Buying a Home in Hawaii
Realtors:
There are approximately 19,000 Real Estate Agents in Hawaii of which approximately 1,700 are Realtor-Brokers whose designation on their business cards will have a logo like this "R". These are agents who have actually been licensed twice. First they were licensed as a Sales Agent and their designation on their business card will look like this "R.A.", "Real Estate Associate." Then after several years of experience these R.A's can choose to become Brokers or "Realtors" if they choose by passing the Broker's Exam and they became "(R)'s" as depicted on their business card.
There are plenty of experienced, good "Sales Agents" out there to choose from. Sales Agents can be either Realtor Associates or Realtors (also known as Brokers)but I became a "R" because of my love for this business and my driving desire to be one of the best agents on this Island.
Approximately 90% of the 19,000 sales agents in Hawaii sell less than 5 homes/year.
That leaves 10% of all agents doing most of the business.
It is not about the years in the business in qualifying the prospective agent, it is about the # of transactions. The more transactions that an agent has had the more knowledgeable they are going to be on Hawaii Real Estate as each and every transaction is different and something new is learned from each transaction.
There is no Hawaii Real Estate Manuel for agents to learn from that will cover all contingencies and issues. A successful agent will depend on his or her experience, any Company training program, (if available) the quality of the Broker In Charge (B.I.C.) in the office to supervise and coach and the availability of other experienced agents in the same office who can render assistance if needed.
The Industry Standard in Hawaii for the # of transactions for a typical sales agent is 4.31 transactions/ year.
My current ratio is approximately 14/year.
Interviewing an agent is most important to see if there is a 'fit.' Can the agent listen and repeat back to you your goals and desires etc.
Most important of all...always ask for the agents Sales Report. This will provide you with key information of what they have sold and will also provide you with another key indicator through "W's" (Withdrawns) and "E's" (Expired) listings that may be on their sales report. If a sales agent has many of these W's and E's then it may mean that they do not know how to price/value a piece of property properly.
There are a few agents out there who are experienced or not experienced enough. There is no available data on this topic. Some agents know fully well how to properly price/value a property.
Some agents will still take a listing if it is unrealistcally priced by the seller after the agent as advised the seller of the correct pricing.
This happens in many listings simply because the agent expects the Seller to lower the price in the short term and subsequently gets it sold and the agents makes a commission.
There are dangers to this strategy as the longer the home is on the Market without a price reduction the more difficult it is going to be to sell the property for anything near what the Seller wants.
A key indicator of how long a home has been on the market is known as D.O.M. or Days On Market. This figure will be on all listings.
Prospective buyers and their agents will assume that the seller is motivated to sell after they have been on the market by how high the D.O.M. is as compared to the average D.O.M. for that neighborhood.
Homes must be priced properly in order to sell for the highest amount of dollars and in the shortest time frame. Simply, the longer the home sits on the market without going into escrow with an accepted offer will result in ultimately the seller lowering the price or pulling it off the market.
Listing agents who will still take an unrealistically priced listing will persist in asking the seller to lower the price during the duration of the listing. The listing agent will also explore opportunities to provide any prospective buyer for the same neighborhood to a home that is correctly priced and sell that home to them.
How Best to 'Shop' for a Home:
Internet...Internet...Internet. Over 85% of all people looking to purchase a home will shop the internet. They will not 'hook up' with any particular agent, but they may 'talk to' as many as 20 agents over a period of 1-9 months during their 'investigative period.'
When the right home is identified they will call the agent that kept in touch with them and had provided them with the information they deemed as valuable and necessary to their succesful home purchase. They will write an offer with that agent.
At my website www.hawaiirealestatestatistics.com you can look up all properties that are for sale.
Listings for sale will look like this...
This MLS For Sale Listing is directly from the Honolulu Board of Realtors. There are lots of websites to search for homes that will give you access to the entire MLS but I would prefer if you use mine.
The key areas of a listing are the price, the square footage under roof, any 'other' additional square footage, Association Fees, Lease Hold or Fee Simple tenure, Monthly Taxes, View, utilities available and Maintenance Fees. Also "Inclusions" are important as this will tell you what comes with the house, washer, dryer, built in book shelves, window coverings, refrigerator, etc.
Now...if you click onto the Main Photo it will bring up all additional pictures of the Home.
When Searching for a Home on the Internet:
You will need to know what neighborhood you are going to search in, the price range you can afford, how many bedrooms, how many baths, how big a house, how big a yard, how many parking, covered or uncovered parking, Fee Simple (F.S.) or Lease Hold (L.H.) and amenities that come with the home and the neighborhood.
Just as important as the home’s amenities are the amenities of the neighborhood like schools, shopping centers, hospitals, crime rate, restaurants etc. These neighborhood amenities can be found through other search parameters on your MLS search site.
As I mentioned earlier different sites have different types of Search Pages and not all of them will give you the same information. I think mine will give you what you are looking for.
Your search page will look like this...
It is very important to know what you can afford. It is a 'best practice' to speak with a Mortgage Lender and obtain a Pre Approval Letter before you actively begin to visit properties for sale. This effort will save you a lot of time in finding the right home in your searches.
1) It takes 10 minutes on the phone with a Mortgage Lender to get an idea of what the lending institutions will lend to you based upon your F.I.C.O. score (Credit Rating Score), debts, down payment and so forth.
2) A "Pre Approval Letter" is like "Gold" to most Sellers as it tells them you have already seen a Mortgage Lender, the lender has run the #'s and has given you the 'Green Light' to proceed to find your home. This piece of paper is given to the seller with your offer. The 'Maximum Loan Amount' is not given on the paper but is 'replaced' with the amount of the offer for the home, less your down payment and earnest money deposits. This way the seller never knows what you maxium Pre- Approval amount is.
3) A Pre Qualification Letter is 'not worth the paper is it printed on.' It simply tells the Seller you have contacted a lender, but...unlike a Pre Approval, this letter has many 'stipulations' on it specifying the criteria you will have to still meet to qualify for your loan.
4) When shopping for a loan it is important to know that each time you provide someone with the approval to run your credit it will drop your F.I.C.O. score a little at a time. It is best to compare no more than two lenders offerings by giving them approval to run your credit and providing you then with a "Good Faith Estimate." This Good Faith Estimate is a single sheet of paper listing all of your charges and terms for the loan. This piece of paper can be used to compare with other lenders Good Faith Estimates.
Your Search Results will look similar to this...
If you click onto any photos in Search Results like this it will bring up the 'Detail Sheet' and all available photos of the property.
I also have at my disposal a form that looks like this below and can be filled out to tell you what your Monthly Mortgage, escrow charges etc. will look like...
Now is that house really worth the price?...
C.M.A. (Comparative Market Analysis) is what you use before you go and see the property or put an offer in on it. This will tell you what the home is actually worth on the market at that time. You can obtain this C.M.A. from a sales agent. It's the easiest thing to do and much more accurate than some other websites offering Sold Data like Zillow.com. Those other websites I have researched and have found them to be not accurate and therefore not a good tool use for this important step.
By this point you should be closer to narrowing down the agents you are going to work with.
The C.M.A. looks like this...
From the above C.M.A. you can see 2 different but similar Subject Properties For Sale and the Average Selling Price is as you can see at the bottom of the 'For Sale' section is $744,000 and they have been on the Market for an average of 31 Days. (D.O.M.-Days On Market)
Average Sales Price / Square Foot is $603.41 or $744,000.
Now look at the Solds in the 'Sold' section. Appraisers will only use the last 6 months Solds to value a property in Escrow. This C.M.A. has the last 6 months Solds for 'like kind properties' and the Average Price Sold / Square Foot is $486.66 or $757,250.
Now...since this is not a rising market we can use this C.M.A. as it currently is without adjusting or a rising market value.
This means that the above Subject For Sale properties For Sale are Over Priced based upon all of the Sold properties. But remember this also depends upon comparing "Apples to Apples, Organges to Organges" Same Neighborhood, Similar Sizes Under Roof and Yard and you have to look at whether or not any additions or alterations that may have been done to each of them.
It is best to compare in a CMA all 'like kind' properties of equal amenities. You can do this by reading the amenities list, the inclusions list and the comments section on the listing.
This is what you base your Offer on. This is the stuff you need to know before you go and visit a property or make an offer. It saves a tremendous amount of your time.
But remember...only look at the last 6 months Solds as that is what the buyer's lender's Appraiser is going to do!
I hope this helps you and if you have any questions, please feel free to contact me anytime on my cell 808-384-9015 or by email mikeg@hawaii.rr.com
Much Aloha,
Mike Gallagher
RE/Max Kai Lani, Kailua, Hi. 96734
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1. The Loan:
This is the very first priority in your endeavor to secure your investment property. In Today’s very fast moving market where often, a property will receive 5 or more offers, all over asking, within 24hrs. your Prequalification Letter from a lender is crucial to have prior to viewing property or making an offer.
a) Where to Find The Right Lender?
Depend upon your Realtor, your Friends and your Family for referrals. The Realtor is not going to want to appear to be steering you towards any particular lender as it is against his/her Code of Ethics they subscribe to. However it is best practice to listen to what they have to say as they have done many transactions and know from experience who gets the job done and who doesn’t.
Another major source of information outside of your Realtor, Friends and Family referrals is a visit to the Honolulu Board of Realtors Website:
www.hicentral.com.
Here you will a list of lenders doing business in Hawaii, rates, terms and contact information. It is Highly recommended you use a Local Lender as your transaction ease in most cases and winning an accepted offer is much easier accomplished.
Your credit score used in Real Estate terms is known as a F.I.C.O. score. When asking a Mortgage Broker or Bank for a prequalification letter the Loan Officer will run your credit. Each time someone runs your credit it lowers your F.I.C.O. score. It is my recommendation you weigh your lender choices wisely and then proceed to call a lender and proceed onto the process of obtaining a prequalification letter. Generally this process takes 10 minutes on the phone.
A prequalification letter is simply a letter addressed to whom it may concern that you have taken the steps necessary to begin the process of obtaining a loan. This is absolutely essential to have when your Realtor presents an offer as when Sellers review your offer without a prequalification letter they will decide to reject your offer. Your lender will provide you with a max Dollar amount of what the Banks are willing to lend to you and what the Monthly Mortgage Payment will be.
This figure will not be on the prequalification letter. When your Realtor presents an offer to a Seller it will go with a new prequalification letter from the lender with an amount the lender is willing to loan on the letter, matching the offering price.
b) Pre Approval Letter
In this highly competitive and short inventory Market you are competing with many other buyers like yourself for the same property. Although a prequalification letter is essential you can now take the first step in beating out your competition by having a Pre Approval Letter. Similar to a prequalification letter which states the lender is willing to lend you a certain Dollar amount under certain conditions being met by the buyer, the major difference is that a Pre Approval Letter states to the Seller that you have already started a Loan application and been approved for a certain Dollar amount with very, very little conditions yet to met by the buyer. Meaning you are almost certainly good for the money.
Pre Approval Letters are in this Market, like GOLD. A Seller will certainly entertain your offer knowing that you have already met most of the major conditions a lender has put upon you, the buyer, versus a Pre Qualified Buyer who still has major conditions to meet to get the loan.
2. Finding The Right Home
a) The right Home may be SFH (Single Family Home), Condo (Town Home or traditional Condo) or
Vacant Land. Once you decide on what your needs are and what you can afford to spend Monthly on a Mortgage you now begin to shop using the max Dollar figure the lender has given to you.
b) 53% of all buyers who purchase a property use the Internet first to view Homes. This can be done by utilizing the Internet search sites. There are many choices to choose from, but from my experience the following are the best: www.hicentral.com This is the Honolulu Board of Realtors Public side of the Site where searching is easy and fast.
47% of all buyers who purchase a property depend upon their Realtor to find the home for them.
Although this percentage is based upon a National Survey, it is essential to have the right Realtor to depend on if you are not going to use the Internet yourself. There is a clause in the legal offer that states ‘Time is of the Essence.’ This is true in the context that you need a Realtor who is going to make the time to do the search for you. If they do, make sure they are in constant communication with you and searching and showing you property continuously.
c) For Internet Buyers, I find it best to do an Island Wide Search for the type of property you are looking for first. Put into your search parameters on the search screen your desired number of bedrooms, baths, parking, Fee Simple or Leasehold, house size, yard size, view, etc. and then enter your max price+$20,000. for SFH and +$15,000. for Condo/Town Homes. The reason for this is simple. Most For Sales are over priced in this Market and remember everything in life is negotiable!
d) Once you have done this, narrow down the Neighborhoods and the Buildings. Remember, Condos actually mean: Traditional Condos AND Town Homes. When doing internet searches you can specify which type.
e) Now you are ready to roll! Take your narrowed list and do ‘drive by’s.’ See the Neighborhood, the House, the Building. Talk to the Neighbors, the Building Manager, and look at the amenities of the Neighborhood i.e.: Restaurants, Hospitals, Beaches, Stores, etc.
3. Finding the Right Realtor
a) Now you ready to get assistance from a Realtor. Typically, most experienced Realtors will choose not to work with anyone who does not have a prequalification. It’s certainly not only a waste of the Realtors time, but yours as well. Now its time to depend upon the guidance, the persistence, the knowledge and other necessary skills of a successful, experienced Realtor to help you get you what you want.
b) A few years ago, before the boon in Real Estate there were approximately several thousand Less Realtors to choose from than Today. This means there are many, many Non Experienced Agents out there who do not have the skills you need. Experience in terms of Number of Transactions is what you need to have in a Realtor.
Approximately 85% of all first time buyers choose the very first Realtor they come in contact with. This is an appalling figure from a National Survey. 15% choose their Realtor after only meeting two of them.
c) The right way to finding the best Realtor for your needs is to consider the following:
1) Experience: How many transactions have they had?
2) Awards and References from Realtor Organizations and most importantly, previous Clients.
3) Knowledge of Neighborhoods, Buildings and Amenities in areas you are searching.
4) Communication Skills
5) Company Brokerage Resources
6) Personality Fit
d) Choose your Realtor and commit to work with ONLY ONE. An experienced Realtor will know if you are working with another Realtor. An experienced Realtor will NOT work with you if this is their perception. If there is No commitment from you, there will be no commitment from your Realtor.
4. Writing an Offer that Will Be Accepted
a) Some New and even Experienced Agents make the first Fatal Mistake in NOT winning you the Accepted Offer. This mistake is little or no communication with the Seller’s Agent. The terms of your offer although very important in winning you an accepted offer will go unused if the Buyers Realtor cannot communicate properly with the Sellers Agent. I can tell you from much Experience, this is where you will Win or Loose!
b) Everything in Life is about Relationships and Choices. This is especially true in Sales Negotiations. In the offer and negotiation phase it is Very Dangerous for the Principals (Buyers/Sellers) to speak directly with each other without using their Realtor as a communicator.
Your Realtor has taken many classes, certifications and therefore has the knowledge you do not to keep you out of Legal Pitfalls. One of the fastest ways to Litigation in Real Estate Transactions is Direct Communication between the Principals.
Therefore, it is absolutely essential the two Realtors can communicate effectively, negotiate on your behalf and be able to ‘paint the picture’ of the Buyer to the Sellers Agent so that the Sellers Agent can ‘paint the picture’ to the Seller. Who is the Seller relying upon to sell his property? The Sellers Agent! This all happens on the phone or face to face by the Realtors BEFORE the offer is written. When this happens a Winning Offer is drafted and submitted with ALL THE ACCEPTABLE TERMS AND CONDITIONS ALREADY AGREED UPON BY BUYER AND SELLER!
Writing the offer as ‘clean’ as possible is essential to obtaining the winning acceptance. In Real Estate terms this means very little and lenient contingencies. Contingencies are stipulations in the offer defining terms, dates things are due like inspections and anything written into the offer by hand that specifies Buyer conditions you are imposing on the Seller in presenting your offer for acceptance.
This article/guideline will explain how best to write the terms of the offer and what happens after the offer is accepted.
d) Other very important aspects of the winning offer are as follows:
1) Down Payment: 20% is looked upon very favorably by Sellers as it means you have the ability to save your assets and use them wisely and you are probably a more serious buyer who is going to actually close on the property and see the purchase through to the end. It also means that the lender is not ‘into the property’ for the whole amount, just 80%. This is very, very important in Today’s Market as while in Escrow with a Buyer’s accepted offer the lender’s Appraiser is going to go to the property and appraise it for the Bank. Primarily he/she is going to use the last 6 months Sold prices to value your property. This means one important thing. In this mostly over priced and rising market it is IMPERATIVE the
Appraisal ‘Comes In.’ This means that the appraisal matches or exceeds your offering price.
An EXPERIENCED Realtor will know how to guide you on your offering price based upon the last 6 months Sold prices. These are known as Comparables or ‘Comps’ in the Real Estate vernacular.
If you end up offering more than the Appraisal comes in at, this is known as a ‘Short Appraisal.’ This means the Bank will ONLY lend you the amount of the Appraisal.
You will then have to come up with the difference in Cash, renegotiate the purchase price with the Seller or Walk Away from your offer by Canceling. Canceling at this point will cost you appraisal fees: $500.approx. and Inspection Fees: $400. approx. You will OUT $1,000. approx.
This is WHY a Seller looks for a Buyer with CASH. This is the same thing the Sellers Agent will ADVISE his Seller.
If there is Less Cash involved for Down Payment, there are other means to still get an Accepted Offer, but you MUST HAVE A REALTOR WHO HAS THE EXPERIENCE TO DO THIS! 100% Financing is possible Today and Sellers will take 100% Financing, but ONLY under certain conditions. See your Realtor about this option.
I hope this helps you in guiding you to finding the Home of your
Dreams! If you have any questions, please do not hesitate to call
me at 808-384-9015 or email at MikeG@hawaii.rr.com
Aloha,
Mike Gallagher ® Realtor-Broker
RE/Max Kai Lani
Certified Buyers Agent |
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The following articles provide useful information and are a great place to start if you're considering buying a home.
