Nothing is more American than the spirit of self-reliance but trying to quarterback the largest transaction of your life can actually find you throwing passes right into the hands of the opposing team. Statistics show that you can cost yourself time, effort and certainly money by attempting to do so. The majority of homes sold are still listed with an agent, especially here in Hawaii. With so many buyers from off-island, it’s unrealistic to believe buyers have time, patience or motivation to drive miles and miles of roads scouting “For Sale” signs. With a limited amount of time in which to conclude their purchase, they want to make wise use of their time. After one disappointing experience visiting a home listed in the newspaper or viewed on the owner’s web site, most buyers flock right back to an agent. Motivation alone should leave buyers and sellers with serious doubts about proceeding without professional assistance. Sellers normally desire to “save” the commission or worse, they may be attempting to hide defects or get around State owner-builder regulations. Buyers are looking for sellers representing themselves because they generally feel it’s a good way to get bargain basement pricing. They are looking for a “deal”. In other words, there is simply no common ground from which to achieve a “meeting of the minds”. Sellers normally find themselves wasting precious marketing time placing ineffective advertising and showing the home to unqualified buyers. Interested buyers usually find themselves unable to interact honestly with a seller about their property or are so unsure of themselves they back away. So, if getting across the “sold” line is your goal, hire a professional quarterback. Just like they big guys, we’re extremely motivated for you to win in the biggest of all financial transactions!
2011: How We Fared...Should Be Scared??
by Denise S. Nakanishi, R
Area # Sales Med Sold Price Active Under contract/
2010/2011(D*) 2010/2011/ (D*) End 2010/2011/ (D*) med $/ (D*)
South Hilo
202/194/58
270000/257500/199500
183/175/21
40/264000/14
Haw’n Paradise Park
151/148/61
198000/190000/157500
103/103/35
26/154556/15
Ainaloa
52/34/10
124450/112250/115000
32/29/11
9/87500/5
Leilani Estates
36/21/11
165497/185000/132500
17/21/5
5/79500/4
Nanawale
27/18/5
71500/70000/85100
21/18/5
5/89000/4
Mauna Loa Est, Ohia,
Royal Hwn Est
20/22/14
139000/114966/105767
32/27/5
5/148034/3
Pacific Paradise Gardens
8/2/1
118950/149450/138900
4/7/2
3/164500/2
While activity this past year certainly felt stronger than 2010, the statistics don’t seem to support much improvement in some of our East Hawaii neighborhoods. Overall sales on Hawaii Island were up over 7% as 1619 homes changed hands. Land sales increased an unexpected 15.66% as over 1100 parcels sold. The median price of Big Island homes decreased 5% to $247,000 while land parcels fetched a median price of $24,900, a decline of 12.6% over the previous year. Puna residential sales declined around 3% but land sales increased over 12%. Sales of S. Hilo homes also slowed slightly (4%) but land sales went up 27%. Land prices increased 18%. Even N. Hilo vacant land showed a bump of 11.3% in pricing and 57% in activity. Each column on the attached chart (except the last) compares 2010/2011 followed by data related to distressed sales (D*). Distressed properties for sale in Hilo currently account for only 12% of the homes for sale. Hawaiian Paradise Park is affected to the tune of 34%. Areas which have been slow for several years seem to be coming to life (Volcano subdivisions) while other neighborhoods (Nanawale) appear to be healing as the number of distressed properties seems to be on the decline. The bump in vacant land transactions could indicate that buyers aren’t finding what they want in existing inventory or it could just mean that buyers are finding great investment opportunities in vacant land. Most buyers I’ve worked recently with feel prices have gone about as low as they are going to go. If recent reports regarding the positive effects of Act 48 are correct, we should see the number of distressed properties decline. I’m not convinced they will. While I fully endorse the oversight created by Act 48, I believe lenders have moved non-judicial foreclosures to a lengthier judicial process. It has likely only delayed many foreclosures. Many Hawaii buyers are buyers of opportunity. They visit, make a buying decision from among current inventory and leave. This means that inventory is absorbed at a consistent pace so there’s a good chance delayed effects of Act 48, if any, will not severely impact our recovery. Over the next few weeks, we’ll talk about new and improved loan modification rules and how they are severely prejudiced against self-employed individuals including most small business owners. And don’t forget, if you don’t see information about your neighborhood here, just go to www.hawaiianrealty.com to sign up for a personalized “Market Snapshot”! And have no fear, our market really is feeling much better
A Gift For You…and Your Neighbor, Too!
by Denise S. Nakanishi, R
Tired of getting your market updates through the “coconut wireless”? Do you have the feeling that reports from the neighbor regarding houses selling for “big bucks” may not be completely accurate? If so, you should probably trust your instincts because not since the early 90s have buyers arrived with briefcases full of cash ready to pay whatever takes to buy a property. In fact, today’s sales are all market rate….. or below. Truth is, that even during the height of the market during the last decade, prices were somewhat tempered by a buyer’s hope of flipping a house in order to turn a quick profit which all makes relying on the “coconut wireless” a very poor plan. Here’s the thing. While market data is available on-line, finding it requires both time and a specific address. There is really no way for the public to research entire neighborhoods and besides, like foreclosure information, data can be inaccurate. Those interested in getting reliable information covering an entire Big Island neighborhood without spending hours in front of the computer should know that Team Nakanishi is happy to offer every homeowner on Hawaii Island the opportunity to be kept up-to-date regarding residential real estate information. This service is free and certainly without obligation or solicitation to use our services. In fact, even if you have an established relationship with another agent, we are happy to have you participate. Whether you are thinking of selling, trying to time the market, want to know what’s for sale in a specific neighborhood, interested in recent sales or just want to keep up with the market, you are welcome to register. Yep, whatever your motivation, Team Nakanishi will happily deliver the information directly to your computer free of charge. Not only will it save you time sifting through questionable on-line resources but there’s no longer a need to feel guilty about calling an agent when you need to verify what’s really going on. In fact, one of the great features of our market update is that you don’t even need to call to sign up. We firmly believe that information is power and when it comes to your own neighborhood, information can be critical. Getting started is simple. Just go to www.hawaiianrealty.com and click on the widget that says “Market Snapshot”. Enter basic information regarding your report preferences and start receiving the information automatically. You can also email us at teamnakanishi@hawaiianrealty.com or give us a call at 969-7863 • 1-800-789-4753. Whatever is easiest for you is fine with us. Unfortunately, we only have automated information regarding residential transactions at this time but those wishing to receive vacant land updates can email us and we’ll update you manually from time-to-time. It’s our way of saying Mele Kalikimaka by keeping everyone on Hawaii Island up-to-date when it comes to real estate! Merry Christmas Everybody!
The Ghost of Christmas Past
by Denise S. Nakanishi, R
Christmas in Hawaii is like no other place. Santa sports a permanent tan, often wears shorts with rubber slippers and has been known to arrive in a canoe. Those celebrating a white Christmas are probably enjoying snow that was brought from Mauna Kea in the back of a pick-up truck . Seems to me if one were searching for the world’s foremost authority on real estate, Santa would be the man! He’d know that, even on Hawaii Island, all real estate is local….very local, in fact. With snow on the mountain and beach weather below, there can be “major differences” between one neighborhood and the next. A snapshot of activity over the past decade provides an historical perspective on our East Hawaii markets. Obviously, 2011 has not ended so the numbers for this year are based on a mathematical predication using the first 11 months of the year. December is normally very strong so I expect these numbers to end higher.
Area
2001
units
2001
Med $
2005
units
2005
Med $
2009
Units
2009
Med $
2010
Units
2010
Med$
2011
units
2011 Med$
Entire Island Residential
1652
185000
2756
370000
1246
275000
1365
258850
1603
240000
Entire Island Land
1911
15500
6438
45000
907
30000
869
29000
948
25000
Entire Island Condo
569
242500
1166
399250
328
299000
459
275000
583
225900
Puna Residential
361
86000
931
245000
443
175000
473
162500
516
140000
Puna Vacant Land
929
9000
4199
39500
570
23000
544
23000
641
20000
S Hilo Residential
288
140000
423
325000
171
267500
181
261500
187
245000
S. Hilo Vacant Land
147
85000
231
185000
55
164000
41
160000
62
195000
S. Hilo Condo
65
70000
185
117500
50
82500
32
90000
46
86013
N. Hilo Res
12
147500
22
392500
12
444000
9
427500
16
260000
N. Hilo Land
29
100000
52
185000
17
182000
7
265000
11
297500
Hamakua Res
30
172250
60
409500
18
294500
27
275000
35
253000
Hamakua Land
35
135000
42
346000
17
260000
14
225000
15
252500
This walk down memory lane offers a few surprises. Interestingly, current sales numbers look very similar to those of a decade ago which was considered a very even market ( favored neither buyers nor sellers). And even though prices are still far below the 2006 peak, we’d only need to travel back to 2004 to find property selling for about what buyers are currently willing to pay. Foreclosures continue to influence our market and will likely do so for at least another year. We are fortunate to have a highly coveted product in Hawaii real estate. This continues to make market rate sales still quite common. As we enter the Christmas selling season, buyers should expect that sellers aren’t testing the market at the moment. Those listed are serious about selling and have priced accordingly. Realistic pricing (considered to have leveled) coupled with historically low interest rates, means there’s no reason buyers should allow another Christmas to pass without a new home for next year’s tree. So, this holiday season, take time to join Santa and your favorite REALTOR® in examining our local real estate. Don’t let the missed opportunities of 2011 become just another Ghost of Christmas Past!
by Denise S Nakanishi, R,CRS, ABR, GRI
Customary and Traditional Hawaiian Rights
I recently read about an agent who specializes in sales of lakefront property. He mentions consideration of water depth, shallow spots, idle zones, channels and big water views as things buyers and sellers in his market should consider. I have to be honest, even though I grew up on a huge river, I’d never heard of some of these issues. I found myself thinking how lucky his clients are that their agent knows the area well. Of course, on Hawaii Island, we have quirky issues like catchment, SSPP participation, lava tubes, lava zones, tsunami evacuation / inundation areas, and special management areas to name a few. These are actually fairly straight forward, easy to understand issues. Unfortunately, the issue of “Customary and Traditional Hawaiian Rights” isn’t quite so simple to explain. In fact, without an astute agent, the issue sometimes slips in as an exception to the title insurance coverage. Native rights have two sources. One emanates from the original grant and is therefore contained in the original chain of title. This type reservation is almost impossible to remove. The other type is a reservation established by law and by the Hawaii Supreme Court Decision** commonly referred to as PASH. In a nutshell, these reservations mean that individuals of Hawaiian ancestry (and possibly others) who have traditionally entered and used the property for customary and traditional practices may have the right to continue doing so. Traditional practices are generally for subsistence, gathering, access (for instance, to gravesites) and for cultural and/or religious purposes. The list and interpretations is fairly broad, however, the right to enter the property of others is rarely exercised because establishing historical use really isn’t so simple. Properties subject to PASH, in fact, have a limitation to “undeveloped” and “underdeveloped” parcels. In East Hawaii, we most commonly see these exceptions North of Hilo and most commonly on larger pieces of land. This is not universally true. I have seen the exception even on a residential property. While the reservation may never become a practical problem, it’s often an issue with lenders. Some title companies will “insure over” the exception. This basically means that they will issue the title insurance policy but if they will not cover claims related to the omitted issue. PASH reservations are sometimes removed by providing proof to the title insurer that there are no archeological, graves or historical sites on the property. Other considerations would be the existence of physical features such as streams, trails, gulches or fish ponds included on maps or historical documents. The proximity to ceded lands, the ocean, heiau/other archeological sites and a determination of development status of the property are other considerations. Title companies use various methods for determining if an exception can be removed. For those considering a purchase (especially) along the Hamakua Coast, it’s a good idea to ask the seller’s agent for a preliminary title report from the git-go. In the meantime, I assure you that I won’t be buying property on Morse Lake without REALTOR® Andy Sheets who specializes in that area. After all, hiring a local expert really provides the best insurance against making your best buying and selling decisions.
When The Water Flows!
by Denise S. Nakanishi, R
When Gilligan and gang landed the SS Minnow on that tropical island, flooding may not have been their chief concern even though they were certainly prime candidates for dangerous and violent forms of flooding found in costal zones. Finding insurance in the so called “V” or “Velocity” zones may be a bit complicated and sometimes costly especially when there are obstructions or rooms on the lower level. Most would be surprised to learn that local REALTORS® don’t deal with flood zones that often. Truth is, neither do many insurance agents. Determining the flood zone is pretty simple. Here on the Big Island, a call to Public Works with the Tax Map Key (TMK) number is all it takes (or check on-line athttp://gis.hawaiinfip.org/fhat/) . Should the Powell’s, Ginger, The Skipper and friends decide to make their stay permanent, there are a couple of things that they should know. Recently updated FEMA flood maps make it critical that their REALTOR® request a “C42” survey showing all improvements on the property along with the elevation certificate in their purchase contract. Elevation certificates indicate the base flood elevation and the height at which the bottom floor of the improvement (the house) is located. These apply to any property in any flood zone. Inland properties affected by flood zones have designations beginning with the letter “A”. Water sources in flood zones “A” originate from ponds, streams or other run-off. If the “V” and “A” designations are followed by another letter, it’s an indication that additional analysis has been done to determine flood source and frequency. Property in “B”, “C”, or “X” zones are generally not considered at risk for flooding and do not require flood insurance. Although I have never seen property designated “B” or “C” on the Big Island, there are certainly properties in zone “X”. As misleading as it seems, an “X” designation means that it’s not a flood zone. Most, if not all of Puna is in zone “X”. Interestingly, Puna (and Kona) map updates have not been completed. Anyone living off Pohaku Drive near 39th, on parts of 40th and in many parts of Hawaiian Acres can attest that flooding certainly occurs. Expect changes. The same is true for coastal areas. Down-slope property owners near new subdivisions should be aware that chances of surface run-off and flooding change with development. Some homeowner’s policies do not cover general water damage. Even though the crew of the SS Minnow may not need to worry about a dishwasher, washing machine or hot water heater overflowing, these things might be an issue for the average homeowner. Don’t assume you are covered. Here on the Big Island, we are acutely aware that water always goes where it wants to go. Remember, flood policies are not effective during the first 30 days. Ask you real estate “Professor” what issues might pertain to your purchase. After all, as Gilligan and friends discovered, being stranded on a desert isle can be a wonderful thing as long as you plan for the worst and enjoy the rest!
by Denise S Nakanishi, R,CRS, ABR, GRI
Every Picture Tells A Story!
Note to agent: “Sorry the house isn’t exactly ready for photos. My kids had 2 soccer games and 3 parties to attend over the week-end. Too much to do! I’m sure the buyers will understand. After all, we are selling the house, not the stuff, right? ” or, in the alternative, “This is a short sale so why should I care how the photos look? I’m not making anything”. Response to seller: “Dear Mr. & Mrs. Seller, Here’s the thing. If you don’t care about how your home looks, why should I? I’ll just take the photos with the toilet seats up and junk piled everywhere; you know, kind of an “ HGTV Gone Wild” photo album. But before I broadcast your son’s BBDs and your dirty dishes world-wide, there are a few things you’ll want to consider. The market is hugely competitive. Your house should look like a magazine because, trust me, the competition will. Over 90% (almost all) buyers choose the homes they want to view by looking on-line. They enlarge photos and study each one. They learn the smallest details just from the photos. So the question is this; how are they going to study details if they can’t see them? Dear Mr. and Mrs. Seller, you are right about one thing. The buyer will understand. They’ll understand that you are unrealistic and unmotivated about selling. They’ll assume distress or problems with the property. They’ll be looking for problems. For instance, you know that small stain on the kitchen ceiling. Yep, I know you repaired the leak; the buyer doesn’t. I can put a note in the listing but even if the buyer reads it, this small issue will set the tone for showings. We want buyers to be excited about seeing the property not focusing on what else you didn’t fix…and how low you will go. Trust me, it’s not easy to talk to you this way because we are such good friends. Truth is, I might even hire a professional photographer if the house was really ready. Remember me telling you about home I listed after another agent had it for a year with rare showings and no offers. We got the home ready, the photographer went in and we had 2 offers over full price in a week! This isn’t the only time this has happened. It’s a small investment that makes a huge difference. Our listings are syndicated all over the internet. If I post the photos I’m able to take today, the only thing that will attract attention is the Victoria’s Secret underwear hanging in the shower! Look, it’s your choice. You can either get ready to sell or you can get ready to take a beating on your bottom line. I love you but I think I’ll save my marketing dollars for now. Call me after your listing expires. In the meantime, here’s a tip. Take some digital photos of your own when you get home. See what the camera sees. There’s a story there because, after all, like the songs says: “Every picture tells a story, don’t it?”
by Denise S Nakanishi, R,CRS, ABR, GRI
Squatter’s Rights
You’d be hard pressed to imagine some of the calls REALTORS® get. None are more interesting than those wanting to find out how to adversely possess property. It’s a timely topic in light of reports circulated this past week about someone on the mainland “buying” a home worth over $300,000 for about $16. He did so apparently under the laws of adverse possession in that state. Truth be told, his stay is probably going to be very short lived. There are several ways you can lose your property without your permission. Your property can be foreclosed to satisfy liens, the government can condemn it for public good or your estate might be surrendered to the State if you have no heirs. You could also lose it as part of a seizure related to criminal activities. It is also possible that, by omission, you might allow someone to claim title by adverse possession. To do so, someone other than the owner must occupy the property continuously for 20 years. This period varies from state to state. Other requirements in Hawaii are that that anyone attempting to claim adverse possession must occupy the property completely without the owner’s permission. The occupancy must be made in such a fashion that the owner would absolutely know someone was there if they visited the property. The person attempting to claim title must have always represented that they own the property. This may include paying the taxes but remember, the tax office doesn’t care who pays the taxes. Even making consistent tax payments won’t establish ownership. The tax office will mail the bill to whatever address they are given. Land Court properties as well as parcels over 5 acres in size cannot be adversely possessed. Many of our larger subdivisions, including most Puna subdivisions, are Land Court properties. Unique to Hawaii, Land Court is an additional system of recordation. All deeds, liens or transfers actually go before a judge who approves the transaction. One of the criticisms of Land Court is that the original registration process is burdensome. It seems that in our remote island state, having this protection might make a lot of sense. Thousands of parcels were originally sold through the mail. Many owners have still never seen their property. The original developers were wise in taking the extra step involved in Land Court registration. As an owner, be wise; visit your property now and then to be sure you don’t have uninvited guests who might want to threaten your ownership rights.
What do you call ownership of residential airspace? Since 1961, the concept of condominium apartment ownership has blossomed thru-out the country. Interestingly, Hawaii was the first state to enact legislation allowing for development of condominium projects. Condo conversions, the process of converting a hotel to a residential condominium property, have been implemented wherever possible for years. Of the Big Island, most have been in Kona but Hilo Lagoon and Waiakea Villas were both originally hotel properties that were later converted to condominiums. Many don’t realize that condominium ownership isn’t limited to multi-family or even residential use. In fact, the offices in 688 Kinoole are individually owned commercial condo units. The condominium form of ownership is so widely accepted that it’s all fairly straight-forward, right? Time was, condominimization of properties zoned both single family residential and agricultural was commonplace. Condominium laws are State statutes while zoning is the prevue of the County so the condominium process was, in the past, used to by-pass County sub-division requirements. While it is no longer possible to ignore County zoning in order to create individual condo units, it is still common to see individual homes for sale on condominimized lots, both residential and agricultural. Just like a condominium project, each owner in the condo “project” has exclusive right to use their portion of the property. There will also be “limited common elements”, usually a roadway or shared drive-way. Keep in mind that the County does not recognize condominium projects as separate lots. Individual portions are referred to as condo units, just as they are in multi-family building. Remember, the County of Hawaii issues building permits. There are strict limitations on multiple dwellings built on Agricultural land. Agricultural zoning requires that additional dwellings be built as part of working farm. An approved farm plan is required. If a farm plan was not put into place when the condominium was established, every owner must consent to the farm plan unless the original Condo docs specified otherwise and the County agrees to honor the language in the documents. Existing dwellings are not affected in this way. Fortunately, many condominimized properties have approved farm plans. For the most part, the ownership of a residential condominium is no different than any other property. Understanding the condo documents is essential; especially when it’s an Agricultural condominium in which case, buyers should be sure to review not only the condo docs but the related farm plan as well.
Living on Ag Land
Here’s one to ponder! Hawaii Revised Statues, the laws that govern our State, do not allow residential dwellings on Agricultural land unless the dwelling is related to an agricultural activity (i.e., a farm dwelling). In other words, dwellings on agricultural lands are supposed to be used in conjunction with the operation of a farm. The statute imposes a $5000 fine for each violation. If you fail to remove the violation within 6 months, an additional $5000 fine can be levied. At the same time, Chapter 25 (25-5-70b) of our County Code allows for the construction of one single family dwelling on each building site in the Agricultural District. This is especially interesting because almost all of our Puna Subdivisions, many building lots in Hilo (Sunrise Estates for example) and most Hamakua lots are zoned Agricultural. Because the County of Hawaii issues building permits, we generally regard their authority as controlling in this matter. Hence, we follow the County Code. The same chapter of the County Code dictates that second and additional dwellings are not allowed on Agricultural land unless they are farm related. In other words, Ohana dwellings are not allowed on Agricultural land unless there is farm activity. Basic farm dwelling requirements are contained in the County Code. It may still be possible to build a guesthouse/maid’s quarters or a detached master bedroom without a full kitchen but a second dwelling with a kitchen is a definite no-no without an approve farm plan. Keep in mind that Ohana dwellings have not always been excluded from Ag land in the County of Hawaii. Because each County sets and administers Ohana permits, it was not uncommon to find Ohana dwellings on Ag lands until about a decade ago. There a many legal Ohana homes on Ag land. At times, an Ohana permit was issued but never used. The current validity of the permit depends on the date of issue. If the validity of an Ohana permit is important to your purchase, the County Planning Department should be contacted. Explaining these, along with other island peculiarities like Cogui frogs, catchment tanks, lava zones, lava tubes, fee simple, permitting, insurance, vog, etc, etc, takes a good deal of finesse, patience, historical knowledge and experience! It’s all in a day’s work for REALTORS® on the world’s most beautiful island!
by Denise S Nakanishi, R,CRS, ABR, GRI
Well, Well, Well
During my last tour of active duty, I commuted to Oahu. It’s funny the things you miss about home. I missed hearing the rain but most of all, I missed our Hilo water. It’s estimated that 90% of our water comes from ground water; water beneath the ground. The majority of homes throughout the state are serviced by municipal water systems, most of which depend on groundwater. This is not the case on Hawaii Island where the sheer size creates a limitation on the households serviced by municipal water. Many homes depend on alternate sources such as catchment (see catchment info 2 weeks prior). While individual water wells are far less common than catchment, they are gaining popularity in our East Hawaii neighborhoods. The fact that they are not common sometimes gives the perception that wells are unpopular or somehow substandard. This is really not the case. In fact, several factors likely account for the limited number of wells in East Hawaii. I first moved to the Big Island in 1987. I began my real estate career not long after that. During those early years, well drillers came and went. Many did not stay long. I’m sure that our “soil” composition was part of the reason. Drilling thru blue rock is not for the faint of heart. We now have several reputable drillers who are willing to work out residential market. Price, of course, was always of great concern. Wells are priced according to the depth the driller must go before they hit a lens that will supply potable water. Wells seem to be more popular in Puna where the slop is gradual and reaching the lens keeps pricing competitive. I am told the lens which services most of Hawaiian Paradise Park home (the area where most Puna wells are located)is the same as that servicing the near-by bottled water plant. Most homeowners are thrilled with the taste and quality of their HPP well water. Drillers do not normally guarantee they will find water and the deeper the well (which again affects price), the more uncertain finding water becomes. These seem to be limiting factors when it comes to wells along the Hamakua Coast. Like catchment, well water requires treatment. Carbon filters and UV filtration are most common. Buyers often question how reliance on individual waste water treatment systems (septic and cesspool) affects well water. They also express concern about chemicals previously associated with (especially) planting of sugar cane. I always recommend an independent lab test when buying a home serviced by either catchment or a private well. The feeback that I have gotten noted no affect from either individual wastewater systems or previous chemical use. Water wells require a permit. Your REALTOR® should be able to provide a list of licensed contractors and water-testing laboratories. Homes with water wells seem to fetch a bit more than homes on catchment but in East Hawaii where the blessings of liquid sunshine rule, either system works great!
1st Qtr 2011 Update: Time to Become A Statistic!
First quarter updates are always difficult to interpret. For a number of reasons, we try to close as many sales as possible before the end of the year; buyers want to close so that they can apply for their homestead exemption, sellers want to close for tax purposes, REALTORS® want to close because it favors their commission split. Closings during the 4th quarter, therefore, are normally higher than any other time of year. Still, our broker reports an extremely brisk first quarter in terms of new escrows and contracts. So, even when the numbers don’t indicate market improvement, we still see bright spots in our local market. The operative word here is “local” because, remember, all real estate is local. It’s best not to buy into every report you hear on national television. Those reports are extremely global and motivated by sensationalism and as while the East Hawaii market isn’t back to normal, we are faring far better than most. So let’s keep it local and let’s stick to the facts. One bright spot is occurring in the upper end of our market. This segment has been hugely stagnant for some time. Sales over $500,000 have definitely picked up with 14 sales over the past 6 months (district of South Hilo). With one sale over $1million and several over $800,000, it seems buyers have decided that higher end properties have gone down about as far as they will go. This is supported by HPP oceanfront activity. With little movement for over 2 years, the number of properties poised to close indicates the return to a healthy market in that area. Here are additional neighborhood statistics for some of the more popular East Hawaii neighborhoods:
Area
Active Mar 11
Med listed $ 1st qtr 2011
# sold qtr1st qtr 2011/Median $
# currently
Under contract/Med $
# Active 4th qtr 2010/med $
# sold/Med Sold price qtr 4 2010
S. Hilo
186
328,700
49/249900
37/299000
175/349000
67/285000
HPP
107
239,500
32/210,750
39/180000
103/260000
31/187,500
Ainaloa
33
155,000
2/111,000
9/124,000
32/162,500
10/145000
Leilani
22
200,000
6/162,497
4/199,600
17/189,000
4/162497
Nanawale
14
134,900
5/61,300
4/64,900
21/119,900
6/56,000
Mauna Loa Est, Royal Hwn, Ohia
33
179,334
4/101,764
8/149,666
32/187,133
5/104,466
Pacific Paradise Gardens
5
179,000
0/0
2/142,000
4/154,450
4/111,000
S. Hilo inventory appears to be up slightly this quarter over last but there are actually 100 fewer homes on the market today than in May 2010. At that time, HPP had 138 listed. Inventory in the other areas has increased but as inventory moves lower in Hilo and HPP, prices will inch up causing buyers who can find financing to move farther from town. So, whether you are an investor, moving up or buying your first home, call your REALTOR® today. Buyers are still in the driver’s seat. Interest rates remain very low and there are a number of great properties to choose from. It may be time to become part of our local statistic!
The tax consequences of trading spaces are fairly painless if you participate in an Internal Revenue Code Section 1031 tax deferred exchange. Such exchanges allow sellers to defer taxable gain on investment properties. Key to this concept is that taxes are deferred which means, of course, that at some point, they must be paid. While specific rules are but a quick “Google” or “Yahoo” search away, there are critical reminders and suggestions which aren’t part of any published guidelines. Your purchase agreement is one of the first places an exchange can get into trouble. It’s fairly common for me to receive offers on my listings without the required language. In order to comply with IRS requirements, specific language indicating both parties agree to participate must be included in the purchase agreement or the exchange could be disqualified by the Internal Revenue Service. This could be a very expensive omission if the exchange is later ruled invalid. A simple recitation of the agreement will suffice but expanded language is required to fully protect seller especially on the buying “leg” of the exchange. Remember, an exchange must be like-kind for like-kind which simply stated means real estate for real estate; land for house, house for condo, etc, etc. A second caution which thwarts many local buyers and sellers involves foreigners. The IRS now requires all foreigners involved in real property transactions to have a Tax ID number. Because there are strict time limits (45 days to designate and 180 days to close) related to the exchange, a foreigner involved in a tax deferred exchange could cause the process to exceed the allowable timelines. It’s wise to ensure a foreign participant applies for a tax ID number early on. It’s also a good idea to designate multiple exchange properties. Because of the number of title and survey problems in this State, delays in resolving these could also extend closing beyond the allowable time. Be very careful when designating REO or short sale properties. Title or short sale approval delays could result in a failed exchange. Remember, key to every exchange is the concept of “control of funds”. The party relinquishing the funds (the seller, then buyer) is not allowed to touch either proceeds of the sale (the first leg) or funds being held to complete the purchase (the second leg). An Exchange Accommodator must be used. Exchange accommodators are not regulated in Hawaii so choose your third party intermediary carefully. Even though taxes are deferred, it is widely held that an investment property may be converted to personal use after a period of investment use. Investment use for one to two years is probably fine. Anything less might disqualify the exchange resulting in tax consequences of up to 20% (in Hawaii). Most exchanges are fairly straight forward but it’s always advisable to consult our financial advisor as well as an attorney versed in such exchanges. Remember, builders of spec homes are dealers. Such sales do not qualify for 1031 tax deferred exchanges. When it comes time for your next exchange remember to use a Realtor® who understands the basics especially as relates to our Hawaii market!
by Denise S Nakanishi, R,CRS, ABR, GRI
How Much Is It Worth (aka: Why HVCC Doesn’t Work)
I certainly wish I wish I had nickel for every time someone asked how much their home is worth. Value is represented in various ways; construction cost, assessor’s value, insurance value, and loan value to name a few. Here’s a bit of practical insight into the current appraisal process. Lenders still depend on appraisers to provide an objective opinion of value but a new twist called HVCC prohibits lenders from speaking directly to the appraiser. Appraisals are generally ordered thru a disinterested third party vendor called an appraisal management company (AMC). Lenders rarely know who has the appraisal order until an inspection appointment is made with the listor. The attempt to limit undue lender pressure has created a huge new set of challenges. AMCs order appraisals from a list of (theoretically) geographically qualified appraisers. They must meet minimum qualifications to be placed on the AMC list. In order to stay busy, appraisers select a broad base of zip codes to service. The result has been assignments to an increased number of out of area appraisers. Appraisers should be intimately familiar with an area in order to make accurate comparisons. At the same time, appraisers who turn down an assignment could be penalized when it comes to future assignments. I know agents who have had to lead the appraiser to the property. AMCs are paid by taking a portion of the fee which reduces appraiser compensation. Some feel that work quality has suffered. The process has added weeks to each sale making it difficult to predict a closing date. No longer can appraisals be “transferred” if a loan program needs to change. A new appraisal must be ordered. Appraisers are supposed to establish value by comparing sales of similar properties (comps) within reasonable proximity that sold during the previous 3 month period. This narrow window often skews value in favor of foreclosed properties. These rarely reflect true value across a neighborhood. Dissimilarities between properties are addressed by adjusting value of the sold property. For example, a home with a pool will loose value when compared to one without. HVCC makes addressing inaccuracies problematic. While appraisers use recent sales, owners commonly try to compute their estimated value using replacement cost. Replacement cost has little relationship to market value. Market value can change quickly. Timing of an appraisal will affect value. With a purchase, appraisers have a copy of the sales contract. When refinancing, it’s good to let the appraiser know what number you are trying to reach. Don’t be shy about providing comps. Despite a mathematical approach, there is still a great deal of subjectivity and opinion involved in the process. Appraisers are much like REALTORS®. Some are easier to work with than others. Some have strong geographical biases. Interestingly, most have never personally been inside the properties they use as comparisons. They must depend on input from the sales agents. REALTORS® gladly provide a free opinion of value as part of the listing process. It’s something we do on a regular basis…guess that’s why I’ll never get rich answering the question “how much it’s worth”!
by Denise S Nakanishi, R,CRS, ABR, GRI
Winning your “Case”!
Many are surprised to learn there are usually no initial costs to list their home. Naturally, there are eventual costs which are normally deducted from the proceeds. Agent commissions are, of course, the largest expense. A close look may help explain what the seller eventually pays for. Competent agents do extensive research prior meeting the seller. The process starts with reviewing tax records, permits, the title report and, most importantly, assessing current market trends. Closing cost estimates and a plan for effectively marketing the property should be presented for your approval. Once listing terms are set, professional photos are shot. Virtual tours may be ordered. The property is submitted with photos and supporting documents to the Multiple Listing Service and other websites with which the agent participates. The agent pays a fee for each one. Traditional marketing plans commonly include flyers, marketing pieces, print advertising, agent caravans, post card mailings and open houses. Even the sign in front of the house is not free. The updated approach to marketing includes this and much, much more! In fact, the scope of on-line marketing and syndication is hugely extensive, layered and labor intensive. Top agents employ off-site virtual assistants to handle these tasks. Even though online marketing is very fluid and ever-changing, the benefits of time invested in online marketing cannot be overlooked. The longer an agent’s online presence, the better. When a buyer is found, the agent must carefully evaluate the strengths of the buyer and nuances of the contract. They must timely coordinate with lenders, escrow, title companies, termite inspectors, surveyors, attorneys, home inspectors and insurance agents. These days, short sale negotiators are often included in this list. A sale could get even more complicated if, for instance, tax or child support liens have been filed against the property. Like attorneys who are paid when the client wins, REALTORS® are normally expected to “front” all costs to you until you “win”. Costs, exclusive of labor, quickly run into hundreds and even thousands of dollars. The last study I saw quoted the cost of a listing that did not sell at $1260 per listing. Public perception is that REALTORS® make lots of money. Truth is, most do not. The national average in 2009 was $36,700 (gross). By the time print ad costs, commission splits, franchise fees, GE taxes, MLS fees, local board fees , continuing education, license renewal and on-line advertising are factored, the agent is lucky to net 1% of the sales price for each home sold. This could be broken down monthly or hourly but that skirts the real issue, which for the seller is; can your agent afford to provide the services you contracted for until your “case is won”?
by Denise S Nakanishi, R,CRS, ABR, GRI
Winning your “Case”!
Many are surprised to learn there are usually no initial costs to list their home. Naturally, there are eventual costs which are normally deducted from the proceeds. Agent commissions are, of course, the largest expense. A close look may help explain what the seller eventually pays for. Competent agents do extensive research prior meeting the seller. The process starts with reviewing tax records, permits, the title report and, most importantly, assessing current market trends. Closing cost estimates and a plan for effectively marketing the property should be presented for your approval. Once listing terms are set, professional photos are shot. Virtual tours may be ordered. The property is submitted with photos and supporting documents to the Multiple Listing Service and other websites with which the agent participates. The agent pays a fee for each one. Traditional marketing plans commonly include flyers, marketing pieces, print advertising, agent caravans, post card mailings and open houses. Even the sign in front of the house is not free. The updated approach to marketing includes this and much, much more! In fact, the scope of on-line marketing and syndication is hugely extensive, layered and labor intensive. Top agents employ off-site virtual assistants to handle these tasks. Even though online marketing is very fluid and ever-changing, the benefits of time invested in online marketing cannot be overlooked. The longer an agent’s online presence, the better. When a buyer is found, the agent must carefully evaluate the strengths of the buyer and nuances of the contract. They must timely coordinate with lenders, escrow, title companies, termite inspectors, surveyors, attorneys, home inspectors and insurance agents. These days, short sale negotiators are often included in this list. A sale could get even more complicated if, for instance, tax or child support liens have been filed against the property. Like attorneys who are paid when the client wins, REALTORS® are normally expected to “front” all costs to you until you “win”. Costs, exclusive of labor, quickly run into hundreds and even thousands of dollars. The last study I saw quoted the cost of a listing that did not sell at $1260 per listing. Public perception is that REALTORS® make lots of money. Truth is, most do not. The national average in 2009 was $36,700 (gross). By the time print ad costs, commission splits, franchise fees, GE taxes, MLS fees, local board fees , continuing education, license renewal and on-line advertising are factored, the agent is lucky to net 1% of the sales price for each home sold. This could be broken down monthly or hourly but that skirts the real issue, which for the seller is; can your agent afford to provide the services you contracted for until your “case is won”?
by Denise S Nakanishi, R,CRS, ABR, GRI
Go With The Flow!
Like most folks, my first impressions of a living near an active volcano came from an old “B” movie. Those of us who live on Hawaii Island would certainly take exception to that “run for your life” characterization. Years ago, water catchment was an immediate disqualifier for many buyers. The “B” movie effect elevated lava zones to the same level. The thing is, then, as now, buyers focus on privacy, ambiance….and price! In East Hawaii, what they seek is often found in Puna where catchment is the norm and well, as they say, lava happens. These days, REALTORS® rarely hear complaints about catchment but turmoil related to lava, loans and insurance continues to affect sales. Technical information regarding lava zones can be found in the USGS website or in a brochure entitled “Volcanic and Seismic Hazards on the Island of Hawaii”. Through what was formerly known as the “State” or “HPIA” plan, homes can be fully covered up to $350,000. There are alternatives to HPIA especially for coverage over $350,000. Admittedly, over time, some larger insurance carriers (State Farm, Allstate, USAA) have pulled out of these areas but others have stepped in to fill the gap. Although pricing will never again compete with that outside Zones 1&2, perhaps the fact that properties are much more affordable makes it a wash. Of larger impact to homeowners is the issue of exclusion by Fannie Mae and now Ginnie Mae (VA,FHA,Rural Development) loans in zones 1&2. This exclusion severely limits lending in these areas. In my mind, the Fannie/Ginnie exclusion issue is a zoning issue and should never have become a lender issue. Because lenders are fully insured, our local zoning authorities should determine when an area is too dangerous for habitation. Limited lending causes property values to decline by driving up inventory and decreasing demand. Puna (and HOVE) are the most affordable areas in the State. Buyers need as many loan programs as possible available to them. The current exclusion forces buyers into inferior, more expensive loan programs. Most of Kapoho, Leilani Estates and Lanipuna Gardens are in Zone 1. Interestingly, Kalapana, Kehena, Kaimu, the Hawaiian Beaches complex and even parts of now covered Royal Gardens are in Zone 2. Ainaloa, HPP and Hilo are all Zone 3. Zones in East Hawaii are delineated relative to the East Rift Zone. Hawaiian Ocean View Estates sits along the West Rift Zone and is also Zone 1. I always recommend that buyers work with a local mortgage brokers (our local banks exclude zones 1&2). Mainland underwriters seem to get jittery when they see the word “lava” in an appraisal report. They ask for “lava coverage”. It doesn’t exist. Homes are covered under the normal fire policy. Never mind that the rest of the world faces the daily possibility of a variety of unpredictable natural disasters, those faded “B” move memories seem to survive common sense. Seems to me they need to understand that here on Hawaii Island, we just learn to “go with the flow”!
by Denise S Nakanishi, R,CRS, ABR, GRI
Hawaii Foreclosure Basics
Last week’s front page article related to a bill winding its way through our State legislature may have confused those needing a primer on the basics of foreclosures. While many states limit foreclosure proceedings to either judicial or non-judicial, most Hawaii homes may be subject to either. Interestingly, the homeowner has no say in the type procedure initiated but the lender does. The unintended consequence of the non-judicial process has caused the legislature to re-think this unilateral arrangement. Non-judicial foreclosures laws in Hawaii have been in effect for only about 10 years and yet most foreclosures today follow these abbreviated procedures which basically require only a notice of default, posting in the newspaper for 3 consecutive weeks and an auction. Older mortgages do not contain the right to use the streamlined non-judicial procedures so the foreclosure must go before a judge prior to auction. Most properties currently in jeopardy involve recent mortgages so non-judicial procedures apply. We’ve all heard the horror stories of homes auctioned in error. Judicial oversight provided by a judicial foreclosure would have slowed the process enough so that cooler heads could prevail. Use of the non-judicial process was originally touted as a way to save time and money. While attorneys’ fees are supposed to be less, this hasn’t always been true. There is no limit or oversight related to what attorneys can charge. In fact, we often see both a mainland and Hawaii attorney (and escrow) involved. There is no deficiency judgment related to non-judicial foreclosures so a homeowner generally walks away. Any lender holding a note may choose a judicial foreclosure. The primary reason for doing so would be to position the lender to seek a deficiency judgment against someone with other assets to attach. Because the non-judicial process is supposed to be faster, the property should return to the bank faster and in better condition, however, delays are common. Unfortunately, news reports sometimes give the false impression that a homeowner’s attorney can easily stop the entire process. While an attorney may be able to delay the inevitable, the reality is that when a mortgage is in default, the property will eventually foreclose. Even though there recent legislation targeted unscrupulous mortgage rescuers, we still see questionable mortgage rescue ads. We also see ads from attorneys who would apparently take a retainer but are normally unable to influence the outcome. Last week’s article also notes that lenders may be ramping up their efforts in order to complete the process in anticipation of new elective process. If rumors related to the numbers of foreclosures still in the pipeline are correct, it will be awhile before we see an end to this problem. Real property rights are some of the most basic rights we are afforded as Americans. There’s no denying that we need to return our real estate market to normal as quickly as possible but, in my opinion, every effort to preserve basic rights of homeowners should carefully considered.
by Denise S Nakanishi, R,CRS, ABR, GRI
Winning When Sellers Finance
It’s Super Sunday! Today’s winner takes home all the marbles! Do kids even play marbles anymore? Is there an electronic version? Even though that particular game isn’t as popular as it once was, like football, seller financing is always in vogue. In fact, if I had a marble for every reason a seller might offer to finance, I’d have a sock full. I’d have a “no other way to finance” marble and one for “I want to earn the interest”. There’d even be an “outside the ring” marble for distressed sellers. But not all marbles are regulation marbles. In fact, players sometimes “fudge” by playing a “non-regulation” marble. When this happens, the “pros “generally feel it’s time to take their marbles and go home! Here’s the thing. Even in times when seller financing is less risky for buyers, knowing why a seller is willing to finance is critical. The mortgage meltdown left us with few options for vacant land loans especially for an out-of-state buyer. At times, sellers also opt to offer financing so that they can make extra money on their sale. Permit issues are a popular reason for offering financing as well. These are all fairly common and straight-forward reasons for offering financing. But what happens when the sellers owe more on the property than it’s worth or when their property is otherwise distressed or when the property simply will not appraise for the purchase price. These are situations when sellers tend to explore every sales approach. For a buyer, these offers should be considered with caution because there could be a “fudging” seller involved. Sales with an existing mortgage on the property are conveyed by way of an “agreement of sale”. This involves “wrapping” the mortgage which basically means that the buyer pays the seller and the seller continues to pay their note. Not all lenders embrace this concept because such a sale further encumbers title. While it’s possible to wrap the mortgage without lender permission, most title companies will not provide title insurance without it. But the difficulty presented in gaining lender permission pales in comparison with the problems created when a seller stops making payments on the underlying mortgage. This begins a chain of events that leaves everyone distressed. Of course, there are ways to address risks but it’s never foolproof. Seller financed properties generally do not (but can) include a formal appraisal so carefully consider information a about comparable sales. . There may be times when seller financing works best but be sure to consider the players and understand why they are playing and by all means, hire a REALTOR® who understands this type financing and who can advise you about the advantages and pitfalls. In this Superbowl of transactions, it’s time to put aside kids games and equip yourself to play with the big boys! Enjoy the game!
by Denise S Nakanishi, R,CRS, ABR, GRI
A Simple Concept
Real Estate ads are subject to a couple of sets of regulations. One recently amended State requirement continues to generate numerous questions. Disclosing the value of an estate is fairly unique to Hawaii. Until 2003, designation of estate quality as fee simple (FS) or leasehold (LH) was required on all forms of advertisement. While leasehold ownership must still be specifically noted, properties not so designated are now assumed to be fee simple. Because the concept of leasehold ownership is fairly unique, it should be no surprise that people always question the distinction between the two. In the most basic terms, fee simple means you own the property. As the name implies, leasehold properties include a lease as part of the conveyance. There are various forms of leases. Every lease is different. Conveyance of a leasehold property may include not only a transfer but a possible renegotiation of the ground lease as well. Additionally, leasehold conveyances involve both a lease transfer and a conveyance of the real property interests. Sales of leasehold properties are much more involved than fee simple transfers. Disclosures are more extensive. Leasehold prosperities in East Hawaii are basically limited to Hawaiian Homes, condo units along Banyan Drive and homes along Oceanview Drive. There may also be a few remaining leasehold units in Hale Moana Condominiums as well. A common belief is that leasehold properties belong to either the State or one of the larger Estates. In fact, churches or individual families own many. As relates to ownership, property is always conveyed with a “bundle of rights” regarded as the ownership “estate”. Fee simple ownership rights include the right to use the property for any legal purpose not otherwise limited by deed or subdivision restrictions. A lease could add further restrictions. Fee simple ownership exists indefinitely. Leasehold estates have a definite duration. While the ownership concepts are simple, the details of any property transfer are not. Understanding the differences is key in choosing not only the property but also the agent who will help guide you through this not so simple process!
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