employment, financial, credit report) for underwriter review. A purchase contract submitted with a pre-approval letter will hold more weight with the seller than a pre-qualification letter.

Yes, but it is required an additional 5 years are remaining on the lease beyond the loan term. If looking at a 30-year mortgage, there will need to be 35 years left on the lease.

Yes, but they are not as familiar with the different types of real estate in Hawaii as a local lender would be. Buying a property that is leasehold, has a water catchment, volcano, or agricultural zoning is just a few examples. In regards to condo-tels, or condos allowing short-term vacation rentals, you must use a local lender as mainland banks will not approve a loan on this kind of property.

There are three different types of condo classes in Hawaii: condo-tel, non-warrantable, and warrantable. How the condo is classified has a direct effect on financing options and down payment requirements.

  • A condo-tel is a condominium unit that is operated and managed like a hotel. In regards to financing, any vacation rental that has front-desk operations on-site is referred to as a condo-tel.
  • A non-warrantable condo does not meet the eligibility requirements set by government-sponsored Fannie Mae and Freddie Mac. These eligibility criteria are established to determine whether a condo project can be approved for conventional financing.
  • A warrantable condo meets specific criteria set by mortgage lenders, making it eligible for conventional financing. The term warrantable is often used by lenders and loan agencies to describe condos that meet certain standards, making them less risky for lenders to provide loans for.

General Questions

Hawaii's quarantine law is designed to prevent the introduction of rabies. All dogs and cats entering Hawaii, regardless of age, must be quarantined for up to 120 days upon arrival in Hawaii if they did not meet all of the requirements for the 5-Day-Or-Less program. Read more.

Vog is a volcanic smog caused by the activity from Kilauea on the Big Island. The volcanic vents release gases and acidic aerosols containing hydrogen sulfides and sulfur compounds. Exposure to vog decreases the ability to expel toxins from the body. It can exasperate asthmatic conditions in individuals, especially children. Other symptoms are headaches, sore throat, and watery eyes. The areas of the Big Island mostly affected are Kailua-Kona to Kau and Puna to Hilo. Vog does travel to Maui and Oahu with heavy winds, but only rarely.

Rainwater catchment is a method of collecting rain from the roof and transporting it to a storage container for domestic and agricultural use. It is recommended that at least three filters (sediment, carbon, and calcite) are used to properly clean and treat the water. For potable water, a UV system should be installed after the third filter.

Tax Questions

Property tax rates in Hawaii vary depending on the county and assessed value of the property. Property taxes are assessed annually based on the value of the property as of January 1st of the tax year, and the tax rate is then applied to the assessed value. Hawaii tax rates are as follows: Hawaii County from 0.61% to 1.36%; Kauai County from 0.25% to 1.08%; Maui County from 0.19% to 1.46%; and Honolulu County from 0.35% to 1.39%. If the property is your principal residence, there is an exemption that provides a tax credit to be applied to the assessed value before the property tax rate is calculated. Read more.

General Excise Tax is assessed on all business income in Hawaii as there is no sales tax. The current GET rate for Big Island, Kauai, and Maui is 4% and on Oahu it's 4.5%. The tax is collected from the renter and sent to the county. Read more.

Transient Accommodations Tax applies to properties rented on a short-term basis, less than 180 consecutive days. The State TAT of 10.25% is applied to the gross rental income, but each county has an additional 3% TAT to be applied. The renter would pay this tax, in addition to GET, and the owner would send it to the county. Read more.

Conveyance tax is imposed on all transfers of interest in real estate and is paid by the seller. The rates range from .10 - $1.00 per $100 of value for a property that is eligible for a real property tax homeowner's exemption and .15 - $1.25 per $100 of value for a property that is not eligible for the exemption.