Understanding Your Offer
Important Notice: To make this page easier to read, we have only highlighted important paragraphs. Some standard paragraphs have been intentionally left out, so please refer to the original Purchase Contract for a complete understanding.
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Short Cuts
Paragraphs: B-1, C-1, C-2, C-3, C-4, D-1, As Is, E-1, E-2, E-3, E-4, E-5, E-6, F-1, F-2, F-3, F-4, F-5, F-6, F-7, F-8, F-11, F-12, G-2, G-3, H-1, H-2, H-3, H-4, H-5, I-1, I-2, I-3, I-5, J-1, J-3, J-4, J-8, J-9, J-10, K-1 & K-2, K-3, L-1, L-2, L-3, M-1, N-1, N-2, O-1, O-2, O-3, O-4, O-5, P-1, P-2, Q
Contingencies where the buyer can cancel.
Home Inspection, Disclosure, Amended Disclosure, Financing, Mandatory Provision of Documents, Survey, Termite Damage, Title Issues, Photovoltaic, Rental Documents, Cash Funds Contingency, Furnishings
Other Important Terms
Final Walk Through, Cleaning, Special Assessment, As Is
Contingencies where the buyer can cancel:
J-1: General Inspection of Property Contingency
I-1: Seller's Obligation to Disclose
I-2: Amended Disclosure Statement
H-3: Financing Contingency
M-1: Mandatory Provision of Documents
K-1 / K-2: Staking or Survey
L-3: Termite Damage
G-2: Title
E-5: Photovoltaic (Solar) System
N-2: Rental Documents
H-2: Contingency on Obtaining Cash Funds
E-3: Inclusion of Furnishings
Other Important Terms:
J-3: Property Condition Maintenance and Final Walk-Through
J-9: Cleaning
F-8: Assessments
"As Is" Conditional Addendum
All Contract Paragraphs
B-1: Initial Earnest Money Deposit
C-1: Offer to Buy
C-2: Purchase Price
C-3: Seller Concessions to Buyer
C-4: Seller Compensation to Buyer’s Brokerage Firm
D-1: Addenda
"As Is" Conditional Addendum
E-1: Description
E-2: Inclusions
E-3: Inclusion of Furnishings
E-4: Exclusions
E-5: Photovoltaic (Solar) System
E-6: Security Alarm System
F-1: Closing
F-2: Scheduled Closing Date
F-3: Change to the Scheduled Closing Date
F-4: Escrow
F-5: Prorations and Closing Adjustments
F-6: Closing Costs
F-7: Notice on Conveyance Tax
F-8: Assessments
F-11: Possession
F-12: Keys to the Property
G-2: Title
G-3: Vesting and Tenancy
H-1: No Contingency on Obtaining Cash Funds
H-2: Contingency on Obtaining Cash Funds
H-3: Financing Contingency
H-4: Buyer's Obligations
H-5: Seller's Right to Cancel
I-1: Seller's Obligation to Disclose
I-2: Amended Disclosure Statement
I-3: Buyer's Rights and Obligations
I-5: General Disclosures
J-1: General Inspection of Property Contingency
J-3: Property Condition Maintenance and Final Walk-Through
J-4: Withheld/Collected Funds for Repairs/Maintenance
J-8: Removal of items from Property
J-9: Cleaning
J-10: Animal Related Treatment
K-1 / K-2: Staking or Survey
K-3: Boundary Encroachment
L-1: Scope of Termite Inspection Report
L-2: Termite Inspection Contingency
L-3: Termite Damage
M-1: Mandatory Provision of Documents
N-1: Delivery of Possession of the Property Free of Tenants and Occupants
N-2: Rental Documents
O-1: Termination Due to Default
O-2: Termination Within Contingency Time Period
O-3: Termination After a Specified Contingency/Condition Time Period
O-4: Mediation
O-5: Arbitration
P-1: HARPTA
P-2: FIRPTA
Section Q: Special Terms
The most important paragraphs to look at first are as follows:
C-2: Purchase Price
The earnest money is typically around 0.5% of the total purchase price.
The additional deposit is typically 1% of the total purchase price.
The additional deposit is normally due 3 days after the inspection clause is removed (J-1).
We do not worry about the size of these two deposits because they only become relevant if the contract is breached, and that almost never happens. We want the buyer to have enough money in escrow so that if they decide to breach the contract, they will be concerned about losing their deposits.
Everything in the offer can be countered with a counteroffer. Sellers who are not satisfied with the purchase price should counter.
We can verbally counter an offer, which allows us to go back and forth as needed without having to write up a counteroffer each time. Once an agreement is reached verbally, the counteroffer is written up and signed by both sides.
C-3: Seller Concessions to Buyer
This is a way to reduce the buyer’s net cost without lowering the purchase price. Concessions are OK and important for some buyers.
Sellers should take the purchase price less any concessions and commission to get their bottom line.
C-4: Seller Compensation to Buyer’s Brokerage Firm
We recommend offering no more than 2.5% and no GET (General Excise Tax).
This is now negotiable due to the recent real estate lawsuit settlement.
We also have our Seller's Closing Cost Calculator if you want a bottom-line estimate including all fees.
F-8: Assessments
If the property is a condo or has a Homeowners Association, the buyer will ask you to pay any lump-sum assessments in full.
If you have a special assessment and do not want to pay it in full, you must address it in a counteroffer.
Section Q: Special Terms
Section Q is critical. Any terms not part of the standard contract must be included here; read it closely.
End of most important paragraphs.
Additional important paragraphs are as follows (Note: Not all contract paragraphs are listed below):
B-1: Initial Earnest Money Deposit
It is essential to get your Earnest Money Deposit into escrow on time. Otherwise, the seller has the right to cancel, and we have seen sellers cancel if they have a better offer that came in after yours.
If you choose to take a check to escrow, you must deliver it by the next business day. If escrow is closed, they should have a drop box you can put the check in. The only way you would have more time to deliver the check is if we modified the deadline of B-1 in Section Q.
If you choose a wire transfer, we usually default to having it there within three days.
C-1: Offer to Buy
We normally allow 48 hours after receipt to respond.
If sellers feel they need more time, normally buyers will allow it. Buyers are very interested in the home, so unless another home catches their attention, they will still be very interested after this deadline has passed.
If the seller needs more time, the best thing to do is to let the buyer's agent know how much additional time is needed.
D-1: Addenda
If the home was built prior to 1978, the Lead-Based Paint Addendum should be checked. For more information on lead-based paint, please read Protect Your Family from Lead Hazards.
Many agencies use a Standard Addendum and will list it in the other block. Standard Addendums are designed to protect the agency and Realtor making the offer. We have not found anything in a Standard Addendum to be alarmed about.
We also use a Wire Fraud Addendum, as wire fraud is on the rise, and you want to be aware of how to protect yourself from fraud.
"As Is" Conditional Addendum
The "As Is" Conditional Addendum sounds intimidating, but if you look at it more closely, it does not mean much.
It does not change any of your rights during the inspection. You can still cancel, ask for credit, or ask for repairs.
It does not change the seller's responsibility to disclose everything on their disclosure statement.
It specifically says that the Purchase Contract overrides the "As Is" Conditional Addendum, so if you call for something to be repaired in the contract, this overrides the "As Is" Conditional Addendum.
It does not even help the seller after closing because it specifically says they are still liable for claims where they did not disclose a material fact.
So, what does it do for the seller then? It simply sends a message that they prefer not to do repairs. Buyers can still ask for repairs, but sellers are saying up front that they prefer not to do any.
E-1: Description
This section identifies the exact parcel of land using the Tax Map Key (TMK) and establishes whether the property is being transferred as Fee Simple (you own the land) or Leasehold (you lease the land).
E-2: Inclusions
Verify E-2 closely. Make sure they do not have anything checked that is not included.
E-3: Inclusion of Furnishings
If there is anything included with the purchase that is not checked in E-2, then a list of additional furnishings should be provided to the buyer.
E-4: Exclusions
If you want to keep something that normally would be included, then it should be listed here.
E-5: Photovoltaic (Solar) System
If you have a Photovoltaic (Solar) System, this option should be checked. As a seller, you want to provide these documents right away, as it gives the buyer an option to cancel if they do not like what they see, so it is best that they review these documents during the inspection period.
E-6: Security Alarm System
If you have a Security Alarm System, this option should be checked. Just like a solar system, you want to provide these documents and transfer requirements right away so the buyer can review them during the inspection period.
F-1: Closing
Signing is done 3 to 5 days before closing and requires a handwritten signature before a notary.
First American can also send the notary to you.
On closing day, we normally hear from escrow by 9:00 AM that you have recorded.
Recording and closing mean the same thing; the house is now owned by the buyer.
On the day of recording, escrow can wire funds to the seller, or the seller can pick up a check.
F-2: Scheduled Closing Date
The standard closing time is 45 days. Sometimes buyers want a 60-day close. Anything over that is considered too long and should be countered. For cash offers and some conventional offers, a 30-day close is possible.
Keep in mind that the signing must take place 2 or more days prior to the closing date.
F-3: Change to the Scheduled Closing Date
Normally, a 10-15-day extension is requested if needed. Keep in mind that either party can extend automatically as needed. They do not need the other party's agreement to do so.
If the buyer goes past this extension, they would be in breach of contract, and the seller could either cancel the contract and move on to another buyer or negotiate a new closing date. To get an additional extension, a buyer might be willing to pay extra to help cover the seller's costs of owning the house longer than expected.
F-4: Escrow
We prefer First American because they are fast to respond to questions and very accurate.
All the escrow companies on the island are good, and they all charge around the same fees.
We use different escrow companies all the time, and it is rare that a problem comes up. Here is a rate sheet from First American.
Note that you can sign at the escrow office that is most convenient for you, or if you are out of town, they can send a mobile notary for signatures.
To better understand the escrow timeline and more about the escrow process, please see our Escrow Q&A.
F-5: Prorations and Closing Adjustments
Sellers do not have to worry about when they paid their taxes, as they will get credit for the portion they paid, even though they will no longer be owners. Also, sellers should continue to pay their mortgage and HOA fees if a payment is due.
Sellers should contact their insurance providers and utility companies to let them know the closing date, so they do not bill past that date.
F-6: Closing Costs
Note that sellers are paying 60% of the title insurance fee and 50% of the escrow fee. Should the buyer opt for the more expensive title insurance, they would pay 100% of the increased cost. If you would like an estimate of your closing costs, please let your escrow officer know, and they can send you one.
F-7: Notice on Conveyance Tax
Sellers pay conveyance tax at closing, and they do pay a little more if the property will not be the buyer's principal residence.
F-8: Assessments
F-11: Possession
We do not recommend early occupancy. Possession defaults to closing.
F-12: Keys to the Property
All keys and garage openers go to the buyer on closing day, but not before.
G-2: Title
Escrow will verify your title is clear. Buyers have the right to cancel if there is a problem with the title report. Title issues are very rare.
G-3: Vesting and Tenancy
The buyer needs to choose their tenancy. Please see this PDF to understand the various options.
H-1: No Contingency on Obtaining Cash Funds
Hopefully this one is checked. If so, it is also good to see the verification of cash funds within 5 days, just to make sure the buyer has the funds.
H-2: Contingency on Obtaining Cash Funds
If this one is checked there is a contingency on obtaining cash funds.
H-3: Financing Contingency
Unless the buyer is paying cash, this one will be checked. This is the number 1 reason escrows fall out close to the closing date. If the buyer can't get the loan, they have the right to cancel. Buyers need this right, so sellers should not counter it. Instead, sellers should ensure there is a pre-approval or pre-qualification from the buyer stating they are approved for this loan.
H-4: Buyer's Obligations
Normally, pre-approval or pre-qualification is completed before the offer is accepted.
We use 12 days before closing for the buyer to get the conditional loan commitment letter.
Getting a conditional loan commitment letter on time is one thing that is out of the buyer's hands and relies on the lender.
Keep in mind that if the lender is going to be late, an extension must be requested; otherwise, the buyer has breached the contract, and the seller may elect to terminate the Purchase Contract.
H-5: Seller's Right to Cancel
If the buyer misses any of their loan deadlines, the seller can cancel. However, it normally makes more sense for the seller to inquire as to why the deadline was missed and provide the buyer with extra days if needed to prevent having to start over with a new buyer.
Low Appraisals - If the appraisal is low, the first thing to do is get a copy of it to look at the comparables used. Getting an appraisal changed is very difficult. If you have a strong issue with one of the chosen comps, you can bring it up with the buyer's agent and the buyer's lender. Appraisers will have very good arguments for why they did what they did. Their job depends on doing it right, so they will be prepared to back up the appraisal. Having a bad appraisal is like saying they do not know how to do their job. That is why it is so difficult to get one changed.
If the appraisal is not changed, the buyer will most likely request to pay the appraised price. Sellers can either accept this request, negotiate perhaps to something midway between the appraised price and the Purchase Contract price, or stick with the price on the Purchase Contract.
If the buyer can't get the loan at the Purchase Contract price because of the low appraisal, then they would have the right to cancel. If they can still get the loan even though the appraisal is low, then they do not have the right to cancel using H-3.
I-1: Seller's Obligation to Disclose
Complete disclosure is the most important step a seller can take to protect themselves from future lawsuits.
The rule I go by regarding disclosure is that if you have to consider whether an issue is important enough to disclose, then you should disclose it.
The rule our attorney gives us is that you won't be sued for something you disclosed; you could only be sued if you don't disclose something. Most lawsuits by unhappy buyers involve something that was not disclosed.
There is a comprehensive disclosure statement with many questions that sellers will answer and provide to buyers, typically within 10 days of acceptance.
If the buyer is not satisfied with the disclosure statement, they have up to the number of days in I-3 to cancel the escrow and get their deposits back.
The "As Is" Conditional Addendum does not change the seller's obligation to disclose all material information.
I-2: Amended Disclosure Statement
If a new disclosure arises, or one that makes a previous disclosure statement inaccurate, and it substantially affects the value of the property, the seller must provide the buyer with an Amended Disclosure Statement. "Substantially" is a keyword, as minor issues that can easily be fixed do not create the need for an Amended Disclosure Statement.
If the buyer is not satisfied with the amended disclosure statement, they have up to the number of days in I-3 to cancel the escrow and get their deposits back.
I-3: Buyer's Rights and Obligations
If the buyer is not satisfied with the disclosure statement or amended disclosure statement, they have up to the number of days in I-3 to cancel the escrow and get their deposits back.
I-5: General Disclosures
These are important to read as you might learn more about the property and things you should be concerned about.
J-1: General Inspection of Property Contingency
This is the buyer's opportunity to inspect everything about the property. We recommend using a professional home inspector. Sometimes additional inspections are needed by plumbers, electricians, roofers, etc.
At any time during this period and for any reason, the buyer has the right to cancel and get all of their deposits back.
After the inspections are completed, but prior to this contingency expiring, the buyer may ask to have repairs done or a credit. A credit is normally an easier solution for the seller and therefore more likely to get approved.
The seller is under no obligation to do any repairs or give any credit, so it is a negotiating process.
If an agreement is not reached, the buyer has the option to cancel and get their deposits back or continue.
Keep in mind that the "As Is" agreement has no impact on this contingency, and buyers can still do everything mentioned above even if the "As Is" was used.
The normal time for this contingency is 7 to 15 days. If it is over 15 days, it will normally be changed in a counter offer.
It is important to understand that if the buyer does not make an election to cancel the Purchase Contract before this contingency expires, then they have waived this contingency. This means that even if negotiations are still going on for a repair or credit past the expiration date, by default, the buyer has waived their right to cancel using this contingency.
J-3: Property Condition Maintenance and Final Walk-Through
The buyer is checking that the seller kept the property in the same condition it was in during the inspection period.
If any repairs were promised, the buyer will be looking to make sure they are completed.
The utilities must be on during this walk-through.
Issues we see here are that some buyers have expectations that the seller is out before the final walk-through, and the property is cleaned. There is nothing in this paragraph that states that.
Cleaning is covered in J-9, and removal of items from the property is covered in J-8. The dates might all be the same, but to understand when the cleaning needs to be done and when all items need to be removed, you must review J-9 and J-8.
Once it closes, sellers must be out, but not before then.
J-4: Withheld/Collected Funds for Repairs/Maintenance
Escrow won't automatically hold back the seller's money if they find a problem; both the buyer and seller must agree to it. We see a lot of confusion about this, as many Realtors feel this is an automatic holdback, but the fact is, escrow must get signed instructions from both parties to hold back money.
One hopes that everything is OK during the final walk-through, but if not, you need to work together to reach a solution. This could mean having some funds held back in escrow until repairs are done or offering a credit to settle the issue.
J-8: Removal of items from Property
All items need to be removed from the property prior to this date. While you could stay in the property until closing with nothing in the home, it will not be very comfortable, so sellers should consider that they must be out of the home prior to this date.
J-9: Cleaning
If the 2nd blank is checked, then a professional cleaning is needed for the entire home, with receipts provided to prove it was done.
If the 2nd blank is not checked, then only the carpets need to be professionally shampooed. The other cleaning items can be done by the seller or a professional cleaning service.
J-10: Animal Related Treatment
If Section J-10 is checked, the Seller is required, at their own expense, to completely remove all animals from the property, have the carpets professionally shampooed, and hire a licensed pest control operator to treat the interior for fleas and ticks.
This three-step process must be completed a specified number of days before closing, and animals (other than assistance animals) cannot be brought back into the home afterward.
K-1 / K-2: Staking or Survey
We always check this one for our buyers. It is a complete survey. K-1 is normally NA. For condos, surveys are not possible.
K-3: Boundary Encroachment
If a property has encroachments, the buyer will most often proceed anyway.
Keep in mind the law of De Minimis allows for 6 inches over the property line without it being considered an encroachment.
For example, if a fence goes 5 inches into the neighbor's yard, that is considered OK. If it exceeds 6 inches, it is an encroachment.
Most encroachments have been in place for years without an issue, so the new buyer will accept them.
Sometimes they want the seller to try to obtain an encroachment agreement; if so, escrow can draft one.
Encroachment agreements are not automatic; the neighbor must sign them, and many times they are not willing to do so.
The buyer can terminate the Purchase Contract if they are not comfortable with the encroachments and the seller is unable to obtain an encroachment agreement signed by a neighbor.
L-1: Scope of Termite Inspection Report
Sellers should disclose everything about termites and termite damage. I have seen lawsuits filed against sellers who have not disclosed the extent of the termite damage. Also, make sure nothing is done to hide the damage. You can repair things, but you should disclose that you repaired them.
L-2: Termite Inspection Contingency
Sellers should have the buyer select the termite inspector. This is for the seller's protection. If the seller selects the inspector and there is a mistake, now it is the seller's problem. If the buyer chooses the inspector and there is something missed, it is the buyer's issue.
Normally, the inspection is done 15 days before closing. Some lenders won't allow it to be older than 30 days, and there is no need to do it right away. In case the buyer cancels, you don't want to pay for it and then have the buyer cancel, as you will need a new one for the next buyer.
We can order the termite inspection when the time comes, and it can be billed through escrow.
The seller almost always pays for the termite inspection. Some put "actual cost", which is OK because we have never seen a termite inspector charge too much.
If there are live termites, then you will need to pay for the treatment, which is tenting, unless tenting is not possible. If tenting is not possible, spot treatment would be recommended.
Sellers select the company to do the termite treatment.
See the frequently asked questions about the termite inspection.
L-3: Termite Damage
If there is substantial damage that affects the value of the Property, then you need to update this on your disclosure for your protection. It also gives the buyer the right to cancel if they are not comfortable with this damage.
M-1: Mandatory Provision of Documents
M-1 is not optional. It is mainly for Condos and Townhomes, but it can be applicable for certain Single-Family properties too.
For most buildings with multiple units, all the documents are available via a service that charges around $400. This saves sellers time trying to get together all the documents and guarantees nothing is missing, and normally has the latest documents.
It is critical for sellers to use these condo document delivery services because if sellers try to do it themselves and any documents are missing, it could cause a problem after the sale closes.
Buyer has the number of days shown in M-1(e) to review the documents and decide if they want to continue or cancel and get their deposits back.
We recommend getting all documents via email, as there are a lot of pages, and this makes it easier to navigate the documents and search.
It is important to note that M-4 states the Brokerage will not explain the meaning of these documents, and if there are concerns, an attorney should be consulted.
N-1: Delivery of Possession of the Property Free of Tenants and Occupants
When N-1 is selected, you are agreeing to deliver the property completely free of any tenants or future reservations at closing. If you currently have tenants or future reservations, you cannot agree to this section without causing a breach of contract.
N-2: Rental Documents
If N-2 is selected, you must deliver all the rental documents that you have based on the list of requested documents. It is important that this is checked if you have tenants or reservations in the future.
O-1: Termination Due to Default
If the buyer is in default, for example, if they fail to close on time or miss any of their deadlines, you do have the right to cancel. You can try to retain their deposit, but the buyer must agree to it, so many times a settlement is reached, perhaps 50% of the deposit. You could also bring an action for damages, but you would need to hire an attorney to do that, and it might not be worth the effort.
If you are in default, then the buyer has the same rights to cancel and bring an action for damages.
There is no time limit in this paragraph.
O-2: Termination Within Contingency Time Period
If the buyer cancels within the time periods in the Purchase Contract, they are due their full deposits back. For example, if they cancel during the inspection period. If the inspection period expires and they have not let you know what they want to do, then by default, they have waived their right to cancel.
O-3: Termination After a Specified Contingency/Condition Time Period
We normally have 5 days here. This means you would have 5 days after the buyer misses a deadline to give them written notice that you are terminating the Purchase Contract.
O-4: Mediation
You are not forced to mediate, but the contract suggests you do. The result is non-binding, so if you don't like the result, you don't have to settle.
O-5: Arbitration
If mediation did not work out, arbitration is an option. You are not forced to arbitrate.
P-1: HARPTA
HARPTA and FIRPTA are not taxes, but holdbacks to make sure your taxes are paid. You will not pay any additional taxes.
If you are not a resident of Hawaii, escrow will withhold funds to pay State taxes. If you have tax questions, it is best to check with your tax preparer for the best course of action. We are not trained to give tax advice.
P-2: FIRPTA
If you are not a United States citizen, you will have money held back to pay Federal taxes. If you have tax questions, it is best to check with your tax preparer for the best course of action. We are not trained to give tax advice.
First, this only applies to sellers, so if you are a buyer, you can stop reading. If you are a seller who is a Hawaii State resident and a U.S. Citizen, you can stop reading too, as it does not apply to you. For sellers, you must understand THIS IS NOT A TAX! You will pay not one cent more on your taxes because of HARPTA and FIRPTA.
What happened is that the state and federal governments needed a way to stop tax evaders. Tax evaders were selling their US properties, and then disappearing back to their country of origin without paying their fair share of taxes, just like ALL U.S. citizens pay. The same was happening in the State of Hawaii. Sellers would go back to the mainland and cheat Hawaii out of that tax revenue, even though it is illegal. So, the US Government and the Hawaii State Government got smart about this and said, to prevent tax evasion, we are passing a law that escrow must hold back your taxes due and pay them for you. This way, you can't cheat us out of the appropriate taxes due.
Once you file your taxes, you let them know how much tax is due, and if HARPTA or FIRPTA was higher, then you get that money back. So HARPTA and FIRPTA do not cost you one penny; they are not taxes!
Also, if you owe no taxes because of the $250,000 IRS exemption for gain on a residence ($500,000 if married), then there are 3 options regarding FIRPTA:
(1) Apply for an IRS withholding certificate to be exempt from withholding based on the gain exclusion.
(2) Withhold FIRPTA tax; apply to the IRS for an early FIRPTA refund based on gain exclusion.
(3) Apply for a refund when you file U.S. Income tax returns the following year based on gain exclusion.
Understand the exemptions for sellers from HARPTA and FIRPTA.
If the seller is not a United States citizen, then escrow will withhold federal tax unless an exemption is received. This does not affect the buyer. View the FIRPTA Flow Chart