Real Estate FAQ
BUYER VS. SELLER COSTS
- Lenders Policy
- 50% of Escrow Fee
- Cost of drafting mortgage or agreement of sale
- Cost of obtaining Buyers consent
- Buyer’s notary fees
- All recordings fees except documents relating to clear Seller’s title
- Condominium and Association ownership transfer fee
- FHA or VA discount points and any mortgage fees
- 60% of the premium for standard coverage title insurance
- 50% of Escrow Fee
- Cost of drafting conveyance documents and bill of sale
- Cost of obtaining Seller’s consent
- Seller’s notary fees
- Cost of required staking or survey
- Cost of required termite inspection report
- Cost of required Condominium and Association documents
- Recording fees to clear Seller’s title
- FHA or VA mandatory closing fees
- Conveyance Tax
- FIRPTA (Federal withholding tax)
- HARPTA (State withholding tax)
Standard Allocation of Closing Fees
40% of the premium for standard coverage title insurance and any additional cost relating to the issuance of extended coverage policy
What is HARPTA / FIRPTA?
- Hawaii Resident (Must fill out form N-289, which is provided to seller in opening instructions)
- Foreign corporations and partnerships which are registered to do business in the state of Hawaii (Must fill out form N-289, which is provided to seller in opening instructions)
- Property used as principal residence for year prior to the sale and sales price does not exceed $300,000
- Sales Price $300,000 or less and the buyer acquires as personal residence No Withholding
- Sales Price more than $300,000 but not more than $1,000,000 and the buyer acquires as personal residence 10% Withholding
- All transactions - Any Sales Price and the buyer NOT acquiring as personal residence 15% Withholding
- Buyer acquires for use as a personal residence and sales price not more than $300,000.
- Seller provides Non-Foreign Affidavit
- Seller provides a Withholding Certificate from the IRS which excuses the withholding
- The amount realized by the seller is zero
- The property is acquired by the United States or a political subdivision thereof
HARPTA - The Hawaii Real Property Tax Act (1990) which says that a sale of Hawaii Real Estate by a Non-Hawaii resident is subject to a Hawaii State Tax. The tax liability belongs to the seller, and 5% of the total sales price will be withheld and submitted to the State of Hawaii Department of Taxation. There are some exemptions from this withholding:
FIRPTA - Under current federal law, if a foreign person sells US real property, the buyer is obligated to withhold 10% of the gross sales price and remit this to the lRS. However, pursuant to the Protecting Americans from Tax Hikes Act of 2015, which became law on December 18, 2015 (the “PATH Act”) the required 10% withholding will increase to 15% for all closings occurring on or after February 17, 2016, except those wherein the sales price is greater than $300,000 and does not exceed $1,000,000 and the buyer acquires the property for use as a personal residence. Under the circumstance, a reduced withholding of 10% will apply.
In short, if a foreign person is selling a US real property interest, the following parameters apply UNLESS THERE IS AN EXCEPTION FROM WITHHOLDING:
No withholding is required under the following circumstances:
Leasehold vs Fee Ownership
What Is Fee Simple Ownership?
Fee simple ownership is probably the most familiar form of property ownership to buyers of residential property, especially on the US Mainland. Fee simple is sometimes called fee simple absolute because it is the most complete form of ownership. A fee simple buyer acquires ownership of the entire property, including both the land and buildings. The fee simple owner does not pay ground rent, but does pay maintenance fees and real property taxes. The fee simple owner has the right to possess, use the land and dispose of the land as they wish - sell it, give it away, trade it for other things, lease it to others, or pass it to others upon death.
What is Lease Hold Ownership?
A leasehold interest is created when a fee simple landowner enters into an agreement or contract called a ground lease with a lessee. A lessee buys leasehold rights much as one buys fee simple rights; however, the leasehold interest differs from the fee simple interest in several important respects. First, the buyer of residential leasehold property does not own the land and must pay ground rent. Second, his use of the land is limited to the remaining years covered by the lease. Thereafter, the land returns to the lessor, and is called reversion. Depending on the provisions of any surrender clause in the lease, the buildings and other improvements on the land may also revert to the lessor. Finally, the use, maintenance, and alteration of the leased premises are subject to any restrictions contained in the lease. Conversion of leasehold property to fee simple ownership involves purchasing the landowner's remaining interest, called the leased fee interest. The lessors of many, if not most, leasehold properties are currently offering to sell their leased fee interests to their lessees or prospective buyers of a leasehold property.
What are the property taxes on Maui?
Classification Taxable Land per/$1000 Taxable Building per/$1,000 Residential $5.54 $5.54 Apartment $6.32 $6.32 Commercial $7.28 $7.28 Industrial $7.49 $7.49 Agricultural $6.01 $6.01 Conservation $6.37 $6.37 Hotel and Reservation $9.37 $9.37 Time Share $15.43 $15.43 Homeowner $2.86 $2.86 Commercialized Residential $4.56 $4.56 Rates listed are per $1,000 of net taxable assessed valuation for the fiscal year July 1, 2017 through June 30, 2018.
How are Properties Classified?
Maui Properties are classified based upon its highest and best use. Properties which have been granted a homeowner exemption are classified as Homeowner. Maui condos are classified upon consideration of their actual use (Apartment, Commercial, Hotel / Resort, Timeshare, Homeowner). Properties which have been granted a bed and breakfast permit, a transient vacation rental permit, or a conditional permit to operate a transient vacation rental are classified as Commercialized Residential.
How are Properties Assessed?
Properties are assessed annually at 100% of market value by using the cost and market comparison approaches to value. County ordinance requires that leasehold properties be assessed in its entirety. Therefore, a fee simple value is determined.
Fair market value is the most probable price (in terms of money) a property should bring in a competitive and open market under all conditions requisite to a fair sale, with the buyer and seller each acting prudently and knowledgeably. Locating, identifying, and appraising your property at fair market value is the responsibility of the Real Property Assessment Division of the Department of Finance.
Over the years, great strides have been made to improve the methods used to assess property in a uniform and fair manner. In the County of Maui there are in excess of 68,000 parcels and 70,000 structures that are required to be re-assessed annually. The number of appraisers in relation to the number of parcels in the county prohibits a personal inspection of each property on an annual basis. Normally, the inspection is undertaken only at the time of construction or remodeling. The “Mass Appraisal Method of Valuation” is applied using a computer assisted mass appraisal system. However, each property is given individual consideration.
Values are established annually as of January 1. These values will be used for the tax year which begins July 1 to compute taxes, which will result in your first billing due on August 20.
If you are an owner occupant, you may qualify for the homeowner’s exemption of $200,000 which reduces your net taxable value and the tax rate. If you own and occupy your property as your principal residence and file a Home Exemption Application by December 31, the exemption will take effect the following assessment year.