If you’re buying or selling real estate in Hawaii, you’re going to encounter the Hawaii Association of Realtors Standard Form, which was most recently updated in May of 2022. The Hawaii purchase contract is 14 pages long and has 20 separate sections that are labeled with the letters A-T. Each section covers a different working element of the contract and they all collectively establish the terms of the deal, price, any and all contingencies for the sale, and the parties involved. As you can probably imagine, buying property on Maui has a few nuances as does our purchase contract. In this article, I’m going to take a look at each section from A-T and explain the purposes and nuances of each section individually. A real estate purchase contract is essentially a road map to transferring the ownership of a given property from its current owner to its new owner.
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Every deal is different and it's important to take into consideration several variables such as buyer competition, seller’s timeline needs, property condition, and more when writing an offer for a buyer or choosing between offers as a seller. Most buyers and sellers depend on their Realtor to know the Hawaii purchase contract for them, often signing without going through it word by word. However, I think it's critical for all buyers and sellers to know the contract through and through themselves. It's paramount to me that all of my clients understand exactly what they are agreeing to before we open escrow. We take a fiduciary responsibility to our clients and I consider contract expertise to be a big part of that. While buyers extend the purchase contract to sellers, it’s just as important for sellers to comb through the contract when selling their Maui home or condo and make sure there aren’t any terms or items that they will need to amend in a potential counteroffer.
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This is one of the simplest sections of the contract. In Section A, we have two sub-sections, A-1 and A-2. A-1 defines the roles of each Seller’s Agent, Buyer’s Agent, Dual Agent, or if the buyer or seller is not using an agency for representation. An agency in this instance is the brokerage that is representing each party. If the same brokerage or agent is representing both the buyer and seller then the agency is a Dual Agent. Dual Agency requires a separate disclosure and consent form from the clients. Here on Maui, it's common for dual agency to exist in the contract, especially at my brokerage, Coldwell Banker Island Properties, as we have the largest number of agents and represent the largest group of clients on the island. In Dual Agency, whether the agent represents both buyer and seller or two agents in the same brokerage represent the buyer and seller respectively, it’s important for the agents to maintain their fiduciary duties to their clients individually. In practice, this means that the agents do not disclose anything to any other party that the clients do not want to be disclosed, most often this is the price they are willing to accept in a negotiation. It’s important for dual agents not to discuss price verbally, but to let the contracts do the talking. A real estate agent's role is to coordinate the conversation between buyer and seller via the contract, not to verbally represent the positions of the buyer or seller to the other parties.
This section specifies how the buyer will deliver the initial earnest money deposit. There are only three ways to choose from; the buyer’s agent can deliver a check from the buyer to escrow the day after acceptance of the contract, the buyer can deliver their own check to escrow by the next business day after acceptance, or, and most commonly used here on Maui, the buyer shall wire the initial earnest money deposit within X amount of business days after acceptance. We usually write 3 days in there to give the buyer time to coordinate the wire transfer and for it to be received. Escrow will send the buyer wiring instructions right after opening escrow if this is selected.
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Here the offer to purchase from the buyer establishes a deadline for a response from the seller via C-1. If the offer is accepted by the seller before the specified day/time that the contract will become binding. Sometimes the seller accepts after the deadline and this is cleaned up with an amendment that extends the response time.
The purchase price itself is broken down into the specific amounts for the earnest money deposits, how much cash will be used in the purchase, and what other methods of funding will be used such as financing, proceeds from a 1031 exchange, or proceeds from the sale of another property without a 1031 exchange. Here the down payment amount is specified on a financed offer and the amount of the down payment can be important to a seller as a very low down payment might give them concerns that the financing will go through with such a high loan-to-value ratio. In some instances, a seller may be willing to offer seller financing and then the buyer would use a purchase money mortgage.
As everyone knows, cash offers are always the strongest. But, financed offers can be selected over cash offers, even if the price is the same, based on other terms in the contract and what the buyer might be willing to waive such as the inspection contingency. The money
The difference between an addendum and an amendment is something that I see commonly confusing other agents and clients alike. An ADDendum is anything ADDed to the contract, where an amendment is used when something in the original contract needs to be changed/amended. Our most common addenda in Hawaii are the As-Is addendum, 1031 exchange, Dual Agency disclosure as previously discussed, and the lead-based paint disclosure for all properties built before 1976.
It’s important to note that the Hawaii real estate purchase contract is by nature an as-is contract. This means that sellers are never required by the contract to make repairs or improvements to the property after anything a buyer might discover during their inspection. Adding the as-is addendum can strengthen an offer as a way for the buyer to indicate they don’t intend to make requests for repairs or credits, but it does not expressly prevent them from doing so.
I have had clients who purchased with the as-is addendum added to the contract who made a large discovery (a roof issue) during the inspection that had been unknown to the seller and was still able to negotiate a credit for the repair. The only way you forfeit the ability to request repairs or credits is to waive the J-1 inspection contingency which I will discuss in a few more sections.
Under the “Property” section of the contract, the property itself is legally identified with the tax map key and a written description of the property. Along with that, all of the inclusions of the property are identified. These are things like appliances and fixtures that will or will not be included in the sale. If a solar power or PV system is included in the sale, it will be written in this section.
Above and beyond those items, this section will also identify if the property is being sold furnished and how that list of furnishings will be delivered by the seller and when that will need to be approved by the buyer. Lastly, exclusions will cover any items that are currently in the home that are specifically not included in the sale.
