Contracts

Time is of the essence

Most contracts specifically detail all contractual deadlines. Parties who fail to meet these deadlines will be in default, and the other party may be permitted to terminate the contract. If the contract doesn't outline specific deadlines and a dispute arises, the courts will interpret whether the contractual obligations were met within a "reasonable time."

If the buyer misses any payment deadlines (earnest money, additional deposits, etc.), the seller is permitted to terminate the contract.

Acceptance deadlines for offers and counter-offers must be strictly observed. Failure to accept before the deadline can lead to termination of the offer.

The HAR Purchase Contract

permits buyers and sellers to handle changes to the closing date in one of two ways:

-specifically noting that time is of the essence as it relates to closing and other contractual obligations. Parties may elect to permit one closing date extension. At the time the contract is negotiated, parties must agree on the number of days by which the closing may be extended. After this time period, time is of the essence, and if either party is unable to close, that party may be considered in default, and the other party may terminate the

contract. Automatic closing date extensions are prohibited. The party who is unable to close by the scheduled date

may extend the date by the number of days noted in the contract upon proper written notice to the other party.

After that date, a party who is unable to close may be considered in default and the other party can terminate the

contract. Alternatively, the parties can agree in writing to further extend the closing date.

-Parties may elect to not set an automatic closing date extension, but instead agree that time is of the essence and

any extensions will be separately negotiated by the parties.

Contingencies

-Real estate sales contracts are often contingent on the occurrence of specific event (e.g., the buyer getting financing or selling another property). If contingent event doesn't occur, the party is released from the contract.

-Contingencies should be written with time elements built in and the exact terms and details of how the contingency and potential release of contract will work.

The party who is set to benefit from a contingency may choose to waive the contingency.

-Contingencies must usually be met or waived by certain deadlines, and certainly by closing.

Example: John Lee includes a financing contingency in the purchase contract. If he's unable to obtain financing by

the contingency deadline, he can either terminate the contract or waive the contingency. If he elects to terminate, he must do so in writing by the contingency deadline.

Inspections

-The property inspection contingency is one of the most common contingencies.

-HAR Purchase Contract includes an inspection contingency section.

This contingency permits the buyer to have the property inspected and tested for substances like lead and radon. The contract notes all inspections are at buyer's expense. After inspection, buyer has option of negotiating repairs with the seller, purchasing the property as is, or terminating the contract before the inspection contingency deadline. This deadline is determined between the buyer and seller when negotiating the purchase contract.

-If buyer fails to terminate the contract or negotiate repairs with the seller in writing before the deadline, the inspection contingency is considered waived and buyer is obligated to continue with the transaction.

other contingencies or opportunities for the buyer to terminate the contract pursuant to the termination requirements outlined in the contract. The buyer may terminate based on any one of the following:

-Inventory list of items

-Preliminary title report

-cash funds contingency

-buyer's ability to obtain financing

-Information included in the property disclosure or amended property disclosure

-Information on the property survey

-Information from a termite inspection or failure of the seller to provide termite inspection reports

-Information contained in condo, co-op, subdivision, PUD, homeowners, or community association documentation

Hawaii statute of frauds (HRS 656-1)

requires that all contracts for the sale of (or any interest in) real property must be in writing and signed by the seller or the seller's authorized representative. The parties to the contract must be clearly identified. The law also requires brokerage representation agreements to be in writing and signed.

A valid real estate contract includes five other essential elements:

-The contract must be between legally competent parties

-Offer and acceptance

-Consent

-legal purpose

-consideration

Offer and acceptance

-An offer is a promise by one party (the offeror), requesting something from the offeree in exchange for that promise.

-Acceptance is a promise to be bound by the exact terms of the offer. The offeror can revoke the offer any time before acceptance. The offer may be terminated if the offeree doesn't accept within the stated time period.

Acceptance must be made and communicated according to the terms specified in the offer. If an offer is made through one medium and it doesn't specify that a different form of acceptance can be used, acceptance must be made using that same medium (e.g., an offer mailed would be accepted when the

acceptance is deposited in the mail; an offer made electronically would be accepted using the electronic

medium).

consideration

-Valuable consideration is given when there is an exchange of money for a promise, an exchange of an

item of value for money, or an agreement between parties to do or not do something. One form of valuable consideration in a real estate transaction is the buyer's earnest money deposit. The seller's consideration is the promise to sell the property. Eventually, the consideration will be the property itself.

-Good consideration is a gift, often between family members. The familial relationship fulfills the legal

consideration requirement. It may be stated as, "For love and affection," or something similar.

Listing Contracts

Four general types of listing contracts exist:

-net listing

-open listing

-exclusive agency listing

-exclusive right-to-sell listing

net listing

though not illegal in Hawaii, is definitely discouraged because of the inherent conflict of interest it presents. This type of listing permits the owner to specify a net price wanted for the property. Any amount over this price is paid to the listing broker. Some MLS systems prohibit the use of net listings in the property listing.

open listing

allows the seller to list a property with multiple brokers and permits him to sell the property himself without being liable for a commission. If one of the brokers who's listed the property sells it, that broker is owed a commission, and no other listing brokers will receive compensation. This type of listing may not be submitted to an MLS because it employs multiple brokers.

exclusive agency listing

employs just one broker for a definite time. The seller reserves the right to sell the property himself and not be required to compensate the listing broker. If the listing broker sells the property, the seller does owe the agreed-upon commission.

exclusive right-to-sell listing

most common listing agreement. It employs just one broker and guarantees the broker a commission if the property sells during the listing period.

HAR Exclusive Right-to-Sell Listing Contract contains:

-The agreement date

-Seller(s) name(s)

-Brokerage firm name

-Agent name

-Property address and type

-Listing terms

-Termination/cancellation rights

-Asking price

-Protection period length

-Commission amount

-Brokerage disclosure

-Signatures

listing agreement

a binding contract (a written employment agreement) entered into by a property seller and a brokerage firm with a salesperson or broker representing the firm.

the seller agrees to pay a commission to the brokerage firm if the firm (and the licensee representing the firm) brings a ready, willing, and able buyer who agrees to buy the property on the terms and conditions stated in the listing contract.

e listing contract includes details about the following:

-Circumstances under which the seller owes a commission

-the right to advertise the property, including MLS listings and signage

-Permission to accept deposits from buyers

-The right and obligation to share the commission with other brokers

-The right to cooperation from the seller in preparing for showings and open houses, including the use of a lockbox -The seller's obligation to provide documents, information, and property access as needed to complete the transaction

-The seller's obligation to verify the property description and other MLS information

Circumstances under which the seller owes a commission

-If the agent brings a ready, willing, and able buyer who accepts the terms outlined in the listing agreement, and the seller rejects the offer, the seller owes a commission to the brokerage firm.

-If the agent brings a ready, willing, and able buyer who proposes terms other than those in the listing agreement and the seller accepts the offer, the seller owes a commission to the brokerage firm.

-If the agent brings a ready, willing, and able buyer who proposes terms other than those in the listing agreement and the seller rejects the offer, the seller doesn't owe a commission.

HAR Buyer Representation Contract (Exclusive Right to Represent)

establishes the agency relationship between a brokerage firm and a buyer. The buyer is represented by the firm and all its licensees.

Representation Contracts includes the following information:

-Property type

-Agreement and termination date

-Termination notice requirements

-Dual agency notification

-Circumstances under which buyer will owe compensation to the brokerage firm and amount

-Agreement to permit the brokerage to receive compensation from seller's brokerage and to make up

any difference between the amount paid by the seller's firm and the agreed-upon amount

-Signatures of all parties

-parties agree to use first mediation, then arbitration, as a means of settling disputes before resorting to legal action.

contract details the following brokerage firm's obligations:

-Exercise reasonable skill and care

-Make reasonable efforts to locate appropriate properties

-Promote the buyer's interests with good faith, loyalty, and fidelity

good faith, loyalty, and fidelity

-Seeking a price and terms acceptable to the buyer

-Procuring acceptance of any offer the buyer makes

-Assist in completing the transaction

-Presenting all offers to and from the buyer in a timely manner

-Disclosing known material facts

contract details the following buyer obligations:

Act in good faith to cooperate with the brokerage firm by providing all relevant information necessary to facilitate the property purchase:

-Keep appointments

-Attend inspections

-Return messages

-Advise other real estate agents that the buyer has executed the exclusive contract with the brokerage firm

-Act in good faith toward the completion of any purchase contract entered into

Hawaii Sales Contract Provisions

Buyers typically use the HAR Purchase Contract form to make offers. Once signed by the seller, the offer becomes a binding contract.

HAR contract includes an agency disclosure section:

-types of representation available (seller's agent, buyer's agent, or dual agent). It notes that a separate dual

agency consent form is required if the licensee intends to engage in dual agency.

-Whether the buyer or seller is represented, and if so, the firm's name and whether the firm is a National Association of REALTORS® member

-If the consumer has chosen no agency representation and is therefore a customer (not a client)

-Signatures acknowledging that the consumer received oral or written agency disclosures before signing the

contract

Purchase contracts may contain a variety of clauses:

-property address and tax map key

-Agency disclosure

-Dual agency disclosure if brokerage is representing both buyer and seller

-Earnest money deposit amount and receipt

-List of contract addenda

-Acceptance date and time

-Purchase price, deposit amounts, balance of down payments or cash due at closing, and other funds (loans) that equal the total purchase price

-Disclosure of leasehold status

-Inclusions (personal property that will remain)

-Inventory list (for properties that are sold furnished)

-Exclusions (personal property that will be removed from the property)

-Closing details

-Financing contingency

-Title information

-Cash funds

-Seller's disclosure obligations

-Inspection, maintenance, and warranty details

-Staking and survey requirements

-Termite provisions

-Any related association information and requirements

-Rental property details

-Termination rights and obligations

-Foreign and non-resident buyer and seller obligations

-Additional terms

-Brokerage firm services

-General provisions

-Signatures

-Acceptance or counter-offer information