Oahu Real Estate Purchase Contract Help
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Explanation for every paragraph on the Purchase Contract

Table of Contents


Video summary of the buyer's contingencies.

Short Cuts - Home Inspection, As Is, Disclosure, Survey, Financing, Association Docs, Title.

SECTION A: AGENCY DISCLOSURE - A-1, A-2

SECTION B: INITIAL EARNEST MONEY DEPOSIT RECEIPT - B-1, B-2

SECTION C: ADDENDA - C-1 ("As Is Addendum")

SECTION D: OFFER TO BUY AND PURCHASE PRICE - D-1, D-2

SECTION E: PROPERTY - E-1, E-2, E-3, E-4

SECTION F: CLOSING - F-1, F-2, F-3, F-4, F-5, F-6, F-7, F-8, F-9, F-10, F-11, F-12

SECTION G: TITLE - G-1, G-2, G-3

SECTION H: CASH FUNDS AND FINANCING CONTINGENCY - H-1, H-2, H-3, H-4, H-5, H-6

SECTION I: SELLER’S OBLIGATION TO DISCLOSE AND DISCLOSURE STATEMENT - I-1, I-2, I-3, I-4, I-5, I-6, I-7, I-8

SECTION J: INSPECTION, MAINTENANCE AND WARRANTIES - J-1, J-2, J-3, J-4, J-5, J-6, J-7, J-8, J-9, J-10

SECTION K: STAKING AND SURVEY - K-1, K-2, K-3, K-4

SECTION L: TERMITE PROVISIONS - L-1, L-2, L-3, L-4

SECTION M: CONDOMINIUM / COOPERATIVE / SUBDIVISION / PUD / HOMEOWNER / COMMUNITY ASSOCIATION - M-1, M-2, M-3, M-4, M-5

SECTION N: RENTAL PROPERTY MATTERS - N-1, N-2, N-3

SECTION O: TERMINATION, MEDIATION, ARBITRATION, AND OTHER MATTERS - O-1, O-2, O-3, O-4, O-5, O-6, O-7, O-8

SECTION P: FOREIGN OR NON-RESIDENT BUYER AND/OR SELLER - P-1, P-2, P-3

SECTION Q: SPECIAL TERMS - Building Permit Package

SECTION R: BROKERAGE FIRMS SERVICES AND DISCLAIMERS - R-1, R-2, R-3, R-4, R-5, R-6

SECTION S: GENERAL PROVISIONS - S-1, S-2, S-3, S-4, S-5, S-6

SECTION T: ACCEPTANCE OR COUNTER OFFER - T-1, T-2, T-3

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A-1 Agency

This paragraph describes agency. Keep in mind the Brokerage Firm is the agent, so you are represented by the firm and all its licensees. This is important to remember because you might be working with two agents from the same firm and that is a Dual Agency, even though there are two different agents. The Dual Agency Addendum states that "Dual agents must remain neutral in all negotiations and must not advance the interest of one party over the other". You can read this addendum, as it really describes what can and cannot be done when it is a dual agency.

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A-2 Disclosure

This section shows who represents the buyer and seller. A Dual Agency is if the same agency represents both. It does not have to be the same agent-- it is the same agency, so it could be different agents. If there is a Dual Agency, you will need to sign a separate Dual Agency Consent Addendum to verify you understand this. You are not represented by an agent but by the brokerage that agent works for. In the case of a dual agency the agents must remain neutral. They are representing both sides, so they can't do something that just favors one side.

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B-1 Initial Earnest Money Deposit

We use 1/2% for the initial deposit and normally, it is not countered. We do not need to collect a check from you. You will deposit the check directly into escrow once escrow is opened. Even once it is deposited it does not mean much, because you are still in the inspection period, so you can easily cancel for any reason and get it back.

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B-2 Interest on Deposits

The interest rate is so low right now buyers do not worry about earning interest on their deposits. Should it go up in the future that might change.

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C-1 Addenda

Standard Addendum

Many agencies will use their own Standard Addendum which contains a lot of clauses to protect the agency from a lawsuit. Some large agencies will automatically remove any other agencies Standard Addendum and replace it with their own.

Some agencies will remove our Standard Addendum as it contains some clauses that are not in the Purchase Contract that are more favorable to the buyer than the seller. Here are some of the things our Standard Addendum does that sellers might not comfortable with.

1. We add the ability for the buyer to cancel if the termite inspection finds an active infestation. The standard Purchase Contract calls for the seller to treat the property if an infestation is found, but unless there is substantial damage, the buyer does not have the right to cancel.

2. The standard Purchase Contract has a timeline of when you can cancel if you can't get the loan. We expanded that to say if you can't get the loan you can cancel, without putting a time limit on it. Some sellers are not comfortable with this as it does go right up to the day before closing.

3. We request a building permit package. This package costs around $100. Some sellers do not want to provide it, but if the buyer wants one they can still order it themselves.

As Is Condition Addendum

The "As Is Addendum" is the most common addenda used. The "As Is Addendum" sounds intimidating, but if you look at it closer, 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 Addendum", so if you call for something to be repaired in the contract, this overrides the "As Is 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. You can still ask for them, but they are saying up front that they prefer not to do any.

Here is a video about the As Is Addendum

View the actual As Is Addendum

Lead Paint Explanation

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D-1 Offer to Buy

We normally put 48 hours after receipt. However, if they accept after the 48 hours is up we will still go into escrow. Sellers will sometimes ignore this deadline to wait for other offers. They understand if they accept your offer after the 48-hour period is up, you will still be happy to have an accepted offer, and most likely continue into escrow.

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D-2 Purchase Price

We use 1/2% for the initial earnest money deposit and 1% for the additional deposit. The earnest money deposit does not mean much because you can cancel for any reason during the inspection period. The additional deposit means more because once the inspection period is over there are specific contingencies that allow you to cancel, but it is not as easy as during the inspection period. The first two deposits can be made using a personal check. The final deposit is subject to the Hawaii Good Funds law and must be a wire transfer or cashier's check from a local bank.

We have the additional deposit due 3 days after you approve the inspection. If the deposit is late you are in default and the seller can cancel and ask to keep your earnest money deposit. The total cash funds are your down payment amount, for example 10% or 20% down. On the loan amount line, we make sure to put prevailing rates, so you do not have to close if the lender's rate goes up substantially above the norm, and from a lender of buyer's choice so the seller can't force you to use another lender that they like.

This paragraph is of course the most critical because if you can agree on price the rest of the terms can normally be worked out, but if you can't agree on price nothing else matters.

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E-1 Description

The Tax Map Key is also known as the TMK number. Every property on Oahu has a unique TMK that the tax office uses to track the property. We don't put the legal description in this paragraph because escrow comes up with a very detailed legal description.

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E-2 Inclusions

Here we include what is listed on the MLS as included. Sometimes you will see things in the home that are not checked here because they are not listed on the MLS. They might not be listed because the buyer wants to keep them, or it might just be an oversight from the listing agent. If there is something you want, we can check it even if it is not listed on the MLS and then the seller can always counter if they do not want to include that item.

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E-3 Inventory List

On rental properties and sometimes regular sales the furniture and other items will come with the home. If that is the case a list of items must be in writing provided by the seller's agent.

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E-4 Exclusions

If something is normally included, for example, a fridge or washer and dryer, but the seller wants to keep these items then they should be listed here as exclusions. It is important to do this because I have seen agents who verbally mentioned something is excluded, only to end up paying for it later because it was not part of the contract and the buyer wanted it.

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F-1 Closing

Overview

Signing is done 3 to 5 days before closing and it requires signing by hand, not through electronic signatures like your offer. On closing day, we hear from escrow by 9am that you have recorded. Once recorded the home has officially changed to the new owners. Congratulations!

Buyer's Viewpoint

You will sign the loan documents and the documents escrow generates. After the signing, the lender will fund the loan 2 days before closing. You start paying mortgage interest as soon as the lender wires the funds. You also need to put the rest of your down payment into escrow. For acceptable methods to make this final deposit into escrow please see this PDF.

Seller's Viewpoint

On the day of closing escrow can wire your funds, or you can pick up a check, which ever you prefer.

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F-2 Scheduled Closing Date

A normal closing date for loans is 45 days after acceptance. For cash offers 30 days or less is common. In some situations, sellers will allow 60 days to close. Anything past 60 days is unusual and has some issues, such as when the buyer should lock in their rate. Keep in mind there is no closing on weekends and holidays, so it would then be postponed to the next business day.

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F-3 Change to the Scheduled Closing Date

There is no automatic right to extend. So, if paragraph (a) is selected the reason to extend must be beyond a buyer's control. It is not always clear what is beyond a buyer's control. Most sellers will allow this extension, but some will argue that just because the lender is not ready to close, it was not beyond your control, thereby you are defaulting on the contract, and they want some money to continue, otherwise they will cancel. It is best to close within the time listed in F-2, but should you need an extension, most of the time sellers will sign off on it using F-3. If the Buyer extends per F-3 and still can't close, then they are in default. The Seller then has the option to give them more time or cancel and ask to keep the Buyer's deposits for breaching the contract. We recommend always asking for the full time allowed in F-3. Buyers can close sooner if possible, and Sellers do not like to give a 2nd extension, so it is best to ask for the full amount of time up front, and let the Seller know you will try to close ASAP.

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F-4 Escrow - Includes attachments showing escrow and title insurance fees.

Most escrow companies on Oahu offer good service. We like to use First American, but we use other companies all the time. Their rates are similar, so if the seller picks a different escrow company it is normally not an issue.

First American Rate Sheet

Title Guarantee Escrow Fees and Title Insurance Rates

Fidelity Escrow Fees and Title Insurance Rates - they do not want me to post them. They are roughly 10% more than Title Guarantee.

 

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F-5 Prorations and Closing Adjustments

Using a 30-day month, escrow will prorate any of the fees and taxes that were paid for the month. This assures both the buyer and seller that they are only paying the taxes and fees for the time they own the property. If there are any outstanding Real Estate tax penalties or taxes past due, escrow will pay those off at closing too, so the buyer does not have to worry about them.

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F-6 Closing Costs

This paragraph gives you an idea of how you split the costs between the buyer and seller. If you want a more accurate closing cost number you can request the estimated closing costs once in escrow. If you are on the buyer side, you will need to request a Good Faith Estimate (GFE) from your lender too.

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F-7 Notice on Conveyance Tax

The seller pays conveyance tax. They do pay a little more for a sale to an investor vs. an owner occupant.

Here is the Conveyance Tax Certificate

Conveyance tax rates

FAQ on conveyance tax

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F-8 Assessments

If you are selling a Condo and have any special assessments, then you will want to look at this paragraph closely. The buyer might be asking you to pay off the special assessment, even though you are now paying it monthly.

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F-9 Consents

This just says the buyer and seller need to cooperate and if a permission is needed to do something they must try to get it.

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F-10 Risk of Loss

If you move in early you will need to make sure there is insurance in place. Once you move in you are responsible for any accidents or issues that occur, even if you are not yet the owner.

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F-11 Possession

The seller will give buyer the keys on the closing day. Sometimes there is an early occupancy requested. From a seller's point of view, it is better not to give early occupancy. Early occupancy can bring up many issues. For example, what happens if you do not close? What happens if there is some damage to the property before closing? Will the seller's insurance cover the damage even when they are no longer living there? What happens if the buyers find something they now want fixed. Because of these issues we advise our sellers not to do early occupancy.

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F-12 Keys to the Property

All keys go to the buyer on closing day, but not before.

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G-1 Preliminary Title Report

Buyer's Viewpoint

The title company will order a title report right away and send you a copy. The title report is difficult to read, and there is an entire department at the title company dedicated to reviewing title reports to make sure you have a clear title when you close. That is their responsibility, and not something you have to worry about.

They also give you title insurance that guarantees your title will be OK. I have never come across a situation where the insurance was used, but you should still get it just in case, and lenders require it. The fact that it is never used means escrow is doing a good job making sure the title is clear before they close.

If issues do come up and they are not able to be corrected in 10 days, then you have the right to cancel and get your deposits back. You can see this PDF about understanding what they are looking for during a title search.

Seller's Viewpoint

There is nothing you must do special for the title report. Escrow will order and inspect the title and issue title insurance for the buyer just in case they miss something. If escrow does find some issues, then you normally have around 10 days to correct the issue. If you are not able to correct the issue, the buyer can cancel and get their deposit back.

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G-2 Title

Escrow makes sure you have a clear title, so we have never seen a buyer cancel because of a title problem. Escrow would cancel the escrow first if they can't get a clear title. If you have questions about what you read on the title report you can ask escrow, but you do not have to understand everything on it, because it is escrow's job to make sure you have a clear title. They have a whole department dedicated to researching title reports to make sure there are no issues.

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G-3 Vesting and Tenancy

We always let our buyers decide this once in escrow. We have attached a PDF below from First American explaining the different types of tenancy.

Tenancies Available to Hawaii Owners

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H-1 No Contingency on Obtaining Cash Funds

Buyer's Viewpoint

If you have easy access to the cash, then there is no contingency. Sometimes the cash is contingent on receiving a gift from a family member, or perhaps selling another property.

Verification of funds is normally due 5 days into the escrow process. You can verify using a bank statement or a screen shot from your account online. You can even take a photo of the screen and we could use that. You are welcome to cross out your account number if it is on your statement, although most screen shots only show the last 4 digits of the account. Another option is to have a letter written by your banker stating you have the cash.

Our fax number is 1-866-612-9082 if you prefer to fax your proof of funds to us.

Seller's Viewpoint

If this is not checked, then look at H-2 below it to see what the contingency is on getting the cash funds. This is critical, because without the funds the buyer will have the right to cancel the escrow. If H-1 is checked then the buyers have the cash and will send you proof of funds within the time stated in H-1(a).

 

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H-2 Contingency on Obtaining Cash Funds

If there is a contingency on coming up with the cash it needs to be listed here including when the funds will be available, so the buyer can prove they now have the funds, essentially removing this contingency.

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H-3 Financing Contingency

Be careful with this one, as it could put your deposits at risk.

If you are not able to satisfy all the conditions in the conditional loan commitment letter within the time mentioned in H-4, you must cancel prior to H-4 expiring. If you do not, then you will lose your deposits should the loan not fund.

If you made all your deadlines, but the lender still can't fund the loan, then you need to cancel prior to the closing date and prior to breaching the contract, otherwise you will lose your deposits.

If it looks like your lender is going to miss a deadline, then request an extension sooner rather than at the last minute. If the seller does grant an extension, you must decide if you want to continue and risk your deposits or cancel prior to the H-4 time periods expiring.

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H-4 Buyer's Obligations

Normally we deliver the pre-approval when we make the offer and assuming you have chosen a lender within 3 days after acceptance you are good. This is designed to prevent buyers from waiting too long to select a lender, thereby not being able to close on time. A conditional loan commitment letter is normally due 15 days before closing. Keep in mind it is important to get that commitment letter, as per H-5 the seller can cancel if you are late. Most of the time they won't, but if they have a better offer or have been struggling with the escrow or with other things they might take this opportunity to cancel within the terms of the contract.

If you are not able to meet the conditions it is important you either extend H-4(d) to allow for more time, or you cancel prior to the expiration date. After the expiration date your finance contingency has expired, and if the lender can’t do the loan, you might not get your deposits back.

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H-5 Seller's Right to Cancel

Make sure all the time frames in H-2, H-3, and H-4 are met, otherwise the seller does have the right to cancel. Normally they won't, but if they have a better offer or are frustrated with the escrow process they might.

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H-6 Confidentiality

All financial information should be kept confidential.

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I-1 Seller's Obligation to Disclose

Buyer's Viewpoint

The disclosure is where the seller can tell you about any problems they know about with their property. It is important to look over the disclosure carefully. If you see something you do not like, you have the right to cancel. Please be aware that if you are buying the property As Is, the seller still needs to make a complete disclosure. If a new problem comes up during the escrow period that changes the value of the property, the seller will have to add it to the disclosure, and this new amended disclosure gives you the ability to cancel again.

It is in the seller's best interest to disclose everything. Not disclosing something is the number one cause of lawsuits after the sale. As our attorney tells sellers, they can't get sued for what they disclosed, only what they did not.

Seller's Viewpoint

This is the most important contingency for sellers. Failure to disclose a material fact could put you on the wrong end of a lawsuit. The rule we go by for the disclosure is if you must think about whether an issue is important enough to disclose, then you should disclose it. The rule our company’s attorney gives us is you can’t get sued for something you disclosed, it is only when you don’t disclose something that an issue can later come up. Keep in mind the "As Is Addendum" does not change any of the disclosure requirements.

If the buyer does not sign off on the disclosure prior to the deadline, then by default they have accepted it.

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I-2 Seller's Obligation Upon Later Discovered Information

The seller must provide an amended disclosure statement if the seller discovers something that substantially and adversely affects the value of the property. The key is substantially. For example, a missing smoke detector would not require an updated disclosure, but if the termite inspection uncovers some substantial damage, then the disclosure should be updated. This update is important because you get normally get 10 days to decide if you want to continue or cancel based on this new disclosure.

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I-3 Seller's Disclosure is Not a Warranty

You still need to get a professional inspection. Just because the seller does not say there are problems with the roof, or anything else, does not mean there are no problems or give you any type of warranty that there are no issues. A seller might not know about all the issues with their property, and they can only be expected to disclose what they know.

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I-4 Buyer's Rights and Obligations Upon Receipt of Disclosure Statement or Amended Disclosure Statement

When you receive the disclosure or an amendment to it, normally within 3 days you must sign that you have received it. Keep in mind you are not approving it, just saying you received it. You then will normally have 10 days to review it and decide if there are any issues you are not comfortable with. If there are you can either cancel or negotiate with the seller for a credit or price reduction or repair.

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I-5 Buyer's Rights and Obligations Upon Later Discovered Inaccurate Information

If a buyer finds something that was not disclosed and substantially affects the price of the property they have the right to cancel. Paragraph O-2 would apply, so the buyer would get their deposits back. The buyer can always negotiate a repair or credit too if desired, as the seller might prefer to negotiate a credit or price reduction vs. falling out of escrow. There is no definition of what "substantial" means, and I believe it is relative to the price of the property. This one can be difficult to use to cancel. The seller might argue that the new disclosure does not substantially affect the property price, therefore a new disclosure is not required, and the buyer has no right to cancel.

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I-6 Buyer's Remedies Regarding Mandatory Seller's Disclosure Statement

If you cancel because of the Disclosure Statement you can get your deposits back but not sue for additional damages. If the seller refuses to provide a Disclosure Statement then you can get your deposits back, plus go after the seller for actual damages.

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I-7 Seller's Obligation to Disclose on Non-Residential Real Property

Even if the property is not considered residential, if this contract is used, the seller still must provide a disclosure statement.

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I-8 General Disclosures

This section protects the seller. It goes over many of the issues a buyer might face. Remember, once something is disclosed, the buyer can't sue the seller for not disclosing that item, so disclosing all these standard issues that might come up is good protection for the seller and a reminder to the buyer to check into these issues further during their inspection.

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J-1 General Inspection of Property Contingency

Buyer's Viewpoint

This is your most important contingency because you can cancel for any reason and get your initial deposit back. We use 12 days to complete this inspection period. You might see a counter of 7 to 10 days. You will want to make your decision on the inspection before this contingency expires, because after the deadline you have accepted the home inspection by default. Also, if you are going to be asking for repairs or credit, it is important to not wait until the last day to do this. It is better to give the seller a few days to think about it or negotiate it.

If the "As Is Addendum" was used, it does not change your rights during the inspection. You can still cancel, ask for credit, or ask for repairs. The seller has the right to say yes or no, regardless if the "As Is Addendum" is used. The "As Is Addendum" just sends a message that the seller does not want to make a lot of small repairs.

If some issues come up which require additional inspections, please let us know as soon as possible. For example, perhaps the home inspector recommends having an electrician look at something. If you are running tight on time and need more inspections, we can request an inspection extension from the seller's agent.

We always recommend using a professional home inspector. If you have not done so already, please do select a home inspector, as the good ones have a very busy schedule, so it is good to get on their schedule as soon as possible. We can setup the appointment for you, just let us know who you would like to use.

Buyers will normally walk around the property with the home inspector once the inspection is completed. However, many buyers are off island and in that case the home inspector sends a detailed inspection report along with photos of any issues. The buyer can then talk to the home inspector over the phone to ask questions instead of doing to walk around.

Keep in mind you will still be getting a termite inspection later in the escrow. If this home has a pool you should get a separate pool inspection. We can set that up to for you too if you like. If this home was built prior to 1978 you should read about lead paint and asbestos. You also can read this article about Asbestos Exposure and Home Remodeling. If there were any water leaks you might want to read about mold.

After the home inspection is completed you can continue with the purchase, cancel, ask for credit, or ask for repairs. The seller is not obligated to do anything, but you have the right to cancel should you not be satisfied anymore with this purchase.

Many sellers will fix electrical and plumbing issues, but not do upgrades.

Seller's Viewpoint

Other than making sure all utilities are on, nothing else needs to be done. Your home should be the same way you left it prior to the inspection.

After the inspection, the buyer can accept the inspection, ask for repairs, or ask for credit. You have the right to say yes or no to any request, and the buyer has the right to cancel if you are not able to come to an agreement.

Normally sellers will fix previously unknown safety issues, and sometimes unknown plumbing and electrical issues, especially if there is any leak found. The concept is the buyer did not know about those issues prior to the inspection, and they are important issues. New paint, carpet, and other upgrades are normally not done by the seller. These are things the buyer knew about when they first walked through, and they already adjusted their offer accordingly.

Sometimes an extension is needed to give extra time for another inspection. For example, if the home inspector recommends having an electrician look over something, the buyer might need a few days extra to get the electrician out. We will let you know right away if this happens.

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J-2 Recommendation Regarding Home Inspection

It is strongly recommended you get a professional inspection, and if the property has a pool get a pool inspection. If it has a cesspool or septic tank, get those inspected too. The home inspector might also recommend an additional inspection if they see some areas of concern. For example, some roof issues or electrical issues might require a roofer or an electrician to come out.

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J-3 Property Condition Maintenance and Final Walk Through

Buyer's Viewpoint

The final walk through initially looks easy--the seller must have the property in the same condition as they did during the inspection period. Also, if they agreed to do repairs, then those repairs should be completed. It sounds easy, but issues can come up.

The seller or tenant does not have to be out of the home prior to the final walk through. The contract says the seller or tenant must be out of the home prior to closing. Sometimes the seller's furniture is covering damage on the carpet, or they damage the wall when removing some heavy furniture. Unfortunately, the final walk through might not discover this if the seller moves out after it is completed.

Another issue is what happens if something new is discovered to be a problem. This is where J-4 comes in and it confuses most buyers. Most sellers are honest, and if they damage something on the way out they will pay for it. Unfortunately, there could be a time where something is damaged, and they don't pay for it. In that case, if they refuse to sign an agreement to pay for it, the only option for the buyer is to sue them after the closing. Most of the time the items in question are minor, so it is a lot less expensive to fix the item instead of hiring an attorney.

Should the buyer delay closing then they would be in breach of contract and at that point the seller could ask to keep their deposits, cancel the escrow, and sue the buyer for damages for breaching the contract, so delaying closing is not an option.

Seller's Viewpoint

You do not need your personal belongings out prior to the final walk through. Depending on the contract you might need to have junk removed from the property prior to the walk through, but not your personal belongings. Sometimes the cleaning deadline is prior to the walk through, and sometimes it is after. There is nothing in the contract that says the property must be cleaned prior to the final walk through, it just depends on where the dates fall of the cleaning and walk through.

The home should be in the same condition as during the inspection, so if anything broke, or was damaged since the inspection, you should repair it. The buyer does not have the right to automatically hold back funds if they find a problem. You would need to agree to the hold back.

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J-4 Withheld/Collected Funds for Repairs/Maintenance

This paragraph sounds good to buyers because it sounds like they can hold back some money if repairs are not completed to their satisfaction. The truth is they must have the seller's agreement for any hold back of funds, so it is really an item to negotiate with the seller, and not an automatic right to hold back money. If the seller does not agree to hold back money, the buyer does not have the right to cancel, so the buyer does not have much negotiation leverage. The only way the sellers will allow this is if they feel the buyer is right and they should have some money held back.

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J-5 No Continuing Warranty

There are no warranties when buying a home. In some cases, you might have a warranty on a new appliance, or the seller might provide an American Home Shield Warranty, but if nothing is stated about this then there is no warranty.

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J-6 Home Warranty Programs

If you are interested in buying a home warranty you can visit https://www.ahs.com. They have all types of warranties from basic to more inclusive. I would say only about 3% of the homes we sell add these warranties, so they are not so popular.

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J-7 Existing Warranties, Plans, etc.

If the seller has warranties they should provide the documentation to you so you can follow-up as needed to see if it transfers to the new owner. However, they might not have any warranties, and most of the time unless it is a new home they won't have blueprints, so they just supply what they can find.

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J-8 Removal of Items from Property

This one has some buyers confused because it is not asking the seller to remove their personal stuff, only the junk that they don't want to take with them. It is not a date when the sellers must have the house empty. If there is a lot of old junk in the yard or in storage this is the time the seller needs to get rid of it by.

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J-9 Cleaning

Buyer Viewpoint

Unfortunately, we have seen a lot of unsatisfied buyers regarding the cleaning. The issue is if you don't like the cleaning the seller did, you do not have any automatic recourse. If the seller agrees their cleaning was bad, then they can offer a credit, but if they feel they cleaned it well, the you must close and get it cleaned to your level of satisfaction after the closing.

A professional cleaning is not required other than on carpets, where a professional cleaning is required. If there are carpets, we can request a receipt from the professional carpet cleaning. Also, if pet treatment needs to be done we can request a receipt from the pet treatment.

The rest the seller can do it themselves should they choose to. Normally the cleaning needs to be done 3 to 7 days prior to closing.

Seller Viewpoint

You do not have to get a professional house cleaning, although it might make it easier for you. If you have carpets then they do have to be professionally cleaned, and in addition if you pet treatment was checked you would need to get a professional pet treatment. The cleaning normally is done before the final walk through, but you could do it after depending on the terms of your contract.

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J-10 Pet Related Treatment

If the seller has a pet, the buyer should select this option. The treatment is for fleas and ticks by a licensed professional, the seller can't do it themselves.

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K-1 Staking

This paragraph is not normally used. We normally use K-2 instead. The issue with this one is it does not confirm if there are any encroachments, which is one of the main reasons to do a survey.

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K-2 Survey

Buyer's Viewpoint

The survey will show you the boundary and if there are any encroachments. If an encroachment is found, you can ask the seller to get an encroachment agreement. If they are not able to get it, you can decide to continue without it or cancel.

Most encroachments are minor, and have been that way for many years, so normally they are not an issue. Your lender and escrow should have no problems closing with minor encroachments. De Minimis for surveys means you can encroach up to 6 inches without it being an issue. As surveys use a percentage of 1 foot for their measurements you are allowed up to .5 ft. on the survey. If it is over .5 ft. you have an encroachment situation, if it is .5 ft. or less then it is not an issue.

Seller's Viewpoint

If an encroachment is found the buyer might request an encroachment agreement. If so, escrow can write it up, and you would ask you're the neighbor to sign it. Sometimes buyers do not request an agreement, as they understand the encroachment has been there for years. Even with an encroachment the lender can still do the loan, and escrow can still issue title insurance. Please be aware if you have an encroachment and can't get an agreement, the buyer would have the right to cancel.

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K-3 Boundary Encroachments

If there are encroachments you can accept the property with them. This is the most frequent option. The title can still be insured, and lender can still do the loan, and many times the encroachment is a matter of inches so it's not a big deal. Also, it might be from a wall or fence that has been there for many years and everything is fine with it. There is a de minimis law that states anything 6 inches and under is allowed, unless the encroachment goes into the street. Surveys go by percentage of 1 foot, so for example .5 is 6 inches, and .5 and under is OK, it is not an encroachment. Anything over .5 on the survey is an encroachment. You can leave it as mentioned above, or you can ask the seller to get an encroachment agreement, or you can cancel. Most of the time it is left in place, sometimes an encroachment agreement is requested. Rarely are the encroachments so severe that the buyer cancels. One other option is for the seller to remove the encroachment.

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K-4 Staking/Survey Discrepancies

If there is a discrepancy which substantially affects the value of the property they need to update the disclosure and that gives you the ability to cancel again based on that updated disclosure.

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L-1 Scope of Termite Inspection Report

Termites are common in Hawaii, and sometimes they can cause some damage.

This paragraph is reminding you that the termite inspection is non-invasive, so there could be damage that the inspector is not able to see, behind drywall for example.

However, we have never seen a home that had termites where the inspector missed it and did not recommend tenting, so it seems if there are live termites the inspector will find the signs and recommend tenting or in some cases spot treatment.

 

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L-2 Termite Inspection Contingency

Buyer's Viewpoint

Even though the seller normally pays for the termite inspection, it is your very important right to choose the termite inspector. We have two good inspectors we recommend. Jamie Neely is one. He has completed over 25,000 termite inspections since 1973. Another option is Fred Chang. Fred has been doing this for 35 years. You can reach Fred at 225-1888.

The inspection report is normally delivered around 15 days before closing. Some lenders don't accept a termite inspection report that is over 30 days, so it is important to do it closer to closing. Also, sellers do not want to pay for a termite inspection until most of the other contingencies have been removed.

Keep in mind you can't cancel if there are termites. The seller than must treat the termites, and deliver an updated report stating there are no termites no later than five days prior to closing. The only way you can cancel from a termite report is if the inspector finds substantial damage that creates an updated disclosure, and then you could cancel based on the updated disclosure.

That normally does not happen, because if there is substantial termite damage the home inspector will see it, so you will know about it during the inspection period and can decide what to do about it then.

Seller's Viewpoint

It is very important that the buyer picks the termite inspector. This way if the inspector misses anything, they can't say it was because you picked a bad inspector.

You do not have to be present nor do anything special for the termite inspection. In fact, it is important not to do anything that might make it harder for the inspector to do their job, such as covering something, or sweeping away fresh droppings. If they find live termites, the inspector will recommend treatment. Normally for Single Family homes this means tenting, but sometimes spot treatment is all that is needed. You can choose who does the treatment, as normally the seller pays for it.

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L-3 Termite Damage

If there is termite damage that substantially affects the value of the property, then the seller will need to update the disclosure, and this gives the buyer the right to cancel based on the updated disclosure. They do not further define what is "substantial" and while buyers and sellers can probably agree that under $1,000 is not substantial, as it goes over $1,000, it does start to become more substantial.

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L-4 Latent or Hidden Termite Infestation and/or Dame

This clause is designed to protect the seller and the seller's broker if additional termite damage is found which they did not know about and could not have been found during the termite inspection.

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M-1 Contingency on Documentation Approval

Buyer's Viewpoint

If you have any concerns with the condo docs you can either cancel escrow, negotiate a credit, or negotiate a price reduction with the seller. Things you should be looking for include special assessments, fee increases, and potential lawsuits. These things would normally be discussed at the meetings, so it is important to review the meeting notes.

You will also want to review the RR105c. This is a form almost all condos use, and one question asked is do they have any lawsuits, arbitration, etc. This is important to know. They also talk about if any dangerous substances have been discovered, such as asbestos, lead paint, mold, etc. They also talk about the condition of the condo. Think of the RR105c like a disclosure statement, but for the shared areas, not your specific unit.

Please keep in mind M-2 which states that Realtors do not read through these documents for you. It also reminds you that the fees will probably go up in the future.

Seller's Viewpoint

It is very easy to provide the condo docs. You can order them online securely via credit card. It takes 5 to 10 business days to receive the documents, some allow rush orders, and some don't. The good thing is, once you place your order, there is nothing else to worry about. A complete package will be provided to the buyer. If they see any issues in the documents that concern them, they would have the right to either cancel or request a credit.

Condo docs are like a disclosure, but for the Home Owners Association and the shared areas of the property. Because they are a disclosure is it very important to order all documents and not try to put them together yourself. If you do not provide all documents, there might be an issue after closing if the buyer was not made aware of something in those missing documents.

If the buyer does not sign off on the documents prior to the deadline, then by default they have accepted them.

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M-2 Review of Documents

This disclosure says that the Realtors do not read through all the documents provided in M-1 so you should read them, or if you need assistance it is recommended an attorney helps. It also reminds you that the fees will probably go up in the future. Sometimes these fee increases are covered in the documents received in M-1.

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M-3 Documents Issued During the Escrow Period

If any new documents come out during the escrow period, the seller should provide them to the buyer.

If these new documents reveal something substantial, then the disclosure needs to be updated and this gives the buyer the opportunity to cancel if they do not like the update.

Sometimes there is a charge for these documents and the seller is responsible to pay the charge.

All documents need to be up to date.

Escrow can make sure you provide all the latest documents. This is important for the seller because out of date documents would leave the seller open to increased liability after the sale closes.

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M-4 Common Element Discrepancies

The seller does not repair common elements such as the hall, roof, sidewalks, etc.

If there is a problem with the common elements, the seller should report the issue to management and management is responsible for taking care of it.

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M-5 Electronic Delivery of Documents

To save paper and printing costs, most of these documents are delivered electronically now. This paragraph clarifies that it is OK to do so.

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N-1 Rental Documents

If the property is currently a rental, this should be checked along with the appropriate documents needed.

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N-2 Delivery of Possession of the Property at Closing

If this is checked, there should be no tenants in the property at closing. If the tenant does not leave on time which sometimes happens, then the buyer and seller must either negotiate a new closing date or the buyer can accept the property with the tenant in place.

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N-3 Rental Agreement Changes During the Escrow Period

No changes to the rental should be made during the escrow period unless both the buyer and seller agree on the change.

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O-1 Termination Due to Default

If the buyer defaults, the seller can request to keep the deposits and sue for additional damages.

Most of the time sellers just want the deposits, but I have seen cases where they want damages too.

To get the deposits, the buyer must agree to release them to the seller.

There is no automatic right to get the deposits, and escrow will hold onto the deposits until a signed agreement is reached.

If an agreement is never reached, escrow will eventually hire an attorney to decide on the deposits, but this is very rare.

Normally mediation is the first step if an agreement can't be reached on the deposits.

If the seller defaults, normally the buyer will request their deposits back and move on, but they do have the right to ask for additional damages.

Buyers default more frequently than sellers, many times because they can't get their loan in the time frame specified. Normally they will reach an extension agreement, but after the extension, if the loan still is not completed the seller might lose patience and ask to terminate the contract and reference this paragraph.

 

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O-2 Termination Within Contingency Time Period

This paragraph is important because paragraphs like J-1 (the inspection period) refer to it to cancel.

The important part is underlined.

If you don't let the seller know in writing prior to the expiration date, then you have lost your ability to cancel for that contingency.

Buyers should keep in mind the inspection--they have accepted the inspection by default if there is no signed agreement prior to the deadline.

This means if the buyer requests for repairs or credits and the seller has not responded by the deadline, then the buyer has accepted the inspection by default. The seller can still choose to honor the buyer's requests if they want to.

So, buyers should be very aware of important deadlines like this and if the seller needs more time to respond, ask them to sign an extension rather than going past the deadline and losing your ability to cancel.

 

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O-3 Termination After a Specified Contingency/Condition Time Period

This paragraph gives the seller or buyer the ability to cancel normally up to 5 to 7 days after the contingency time has expired. If you miss the deadline in this paragraph, then you can no longer cancel.

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O-4 Mediation

This paragraph suggests that if the buyer and seller have a dispute, they should mediate vs. litigate. The mediation is voluntary and non-binding, but many times it is the best first step to solving the dispute. If the claim is regarding the ethics of an agent, that complaint should be brought to the attention of the Honolulu Board of Realtors.

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O-5 Arbitration

If mediation does not work, they then encourage arbitration. Arbitration could be binding, and you should seek the advice of an attorney before deciding to arbitrate. Again, this is not required but suggested.

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O-6 Third Party Claims

If a 3rd party does not want to mediate then there is no need to do so.

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O-7 Choice of Law and Forum

As the property is located on Oahu, the laws of the State of Hawaii are followed. All legal action, mediation, arbitration, etc. should be done in Oahu.

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O-8 Attorney's Fees

If a party defaults, the other party has the right to recover all costs including reasonable attorney's fees.

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P-1 Hawaii Real Property Tax Act (“HARPTA”) Withholding Required if Seller is a Non-Resident of the State of Hawaii.

First, this only applies to sellers, so if you are a buyer you can stop reading. If you are a seller that 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 the state and federal government 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 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.

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P-2 Foreign Investment in Real Property Tax Act (“FIRPTA”) Withholding Required if Seller is a Foreign Person.

If the seller is not a foreign person, then escrow will withhold federal tax unless an exemption is received. This does not affect the buyer. View the FIRPTA Flow Chart

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P-3 Additional Disclosures Required by Foreign Buyers and Sellers

Foreign buyers and sellers must disclose this fact.

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Q Special Terms

Always read this paragraph because anything that is not covered in the rest of the contract is placed here. It is critical to review and understand any special terms.

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Building Permit Package

The Building Permit Package is another important disclosure that sellers can provide to buyers.

Our attorney states you do not get sued for what you disclose, only what you do not disclose. So by provided the Building Permit Package, you are completely disclosing the building permit situation to the buyer.

This prevents the buyer from coming back after the sale and claiming they were not aware of the Building Permit situation and therefore they want you to pay for something for not disclosing this.

The cost for this package as of 2018 is $135. Sellers do not have to do anything other than fill out a simple online form.

Here is what is included in this package as stated on their website.

INCLUDES: "HRPR Report Summary" summarizing the contents of the report including permit date permit purpose & status: Copies of all building permit applications on file w/C&C Dept. of Planning & Permitting from 1938 to present. DPP computer printouts including HIPS/Posse database showing permit status, evidence of any outstanding building permit violations, Land Use information, Tax Office computer printouts, copies of Tax Office field book information a copy of C&C real property tax map for the subject plat. A copy of Flood Hazard Assessment Report from the State of Hawaii DLNR, Engineering Division. (documents included if available or applicable).


R-1 Scope of Services and Disclaimer by Brokerage Firms

This protects the brokerage firms by going over all the things that Realtors are not experts at and recommending they speak to an expert. It also helps the buyer and seller to understand that the brokerage firm is not providing any warranties.

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R-2 Rental Property

If the buyer will rent the property after closing, the brokerage firm make no guarantees about future rents.

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R-3 Future Resale Value

Brokerage firms don't make any guarantees about the resale value.

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R-4 Obligations

If you decide not to do a professional inspection and it turns out there are some problems you were not aware of, you can't blame the brokerage firm. The same goes for things like the condo documents. If you do not read them closely and there is a surprise that comes up after closing, the brokerage firm is not responsible for it.

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R-5 Permission

You are giving permission for the sold amount to be shown to the public so other buyers and sellers can use this information for the comparisons.

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R-6 Disclosure of Real Estate Licensing Status

If anyone in the immediate family is licensed, then it must be noted here.

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S-1 Acceptance Date

This is the date escrow starts, even if it is a weekend or holiday. Also, if the documents are signed at 11pm at night, it still starts on that day even though there is only 1 hour left in the day. The acceptance date is critical as many contingencies are based on a certain amount of days after the acceptance date.

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S-2 Dates and Times

The contract does not account for holidays, weekends, etc. If something expires in 7 days, that is 7 calendar days. If the closing date falls on a weekend or holiday, then it is extended automatically to the next day that the city and county are open.

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S-3 Time is of the Essence

Buyer and sellers need to perform on time for all things listed in the contract. There are no automatic extension rights on any paragraphs.

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S-4 Electronic (Digital or Fax) Signatures

DocuSign signatures are fine, as are faxed signatures. We do not need original handwritten signatures. Escrow will require original handwritten signatures, but for this contract it is not required.

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S-5 Counterparts

The buyer and seller do not have to sign the same document. They can sign separately, and it is still valid. This can help speed up getting signatures as the same document does not have to be passed around.

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S-6 Complete Agreement

It is important that no verbal or emailed agreements are reached outside this agreement. If something is said verbally or via email it is not valid as part of this agreement. To amend this agreement requires signatures from both the buyers and sellers. This is important as sometimes Realtors will tell you something but keep in mind unless it is in writing and signed by both parties then it is not a valid agreement.

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T-1 Acceptance of Purchase Contract

If the seller accepts with no counter offer they check this paragraph.

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T-2 Counter Offer

If the seller wants to submit a counter offer, then this paragraph should be checked.

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T-3 Agreement to Pay Commission to Brokerage Firm

This is the amount the seller agrees to pay their brokerage firm. This amount is then divided between the buyer's agent and seller's agent. Normally a buyer's agent will get 2.5% to 3% of the total purchase price. The OahuRE Rebate is based on what percentage of the purchase price we get.

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