Buying Real Estate on Maui: A primer for international buyers

With the rise of the Euro, the Canadian Dollar, the New Zealand Dollar, the Australian dollar and many major currencies, we are seeing more and more inquiries from non-U.S. citizens, or international buyers, regarding buying property on Maui. Here is a quick primer for you on purchasing property in Hawaii and on the island of Maui in particular.

• First and foremost the good news! As long as you are in US legally, on any visa, you can buy property. Immigration law does not restrict business activities except where national security is at stake.
• There are two types of properties to purchase in Hawaii. Fee Simple and Lease Hold. Fee Simple is whole ownership and on Maui represents the majority of transactions. In a Fee Simple transaction, you receive a recorded deed that indicates that you own the property. Since a majority of the transactions that occur on Maui are Fee Simple purchases we will focus on that type of transaction in this document. For more on leasehold property please see: Our Leasehold Property Blog Post..
• Most properties for sale in Hawaii are listed by Real Estate agents. There are some properties that are “for sale by owner” but approximately 85% of sellers use Realtors.
• The relationship between a real estate agent and a client is called Agency. In the United States / Hawaii we have buyer representation and seller representation. If you are considering buying property on Maui, it is a good idea to obtain buyer representation in the form of a Buyer’s Agent. Your Buyer’s Agent has a fiduciary responsibility to you, and by law should look out for your best interests. A good real estate agent on Maui should be able to discuss overall trends and the state of the market, provide statistics and comparable sales, provide information regarding neighborhoods, prepare your offer / and offer a strong negotiating strategy. Realtors are compensated from the Seller’s proceeds in about 95% of real estate transactions. When a property is listed with a Realtor, the Seller’s agent splits the fee with the Buyer’s Agent. Sales commissions can run any where to 4% to 7% of the purchase price on Maui. ½ of that is paid to the Buyer’s Agent. Again, these funds come from the Seller’s proceeds. A Buyer’s Agent can represent you in any property that is listed for sale in Hawaii. When a real estate represents both a buyer and a seller in a transaction, this is known as Dual Agency. Dual Agency is permitted in the state of Hawaii as long as all parties are aware of the inherent potential conflicts and challenges.

The Jalbert Brothers can have extensive experience representing many types of buyers including first time home buyers, condo buyers, builders, international buyers, oceanfront property buyers, second home buyers and multi-million dollar estate purchasers.

The purchase process can be categorized into the following steps:

1. Finance / pre-qualification.
2. Searching for / Identifying the right property.
3. Creating and presenting an offer and negotiating for the property.
4. The due diligence and closing process. Closing usually takes place within 45 to 60 days for financed transactions. Closing can happen in 30 days or less for cash transactions as long as the Seller is able to close in that short a time frame.

Finance: It is a good idea to have an overall property budget in mind. This will be based on your income, assets and ability to finance the property. We have lenders that have worked with buyers from many parts of the world. The rule of thumb for non-US buyers is a 35% down payment is usually required.

If financing the purchase, we recommend that our buyers get pre-approved prior to making any offers. This process entails providing a lender with personal financial and credit information so that they can determine your ability to repay any monies borrowed. If a Buyer is paying cash we recommend that they have proof of their ability to fund the purchase. Examples would be bank statements, letters from personal financial advisors or statements of net worth. If you are purchasing with cash, please leave ample time to transfer funds to US currency and make sure that there are no restrictions in the country you are transferring funds from.

Searching for / Identifying the property: The internet and our Multiple Listing Service certainly help buyers learn the inventory and identify prospective properties. Putting together a list of priorities / features in a property that you must have, would like to have or absolutely do not want is an excellent way to begin the process. We will then review properties that may be of interest and arrange for showings of the properties. We can set-up an automatic e-mail notification system to notify you whenever new listings or price adjustments meet your parameters. In addition, you can set-up automatic notifications and scan our website, www.MauiRealEstate.com for new listings. Generally 24 to 48 hours notice is usually required for showings. If you like a property, we can arrange a second or third showing. On occasion properties are not allowed to be viewed until an offer is made.

When going to preview properties, particularly homes and condos, it is a good idea to wear “slippers”, sandals or other shoes that are easily removable, as taking off your shoes is customary practice in Hawaii.

Creating the offer: We utilize a standard purchase contract in the state of Hawaii that is created by the Hawaii Association of Realtors. There are specific addenda that may be created for certain situations such as oceanfront properties, properties were built prior to 1978 (lead based paint addendum).

The Hawaii Association of Realtors Purchase Contract is very consumer friendly. There are usually contingencies for every offer. Contingencies may include:

1. The ability to obtain financing – not necessary for cash buyers.
2. Inspection – we have a list of home inspectors who will evaluate the condition of the property to ensure that it is in the condition that it appears.
3. Termite Inspection – Usually done approximately 15 days before closing.
4. Survey – to ensure that property boundaries are where they say they are and that there are no encroachments.
5. Review of documents and homeowner’s association rules.

Prior to drawing up the offer, we will review recent comparable sales, the state of the market and your purchase goals. We then draft the offer that we believe gives you the best probability of a positive outcome. Regardless of the state of the market, it is important to put a good foot forward. This is why having a pre-approval letter from a lender or statement of net worth is important. We want to give sellers every reason to say yes to your offer. We usually ask for a response in 24 to 48 hours. One of three things happens upon submission of an offer:

1. Acceptance. Which means we begin the due diligence and closing process.
2. Rejection. Which means that the Seller did not think the offer was realistic.
3. Counter: Which is where the Seller presents a “counter-offer” to your offer with different terms and or pricing.

Like many purchases, the purchase process in Maui can be a negotiation. We approach each negotiation / deal with a different strategy based upon the situation.

With every offer there is an initial deposit or earnest money. This money is refundable while contingencies are being met. Earnest money amounts can range from a $1,000 to several hundred thousand dollars, depending on the size of the purchase. We encourage our buyers to include an amount that is aggressive yet comfortable to them as earnest money indicates a Buyer’s financial qualifications and the sincerity of their offer. With non-US buyers, it is fairly standard practice to wire the funds to the escrow company after the offer is accepted. A second deposit is usually made after the buyers complete their inspection. The amount is usually equal to or larger than the initial deposit / earnest money.

Due Diligence / Closing. Once an offer is accepted we open escrow. Escrow is a neutral third party that facilitates the paperwork for the transaction and handles the money. They follow the specific instructions agreed to by both parties in the Purchase Contract. See another one of our Blog Posts for a thorough explanation of escrow.

We create a timeline so that you will know when certain contingencies are expected to be completed. If at any point during these contingencies you decide that the property will not work for your needs, we can cancel the transaction without penalty. During the due diligence period you hire the home inspector (we have a list of good ones), review the Seller’s Real Property Disclosure Statement, review homeowner’s / condominium documents, rental contracts (if the property is a vacation rental), review the survey, the termite inspection report etc. We will help you through every step of this process and introduce you to experts in any matters that are outside of our scope of service / area of expertise. The Seller’s Real Property Disclosure Statement is a mandatory document where the Seller outlines any known defects to the property or prior repairs. It is a good idea to provide the Seller’s Disclosure Statement to the Home Inspector so that he can identify any areas where there may be problems.

Upon completion of all of the contingencies, both parties should be ready to close the transaction. The funds should be in escrow no later than 24 hours prior to closing. We usually write a 7 to 14 day extension into the Purchase Contract in case of an emergency that may lead to a delay in closing.

Anticipated expenses above and beyond the purchase price:

• Home inspection: Approx. $250 + up to $2,500 depending on the size / complexity of the property.
• Escrow costs: Approx. $500 to $3,000 depending on the size of the transaction.
• Title Insurance: Approx. $500 to $3,000 depending on the size of the transaction.
• Mgt Company Transfer Fees: $150 to $500 (condos only).
• Property Taxes: Paid 2x per year. Taxes are assessed at the value of the purchase price and are reassessed each year. Tax rates vary depending on whether your property is owner occupied (full time Hawaii Resident) or part time / investor property. Current tax rates can be found at our blog post regarding the changing taxes in 2007.
• Homeowners Insurance: Will depend on the value of the structure and replacement costs. $750 + up per year.
• Hazard (Hurricane Insurance) Insurance: This is mandatory in the state of Hawaii if you are obtaining a loan and just plain old makes good sense. $750 + Up per year.
• Homeowners Association Fees: Vary depending on the subdivision / community. Fees for the Wailea Community association are approximately $500 per year. Additional condominiums and subdivisions may have additional fees. These can range anywhere from about $50 per month in the least expensive communities to $2,000 or more in some gated communities that provide substantial amenities.
• Maintenance Fees: A mostly for condominiums. For a detailed description of maintenance fees please see a previous blog post regarding maintenance fees

One other item to note. When a non-us citizen sells a property on Maui, he / she is subject to a 15% withholding on the gross proceeds of the sale. This withholding is to ensure that appropriate US taxes are paid. We like to make sure that all of our non-US buyers are aware of this so they are not surprised many years down the road. All properties are subject to a conveyance tax payable by the Seller. Conveyance Tax information can be found at the Tax Foundation of Hawaii Website.

Owning property on Maui can be a wonderful experience. Our goal is to make the process and purchase as easy as possible for you.

This is by no means meant to be a complete guide to purchasing on Maui, but it should give you an idea of how to purchase property in the United States. It is extremely important to consult with tax and legal professionals in your country regarding the implications of purchasing property in the US and of course, feel free to ask us any questions also. If we don’t have the answers…We will help you find them!