Maui Real Estate Blog
Mortgage Rates and Treasury Bonds
Three months into the year and interest rates continue to fluctuate. In January it seemed like rates were heading downward steadily. February saw an increase in rates. The banking crisis earlier this month caused rates to adjust downward again. Last year, there was a lot of ink spilled and key strokes dedicated to predicting rates. Most predictions proved to be wrong. At this point, prognostication on rates seems like a fool’s errand. That said, I wanted to talk about one of the better bellwethers for mortgage rates, the ten year treasury bond.
In the financial world, a bellwether is an indicator of something bigger. For the bond market, the ten-year Treasury bond is the go-to indicator of how things are going. When investors are feeling good about the economy, they tend to buy more bonds, which drives down the yield (i.e., interest rate) on the ten-year Treasury bond. Conversely, when things are looking a bit shaky, investors tend to flock to the safety of Treasury bonds, which drives up the yield.
So, what does all of this have to do with mortgage rates? Well, the yield on the ten-year Treasury bond is a key indicator of where mortgage rates are headed. When the yield on the ten-year Treasury bond goes up, so do mortgage rates. When the yield goes down, mortgage rates tend to follow suit.
Think of it like a game of follow the leader, but with money. When the leader (the ten-year Treasury bond) goes up, the followers (mortgage rates) try to keep up. And when the leader goes down, the followers slow down too.
What Does This Mean for Buyers?
Consider this as more of how does this work vs a how to post. I’ve read in some places that following the ten year treasury closely may give buyers a sense of when to lock their mortgage rate. I have to say, I am a little skeptical about that. While the two are closely correlated, there may not be enough lag between the change in treasury bond yields and the change in mortgage rates. It’s a pretty busy world out there and unless you work in finance, you also may not have the time to closely monitor treasuries. This is where I would lean on a knowledgeable mortgage professional rather than tracking things yourself. Let your mortgage professional give you guidance on when to lock your rate.
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Maui Real Estate Blog
What The FAQ is a Residential Condo?
If you browse through enough home or land listings on Maui, you may encounter some terms that may leave you scratching your head. Words like residential condominium, condominium home or CPR seem out of place when it comes to home and land listings. That said, these aren’t typos. Residential Condominiums are an increasingly popular form of ownership. This post attempts to define residential condos and answer some of the most frequently asked questions we receive from prospective residential condo buyers.
Frequently Asked Questions on Maui Residential Condos
What exactly is a residential condo?
I think it is safe to say that most understand how condos work in an apartment building setting. At a basic level, Residential condos takes the same principles and apply them to land that is zoned to allow multiple structures. For example, zoning rules for an agriculturally zoned lot allow the potential for a main house and a cottage. With the residential condo process, the main house and a surrounding area of land becomes one unit of the condo. The cottage and a surrounding area of land becomes the other unit of the condo.
I have seen the term CPR before in listing remarks. What does that mean?
CPR is not just an abbreviation for cardio pulmonary resuscitation. In a Hawaii real estate context, it is an abbreviation for Condominium Property Regime. The CPR process is how condominium homes are created. A CPR is the legal mechanism where a single property can be divided into two separate units of ownership. Each unit of ownership has its own deed, it may have its own mortgage and it has its own Tax Map Key.
How does a CPR process differ from a subdivision?
A CPR is not the same as a subdivision. The CPR process takes one property and divides it into two or more separate units of ownership. The process does not create additional entitlements to build more structures. For example, if you subdivided a five acre piece of agricultural land into to two lots, each lot would then have the potential for a home and a cottage. If the same five acre parcel were to go through the CPR process, one unit might have the rights to build a main house and the other unit may have the rights to the ohana unit.
Do I Own the Underlying Land with a Residential Condo?
The owners of the condominum units collectively own the underlying land. That said, limited common elements may be designated for the exclusive use of each unit. Exclusive is the key term. That means your partner in the condo can’t just meander into your yard area when they see fit.
Do Residential Condos have Common Elements?
Sometimes. The most frequent common elements relate to water and access. Two or more condos will sometimes share a single water meter. Two or more units might share a driveway or a portion of a driveway. In some cases, they may share both. Some residential condo properties on island have an area of common land shared by all of the different condo owners. There are some condo developments on island where almost all of the property is considered to be common element. In those cases, each unit may have a very small limited common element around the structure.
Do Residential Condos have Maintenance fees?
It is typical to have a nominal maintenance fee. Most frequently, the fee goes towards liability insurance for any common areas and the maintenance and maintenance reserves for those common areas. The larger and more elaborate the common area, the higher the fee. If there is nothing shared between the units of a condo, there may be no fee at all.
Are There More Rules with Residential Condos than a conventional home?
That depends on the intention of the people who created the condo. Some condo associations impose rules above and beyond county zoning. That said, most of the residential condo bylaws create no additional rules or regulations above and beyond county code.
Can any property go through the CPR process?
Some homeowners associations restrict CPR properties. For properties with existing structures, all homes need to go through miscellaneous inspections with the county. The structures need to comply with county zoning with all necessary permits in place. If the improvements on the property aren’t fully permitted, that could delay or prohibit the CPR process.
Is there a difference between a CPR property that is vacant land and a CPR property that has homes?
At a base level, they are similar. It is the same general process. I know some attorneys believe that CPRing raw land (sometimes called a spatial CPR) carries a little more risk. The risk is that one unit owner’s construction efforts could impact the construction efforts of the other unit owner. An owner who builds too much home or uses too many water fixtures could limit the plans of the other owner.
Typically, units of land sold as CPRs come with defined entitlements. Again, I will use an agricultural lot as an example. One unit of land receives entitlements to build a main house. The other unit of land receives entitlements to build an ohana of 1,000 square feet or less. If the ohana unit owner were to build first, and to build a structure larger than 1,000 square feet of living space, the owner of the main house unit may find themselves in a situation where they aren’t able to build over 1,000 square feet.
There is also some risk if the two unit owners share a county water meter. If the first person to build goes a little overboard with the number of plumbing fixtures for their unit, it could leave the other owner with fewer fixtures than anticipated.
I know of just one circumstance where the ohana side of the CPR overbuilt. I haven’t heard first hand of any issues with someone hogging all of the water fixtures. That said, I want to help illuminate potential risks even if they aren’t likely to occur. Condo documents should spell out the entitlements available to each unit. They should also offer some means to mitigate against the above risks. If there are any questions about the documents, hire a Hawaii Real Estate attorney to assist with document review.
Is there anything else I should know about the process of buying a residential condo?
There are a couple of things to note. If it is the first time the condo is being sold, the buyer has a 30 day rescission period. Not all attorneys are equal when it comes to the creation of condominium documents. More specifically, some do a great job and others write confusing documents with too many loop holes and ambiguities. Repeating the advice from the question above, it is worth the investment to hire a qualified Hawaii Real Estate attorney to review the condo documents. They can answer the legal questions about the condo documents that are outside the scope of your Realtor’s services.
Why do people choose to CPR a property?
There are a number of reasons why people choose to condo.
- Statistics show that the CPR process creates equity. The sum of selling the units of a CPR minus the cost of the CPR exceeds the value of a whole property that has not been through the CPR process.
- Not everyone wants or needs all of the building entitlements that come with a property. Some don’t want or need an ohana on their property.
- The units of a CPR tend to create more affordable options for buyers.
- CPRs allow for the split of a property in a tenants in common situation or among family members.
- It does not typically require the improvements necessary for a subdivision.
- It is typically faster than the subdivision process.
Are there any downsides to CPRing a property?
- We mentioned the potential risk with a spatial CPR above.
- The CPR process requires some sort of ongoing relationship between unit owners.
- There is the potential for shared liability with building or zoning violations. The County could attribute the violation to the whole property instead of citing just the specific unit.
- Taxes could go up on the property if you retain both units. This is particularly the case if you have a homeowner tax assessment.
Hopefully, this answers some of our reader’s questions on CPRs. Special thanks to Jacob Wormser, Attorney at Law. His letter to prospective condominium clients helped clarify some of my own questions on the CPR process. Still have questions? Contact the Maui Real Estate Team and we will do our best to provide answers or direct you to the right resources if we can’t do it ourselves.
Published August 13, 2019
Maui Real Estate Blog
Canadian / English (Hawaiian) Real Estate Glossary
Hawaii Real Estate Terms and Their Canadian Equivalents
With relative strength of the Canadian economy and the Loonie, we continue to enjoy working with a substantial number of Canadian Buyers and Sellers. Canadians and Americans usually become fast friends. We share a border, similar values and for the most part we speak the same language. However, there are some differences in terminology and process when it comes to real estate transactions.
I wrote a previous blog post that served as A Primer for International Buyers. In this post we are going to specifically focus on some of the different terms used in some provinces of Canada and what they translate to here in Hawaii. We understand that condominium and real estate laws do vary by province and we are by no means Canadian real estate experts, but we do hope that this may help shed some light on the differences in real estate terminology. Without further ado:
|Canadian Term||Maui Equivalent|
|Strata Fees||Maintenance Fees|
Aside from these minor differences in the terminology, there are also differences in the purchase process as explained in the Primer for International Buyers.
To highlight a few of those differences:
- Buyers usually take a minimum of 10 to 14 days to remove their inspection contingencies (subjects) via the use of professional property inspections which may include home, pool, mold and other inspections if necessary. We know the best inspectors on Maui and can coordinate the inspection process for you. There are no laws in the Hawaii that prevent a Seller from transferring a property that is not up to code or that has defects. In other words, it is a Seller’s legal obligation to disclose these, but not necessarily fix them. This can become a negotiating point during the escrow process. If a Seller asks a Buyer to sign an “as-is” addendum, this is a statement that the Seller is unwilling to make any improvements to the property.
- Financing in the US is often done via fixed rate mortgages that amortize over a period of 30 years. Many Canadians opt to use their own financing from Canada for US properties, however, if you decide to finance here on Maui, we have lenders with years of experience helping our many Canadian clients obtain loans. Note that they will most likely require 35% down payment and full income documentation for at least two years. The documents needed include T-1’s, T-4’s, corporation and business returns, and current pay stubs.
- Signing documents. Some documents will have to be notarized by a US notary. The instructions will likely direct you to do the signing at the US Embassy. That will likely require scheduling an appointment and can be time consuming. If you live close enough, it may be easier to make the drive across the border to a US Notary.
- Closing. Many of our Canadian buyers have already returned home prior to closing. Once appropriate documents are signed, notarized and returned to escrow, closing takes place two days after all funds are received.
- Utilities. We’ll provide you with the appropriate phone numbers to change all utilities into your name including electric, telephone, liquid propane, cable, alarm and any other services. It is often customary for Maui Electric and some of the other utilities to require security deposits for Buyers just establishing credit in Hawaii.
Finally, if you’re still reading this post, we think that you ought to choose a Realtor with at least a modicum of understanding of Canadian Culture and perhaps a bit of a sense of humor. To that end, we recommend that you screen your prospective Realtors with The Following Test.
Maui Real Estate Blog
The New Hawaii Purchase Contract and its impact on Buyers and Sellers
The new Hawaii Association of Realtors purchase contract that goes into effect on May 1, 2012 is dramatically different than the current purchase contract. The new purchase contract is meant to flow and read more naturally; groups like contingencies and provisions together; and more clearly defines roles, responsibilities, time frames and obligations of Buyers, Sellers and their Realtors.
I would imagine that the first 30 to 60 days after implementation will involve some back and forth between brokerages as we adapt to the new purchase contracts. The Maui Real Estate Team is taking a proactive approach to understanding how the new purchase contract impacts Buyers and Sellers by taking the following actions:
- Attending the Realtors Association of Maui training session the other day.
- Discussing the implications of the new purchase contract with our corporate attorney.
- Spending several hours this weekend analyzing the changes.
- We will have a company meeting / training session regarding the new purchase contract.
- We will create a Buyer’s Guide to the New Hawaii Purchase Contract and a Seller’s Guide to the New Hawaii Purchase Contract which will be available to registered users of The Maui Real Estate Team’s website in the next 30 days.
As with any document that has undergone a major revision/ re-write, the new document isn’t perfect. In fact, in some ways it is more complex and requires more written communications between Realtors, Buyers and Sellers. The new Hawaii Purchase Contract requires Sellers to be more organized and diligent in their approach to selling their Maui properties. For instance, upon closing, under the “cleaning clause”, carpets are now designated as needing to be professionally cleaned. An odd addition, but one to be aware of. Did someone on the purchase contract committee have a cousin in the carpet cleaning business?
As for Buyers there are potentially additional “Buyer safeguards”, some of which require intimate knowledge of the new purchase contract. However, there are also different “options” for cash transactions which need to be carefully handled. There is also the mention of several types of resources that Buyers should use whenever purchasing a home, condo or land on Maui. We are in the process of updating our list of resources.
If you are thinking of buying or selling Maui property at this time, please consider contacting The Maui Real Estate Team for a free consultation regarding how the new Hawaii Purchase Contract will impact your purchase or sale. Our experience and insights will help you minimize headaches and surprises and help you execute your real estate transaction without a hitch.
Maui Real Estate Blog
Assessed Value versus Appraised Value versus Market Value
(NOTE: This turned into a longer blog post than originally intended…and could have been longer. It is a complex subject, that deserves a lot of attention).
People often ask us what is my home, condo or land worth? After all, we are supposed to be the experts…right! This is a tricky question for several reasons, one of which is that there are so many definitions of value. The advent of AVM’s (automated valuation methods) has added to the complexity of this answer. Most fundamentally, real estate is difficult to value because it is not considered a “liquid asset”.
In order to address the question “What is my home worth?” properly, it is a good idea to understand the definition of the many different ways properties may be valued. Here are a few of the terms you will hear and a little about each of them.
– Appraised Value – The appraised value of a property on Maui (assuming we are talking about a single family home, piece of vacant land or condominium) is the unbiased value according to a qualified appraiser after a site visit and thorough analysis based on property facts, analysis and market trends. Although I am not not an licensed appraiser, my understanding is that a professional appraiser utilizes a formula that includes a combination of the cost approach and a sales comparison (or comparable sales) approach to determine the Appraised Value. There is a third component used in commercial and investment properties called the income approach which utilizes Net Operating Income or NOI and return to establish the value.
Appraisals are a fair and often very accurate way to get an understanding of the value of a property. Unfortunately, appraisers cannot capture some of the intangibles that improve the value of a home / property. Appraisers are also biased by trends and external pressures. Many appraisers now are being extremely conservative with their appraisals since they were blamed as co-conspirators in the housing bubble. It is unfair to assign blame to appraisers for the housing bust. Suffice it to say that there are honest appraisers and dishonest appraisers just like in every business / profession whether it be real estate, lending, law, medicine, finance etc.
– Assessed Value – Here is fairly generic definition of Assessed Value followed by definition by Maui County. Assessed Value is the dollar value of real property assigned by a public tax assessor for the purpose of taxation. In Maui, according to the official County of Maui website, assessed values are defined as “100% of fee simple market value using the cost and market approaches to value.”
People often confuse the Assessed Value of their property with the Appraised Value. Appraised Value and Assessed Value are very different animals, or as we say on Maui, Pineapples and Mangoes. Assessed Value is a number we see as property owners at least once per year, approximately March 15 on Maui. One would think that it is an accurate number since it is used as a basis for taxation. The theory sounds great, however, I have seen a lot of extremely poorly assessed properties on Maui. Furthermore, Assessed values tend to greatly lag the market (good during good times and bad during bad times). I would use Assessed Value as a benchmark or a data point, but never anything more.
– Automated Valuation Method – Unless you have been living under a rock (or on a rock if you live on Maui) you’ve probably heard of Zillow. Zillow is website which uses a proprietary algorithm to provide an automated calculation of the value of a property. That calculated value is called a “Zestimate”. I have seen some really bad “Zestimates” on Maui (35% error) and some fairly accurate ones. There are a few other sites that provide a similar service. AVM’s are controversial in that they may work fairly well in a homogeneous neighborhood or condominium complex, but they cannot address the fact that no two properties are alike, and cannot provide the context that a human expert such as an appraiser or real estate professional can provide.
– Market Value – The intersection of the highest price a buyer is willing to pay and the lowest price a seller is willing to accept. With substantially tighter lending and appraisal guidelines these days, appraised value comes into play. Unless the transaction is a cash purchase or has an extremely large down payment, the appraised value and market value are going to have to match.
So what’s your home worth? If I had to choose between the first three methodologies, and had the available funds, I would certainly choose Appraised Value. In addition, I would seek the opinion of an experienced, licensed real estate profession to obtain a Broker’s Price Opinion / Comparative Market Analysis. When I am given such an assignment, I utilize all of the tools at my disposal to help determine the Market Value, including using the three aforementioned methods, my local knowledge and business experience. At the end of the day, the answer is best determined by the market.
Please contact me or any of The Maui Real Estate Team professionals if we can help you answer this question or you would like to discuss anything else related to the Maui Real Estate market.
Maui Real Estate Blog
New Real Estate Terminology?
The housing crisis and economy have introduced quite a few new “words” and terms to the English language. Yet another has emerged in the past few weeks of the foreclosure debacle. “Robo-Signer”. I don’t think there is a Wikipedia entry for it yet…but I’m sure there will be. After a little research, the earliest mention I could find of the term was January 29, 2010, on Matt Weidner’s Blog. Matt is a foreclosure defense attorney located in Pennsylvania.
I am not sure if Mr. Weidner coined the term, but here’s my definition of a Robo-Signer. A Robo-Signer is a bank or mortgage company employee who signed an extraordinarily large number of foreclosure documents over a short time. Simple math (no calculator necessary) demonstrates that there is no way humanly possible that these employees were able to review these foreclosure documents with the amount legal care and diligence required. The slew of lawsuits and the foreclosure moratorium are the off-spring of these Robo-Signers.
No one is really sure whether the fallout from these Robo-Signers will hurt or help the economy. I’m pretty certain, some attorneys will cash in…but other than that, who knows how this will all unfold.