Congrats your offer has been accepted! Now we've got about 45 days of this fun thing called escrow before I can hand you your new keys. Whether you're a first time homebuyer, or it's just been a few years since you've purchased real estate, or maybe you've never purchased real estate in the State of Hawaii? Escrows definitely don't look the same everywhere, so today we are talking about Buying in Hawaii – Escrow 101.
Opening Escrow in Hawaii
Escrow is opened once we have received a signed purchase contract by all parties. In Hawaii, your escrow is handled through a title and escrow company. They are a neutral third party that basically makes sure that you and the seller do your jobs fulfilling all the terms in your purchase contract. And in the end, they distribute the funds to all parties on closing. On instruction, you will securely send your earnest money deposit directly to escrow (usually via wire transfer.)
In Hawaii you can typically plan on your escrow taking 45 to 60 days. Sometimes we can close quicker if it's an all cash purchase, because there is no loan involved. Your purchase contract includes different contingencies which allow you to terminate the contract within certain timeframes without losing any of your deposits. By contingencies I'm referring to “something that needs to take place” or “a condition that needs to be satisfied.” During escrow there's a lot of things that need to happen. It really takes a whole team of people working on all the components of your transaction. Often this happens behind the scenes, often with people working in tandem with each other to get you to closing day. For example, in a typical escrow there is the buyer, your buyer's agent, the seller, the seller's agent, a home inspector, a termite inspector, a lender, a surveyor, an appraiser and an escrow officer.
We like to give our buyers a basic outline of their escrow timeline highlighting the key dates. Once you've made note of your key dates, remember to stay flexible since as you probably caught on by now, there's a lot of moving pieces and a lot of different people so some dates may change as things come up. There could always be delays even very last minute ones. If you are relocating or planning a move, make sure you have a plan in place if your escrow runs into any unexpected delays. It's also good to be ready to respond quickly to requests from the escrow officer, from you loan officer and from your real estate agent. Any delays from you on required items could also delay your closing. It's helpful to let everybody know the best ways to contact you during escrow and if there's any times you might be traveling or unavailable so that everyone can help coordinate.
The Loan Process
One initial component of your escrow period is your loan process (assuming you are financing.) For most buyers the loan process is often one of the hardest parts of their escrow. And what I mean by that is that it can feel a bit long, a bit arduous, and it can feel stressful because to get a mortgage you need to provide a lot of documentation. So there could be a lot of back and forth between you and your loan officer. It's best to work with a local lender, someone who is working in the same timezone, will work closely with your agent and who really understands Hawaii property and escrow timelines. It's also important that while you're going through this process you don't make any big life changes because your lender pre-approved you based on certain criteria. So when you're at escrow, don't touch those credit cards, don't buy that new furniture yet, don't take out that car loan and don't quit your job! Don't do anything that could potentially affect your credit score or your employment. You don't want to change anything with your financials that could jeopardize your loan in the 11th hour when you're trying to get that final loan approval.
The Preliminary Title Report
As your loan process is proceeding, the title and escrow company will be pulling the Preliminary Title Report. The purpose of this report is to make sure that there are no issues with the property that would prevent you from taking ownership of it. It's important for you to review this and if you have any questions, ask.
Hawaii Escrow Disclosures
Another initial component of escrows are the disclosures, inspections and credits. The seller usually provides a written disclosure statement which we call the SRPDS (Seller's Real Property Disclosure Statement). On this, the seller will disclose any known things about the property – like flaws, prior improvements or potential hazards.
Hawaii Homebuyer Due Diligence
You as the buyer have a certain number of days (typically 14 days after acceptance of your offer) to do your due diligence. This is a time for you to do all of your reviews, inspections, and potentially request repairs or credits based on findings. This is your inspection period and it is one of the biggest contingencies for most buyers. We often refer to this as your J1 since it references J1 of the purchase contract. You'll wanna pay close attention to the expiration date of your J1 period. If you find something totally unacceptable about the property, so much so that you would want to cancel the purchase, this is when you can do that and still get your earnest money back.
Hawaii Escrow Inspections
We highly recommend any buyer gets a least a general home inspection done by a licensed inspector during their J1. On the Big Island these typically start at $500+, depending on the property. And you'll typically pay for it outside of escrow, directly to the inspector of you choice. If you don't know who to hire, your agent should be able to connect you with a trusted inspector and help you get it scheduled. You may opt for (or your loan may require) other inspections. For example, you may choose to get a mold inspection. Some loans require a water test. Or you may want a septic inspection. If it's an older home, a lead paint or asbestos inspections may be wanted or required. In Hawaii, termite inspections are another very common one but they have their own inspection contingency date that is outside of the J1 period. A staking and/or survey are also usually performed during escrow and typically paid for from the seller's side.
Hawaii Home Seller Escrow Concessions
As you do your inspections and perform your due diligence, you will wanna go over any major findings with your agent. You will need to decide if you will ask for any concessions from the seller based on your findings. For example, you may want to ask for repairs or credits on any important items, especially if they're required for your loan. A seller may reject your concessions or they may counter them with a modified negotiation. It's good to keep in mind that depending on the state of the real estate market, sellers may or may not be willing to make any concessions. Try and have realistic expectations and be reasonable when making requests.
Getting Ready to Close Escrow in Hawaii
As we get toward the end of escrow, you'll wanna make sure you have your homeowners insurance policy in place. Also, you wanna make sure you've started the utilities transfer process at least a week before closing. If you try and move in without doing this, you might end up without any utilities for a few days. We'll also do a final walkthrough before closing to make sure everything looks as it should. If any repairs were negotiated, you may want to rehire your home inspector to come with you on this walkthrough to verify that things have been completed correctly. We're almost there!
Once all contingencies are satisfied and you and the seller have fulfilled all conditions of the contract. Once all documents have been reviewed and signed, and you have you final loan approval, escrow will arrange for you to sign your closing documents. This includes the conveyance document, which is the deed.
Hawaii Escrow Closing Date
Now let's talk about your actual closing date, because this is one of the things that surprises and seems to confuse new Hawaii buyers the most. In a lot of places, everybody's together at the closing table, you sign and you get the keys. But in the State of Hawaii, you need to sign on your end – the seller needs to sign on their end – and all your funds need to be deposited at least two business days prior to your closing date. We have to wait for the sale to record. So if primarily you do business on the mainland, or you've chosen a lender that primarily does business on the mainland, this can honestly cause some major misunderstanding on your end. Or there could be confusions between you, your lender and escrow. Often mainland lenders will use terms like ‘Closing Day' and ‘Signing Day' or ‘Funding Day' synonymously, because in a lot of places they happen on the same day. But in the State of Hawaii, we are what's called a good fund state. Therefore we have to wait two more business days before the sale can record. Documents for real estate purchases on the Big Island are actually recorded at the Bureau of Conveyances on Oahu. And the physical documents need to be sent over and be in place the day before closing can occur. This is why your ‘Closing Date' is actually your ‘Recording Date' and not your ‘Signing' or ‘Funding Date.' It takes a little bit of extra time in Hawaii.
On the actual day of closing/recording, the conveyance document gets timestamped at 8:01am. You've officially recorded! Once we get the call from escrow confirming (usually by 9am – which is awesome because it's nice and early in the day) we get to hand you the keys. Yay! You made it! Easy, right?
Hawaii Escrow FAQs
- Can I close early?
If your loan is processed and all parties agree, you could close faster than the closing date on your purchase contract. Although we usually do end up needing all of those days. Sometimes we actually have to close later than the purchase contract date. In Hawaii, either you or the seller has the one-time unilateral right to extend closing by up to 15 days automatically as needed. Usually it's you as the buyer who ends up needing this extension. The closing date can only be extended further beyond this for a situation beyond your control (like loan processing delays or appraisal cancellations). And just to be clear, submitting any of your documents for your loan late or not returning escrow paperwork on time are not items beyond your control. If you need an extension for a reason that was within your control, you'll need the seller to agree. So it's important to pay close attention to the dates on your purchase contract and to fulfill your contractual obligations. Because at this point, if the seller does not agree to a later closing date, you could be in breach of contract and the seller might choose to cancel the escrow, keep your earnest money deposit, and move on to another buyer. And nobody wants that!
- Can I move in early?
No. You cannot move in early. You cannot drop off your boxes early. Even if the house is vacant. Even if your closing date gets pushed back by something out of your control. You also cannot access the property whenever you want during escrow without making arrangements. While legally, you could come to some sort of rental agreement with the seller, we absolutely never recommend this. Because there is way too much liability involved for everyone. The buyer takes possession after recording. All keys go to the buyer on closing day, never before.
- What will my closing costs be?
If you just opened escrow, you've already paid cash for your earnest money deposit. You probably already paid cash for your home inspection. You might be wondering, what other cash do I need to bring to close? You will obviously need to pay the remainder of your down payment. If you are looking for an exact dollar amount, the title and escrow officer (not your real estate agent) will be the ones providing this for you. Because exact closing costs vary for each individual person and for each transaction. The buyer and the seller both pay for different items during closing so I'll briefly touch on some of the typical buyer costs. You as the buyer will pay any fees for the drafting and processing of your loan. Some loans may offer and or require you to pay for points to buy down your interest rate. As a buyer, you will typically pay for the appraisal since it's required for your financing. In Hawaii, you as the buyer typically pays 40% of your chosen title insurance. The escrow and title document fees are split 50%/50% between the buyer and seller. As a buyer you'll need to pay for and secure homeowners insurance by closing day. Property taxes and any HOA fees will be paid by the buyer as well. Any taxes the seller has already prepaid for days that they won't own the property will be prorated to them and escrow. Everyone only pays property taxes for days they actually own the home.
Tax Savings Tip for Hawaii HomeBuyers
If the property is going to be your primary residence, after you close, and if you qualify, you will definitely want to claim a homeowners exemption to save you some money on your property taxes.
Hawaii Escrow 101 Conclusion
If there is ever anything you don't understand about your escrow, your purchase contract, about contingencies, timelines or your closing date, please reach out to your agent so they can go over it in more detail.
Learn more about buying Big Island real estate with the Haleys. We want to know, did anything surprise you about Hawaii escrows? If so, we'd love to hear it. Comment below or send us a message. Until next time, ALOHA!