Hawaii Real Estate Practice
| License Law | Agency | Ownership |
HAWAII LICENSE LAW
Hawaii real estate brokers and salespeople (including
property managers) are regulated under Hawaii Revised Statutes
(HRS)Ch. 467, Ch. 436B, and Commission Rules & Regulations.
Real estate appraisers are regulated under HRS 666K. Sales
licensees must be 18 years of age, complete a salesperson's
course, pass a state exam (administered on a daily basis), and
must work under the direct supervision of a licensed real estate
broker. A broker candidate must work full-time for two years,
participate in at least 10 real estate transactions and complete
a 46-hour broker course in order to qualify to take the state
broker's examination. All licensees need to complete 10 hours of
continuing education courses every two years in order to renew
their active license (renewals on December 31 of every even-
For general information regarding real estate licensing and
registration, go to the Hawaii Real Estate Commission Web Site
Highlights of the License Law
Highlights of the Real Estate Commission's Rules & Regulations
Exempt from the licensing law are:
- a "custodian or caretaker" who works for a single
- an "owner," provided the owner is not in real
estate development or brokerage;
- a receiver, personal representative, or otherwise
acting under court order.
Grounds for revocation or suspension include:
- acting as dual agent without written consent of
buyer and seller;
- failing to obtain written confirmation of who the
- splitting fees with unlicensed person for
referring business; i.e., no finder fees allowed,
unless the person is a licensed broker in another
state or country;
- failing to disclose a material fact (except AIDS).
Requires a physical place of business, one that conforms to
local zoning. Must be a principal broker at the main office and
a broker-in-charge at any branch office.
The Rules of Conduct require that the agent:
The Uniform Professional & Vocational Licensing Act
(Ch. 436B) applies to all licensed professions in Hawaii,
including real estate licensees. Some of the highlights are:
- keep funds in a separate client trust account;
- disclose any interest in property being listed or
- obtain written consent to advertise;
- notify the Commission if the broker is to be
absent more than 14 days;
- immediately transmit all offers to the listing
- disclose to a "for sale by owner" who, if anyone,
the agent represents and who will pay a
Under the Advertising Rules:
- no licensee can advertise "For Sale by Owner";
- agents must disclose if they are active or
- leasehold and fee simple property must be
identified (use LH or FS);
- brokers operating under a franchise must have
their name at least 20% the height of the
franchise name and logo.
- Grounds for loss of license:
- Practicing the licensed profession while
impaired by alcohol, drugs, or disability (mental or physical).
- Aiding and abetting or employing an
unlicensed person to directly or indirectly perform activities
requiring a license.
- Conduct or practice contrary to recognized
standards of ethics for the licensed profession (e.g., NAR Code
- Failure to maintain a record or history of
competency, trustworthiness, fair dealing, and financial
- The failure to maintain a current and valid
license prior to engaging in any activity requiring licensure is
a defense to payment of the commission or fee. The penalty is a
misdemeanor with a one-year jail term.
- Complaints are investigated by the Regulated
Industries Complaint Office (RICO).
- Licenses can be suspended or revoked for five
years for violation of this law as well as Chapter 467, the real
estate license law.
The license law permits real estate brokers to represent
both buyers and sellers. Some practice single agency, but
many practice "consensual dual agency." Those who represent
buyers typically do so under oral non-exclusive arrangements,
even though there is a standard form of buyer representation
agreement available. There is little or no subagency practiced.
Hawaii passed one of the nation's first agency disclosure
laws. It basically requires two steps:
The agency disclosure requirement applies to all real estate
transactions - residential, commercial, new projects,
timeshares, and leases (except less than one year).
- oral or written
disclosure of whom it is the selling broker represents early in
the transaction; and
- written confirmation in the sales
contract (or lease) that timely disclosure was given.
With proper written disclosure and consent, a Hawaii real
estate broker can represent both the buyer and the seller in the
same transaction. There have been several court decisions
holding against the undisclosed dual agent broker and a number of
disciplinary actions based on unlawful and undisclosed dual
agency. The state does not provide a Dual Agency Consent form
nor does the Hawaii Association of Realtors, although most
brokerage firms develop their own comprehensive form.
Most real estate brokers will represent the buyer although
few use a written representation agreement. Unlike a dual agent,
a single agency broker will represent either the buyer or the
seller, never both in the same transaction. Typically, the buyer
agent is paid out of the transaction by way of an authorized
commission split with the listing broker. Only on rare occasions
does the buyer pay the buyer agent directly.
Many real estate agents work for real estate brokers as
independent contractors. The fact the brokerage firm exercises
some degree of control over a salesperson does not necessarily
create an employer-employee relationship if the control does not
exceed the scope of broker supervision required under the
licensing law (Locations Inc. v. Hawaii Department of Labor,
1995). Under a 1996 amendment of the Worker's Compensation law,
a broker is exempted from paying mandatory worker compensation
insurance and temporary disability insurance for its independent
contractors who work on a commission basis only.
UNIQUE FEATURES OF HAWAII REAL PROPERTY
Every state has its own particular characteristics of land
ownership - Hawaii perhaps more than others. Here is a capsule
look at some of Hawaii's unique features:
All mineral rights are reserved to the State, including
controversial claims to geothermal energy rights. The Department
of Land & Natural Resources does issue mining leases on a royalty
The Hawaii shoreline is recognized as a zone rather than a
line, and the State retains title to the beach. The State has
held that the boundary between public beach and private upland is
the "high wash of the waves," as usually evidenced by the
vegetation line. Anyone buying beachfront property should obtain
a shoreline survey, and then have it certified by the State (good
for one year). Most counties have a 40-foot building setback
from the shoreline boundary. Also a good idea to talk to an
architect about additional building limitations, including
requirements for hurricane clips. Flood insurance is required.
The time period for adverse possession is 20 years. Cannot
claim title by adverse possession to
- state/county land;
- parcels more than five acres; and
- property registered in
Hawaii's Land Court system. Claims must be based on a good faith
belief that the occupant actually owned the property in question.
Dower is the 1/3 life interest given to a wife in the
property of her husband upon his death. Dower was abolished for
all properties acquired after July 1, 1977. It was replaced by
the surviving spouse's right of election.
Buyers can choose to own property as tenant in severalty,
tenants in common, joint tenants, or tenants by the entirety
(husband and wife). There is no community property law in
Hawaii. Corporations require at least one Hawaii resident on the
Board of Directors. Other forms of ownership include general and
limited partnerships (must be registered with the Department of
Commerce & Consumer Affairs); and limited liability companies,
effective July 1, 1997.
A unique method of holding title is the Land Trust in which
legal title to property is transferred to, and held by, a
trustee. The effect is to convert the owner's interest from real
property into personal property. This title-holding device has
- avoids ancillary probate of non-residents,
prevents partitioning, and avoids disclosure of true owners'
identity on public records.
Real property taxes are assessed by the respective counties
based on 100% of market value. They are assessed on a calendar
year, but are collected in two installments during the fiscal
year which runs from July 1 to June 30.
There is a special home exemption for owner-occupied homes
(including condominium units). Depending on the age of the
homeowner, a set amount is deducted from the assessed value and
the homeowner is taxed the balance. The landowner must apply for
this exemption in the year of sale for it to take effect the
- it is automatically deducted each year
thereafter until the property is sold.
There is a 4% state general excise tax applicable to income
from services (broker commissions) and investment income (ex.
lease rent, interest on agreement of sale). On short term
rentals under 180 days, there is an additional 5% transient
The Hawaii Real Property Tax Act (HARPTA) requires every
buyer of Hawaii real property (residential/commercial) to deduct
and withhold from a NONRESIDENT seller's proceeds the amount of
5% of the sales price. This withheld money is directed to the
State Department of Taxation to be applied to any Hawaii income
tax due from the seller with regards to the sale of the property
(not applicable to 1031 exchanges). The owner can apply for a
Withholding Tax Certificate if there is a loss and no taxes are
Unlike most Mainland properties, in Hawaii many residential
properties were developed on a long-term leasehold basis under
ground leases. Some of these properties are in prime locations
and are very attractive to buyers. However, it is important to
understand what a buyer receives when purchasing a leasehold
property is the lease and whatever rights and obligations are
The Residential Leasehold Disclosure law is designed to give
a buyer a clear understanding of the terms of the lease the buyer
is acquiring. Typically, at the end of the lease term the
property and improvements revert to the lessor. The buyer is
entitled to a 10-day right of rescission. This law applies to
residential single-family property and residential condominiums.
Most residential transactions involve the use of a multi-
page standard form called the DROA (Deposit Receipt, Offer and
Acceptance). This form is published by the Hawaii Association of
REALTORS (HAR) and is available for use by non-REALTORS® (for
ordering information, go to http://www.hbr.com and click on
"Products We Sell" - also includes the Exclusive Listing
Typically, a real estate broker helps the buyer and seller
with completing the offer and acceptance portions of the DROA
contract. Although it is advisable to consult a real estate
attorney prior to signing the contract, most transactions are
closed through a licensed escrow company and do not involve an
attorney until the final stages of closing when the conveyance
document is prepared.
Here are some key contract issues:
- DROA typically provides for a modest earnest money
deposit from the buyer, although this is not required by law.
- Real estate contracts must be in writing (Statute
- Contracts with minors (under 18) are voidable.
- Statute of Limitations for contract actions is six
- If seller rejects the offer, the broker must give
a copy to the buyer.
- Any changes by the seller to the offer is a
counter-offer (there is a standard HAR counter-offer form to use
in this event).
- There is no general right of rescission although
the buyer often has a right to rescind under condominium,
subdivision, and timesharing laws and under special disclosure
laws (leasehold, lead, property condition).
- Buyer and seller can check a box electing
arbitration in the event of disputes.
- Real estate contracts, including options, may be
assigned unless specifically prohibited in the contract.
- Contracts in amounts less than $25,000 need to be
written in clear understandable language under Hawaii's Plain
Language Law (ex. listing agreement).
Hawaii was the first state to pass a condominium law in the
early 1960s, originally called the Horizontal Property Regime
(HPR) and now the Condominium Property Regime (CPR). This form
of individual ownership quickly became more popular than the real
estate co-operative ownership of multi-unit residential
Because of the scarcity of land, high-rise condominium
buildings are plentiful. Some are located on leasehold land,
thus creating unusual ownership interests, such as a fee simple
interest in the apartment subject, however, to a 65-year ground
lease. And, if the purchaser buys the unit from a seller under
an agreement of sale (the seller keeps legal title and the buyer
receives equitable title), you can see the importance of using a
real estate attorney to explain the rights and interests of all
the parties to the transaction.
The Condominium Property Regime (HRS 514A) covers the
creation, sale and management of condominiums. For an introduction to condominium development and project
registration, go to http://www.hawaii.gov/hirec/condo/cpr.htm.
Some condominium projects are managed better than others.
To assure that there is enough money in the maintenance reserve
to cover future replacement and repairs, the CPR has strict
requirements for association budgets and replacement reserves.
For a series of questions and answers about condominium
association budgets and reserves go to
http://www.hawaii.gov/hirec/condo/reserves.htm. And, for copies
of the informative Hawaii Condominium Bulletin (in Adobe Acrobat
PDF format), go to http://www.cba.hawaii.edu/rec/cbull.htm.
Hawaii is a lien-theory state, whereby the lender
(mortgagee) makes the loan, while the borrower (mortgagor) gives
the lender a promissory note secured by a mortgage on the
property. Deeds of trust are not used to create liens on Hawaii
In addition to the full array of conventional financing
instruments, Hawaii has popularized the use of the installment
contract for deed called the "agreement of sale." This form of
seller carryback financing is automatically used rather than a
wraparound mortgage or a deed "subject to" a mortgage. While
popular in the '70s and '80s, the agreement of sale has not been
used that often in the 1990s because of the availability of
conventional financing. There is a HAR form Agreement of Sale
Addendum to the DROA.
Some highlights of agreement of sale are:
- Equitable and insurable title pass to the vendee, while
the vendor retains legal title as security for full payment.
- Buyer typically pays enough to cover tax/insurance/
seller's underlying mortgage payments; but the vendor remains
primarily liable for those expenses.
- Upon default, vendor typically has to file suit similar
to a foreclosure action (i.e., cancellation is not automatic).
- Standard to set up a collection agency account and
split the costs
- important to make sure the agreement of sale
balance remains the same or more than the balance of the
- At satisfaction the vendor will set up an escrow to pay
off the underlying mortgage and record a warranty deed in
satisfaction. There is no need to pay a second conveyance tax
for this transfer.
The general rule is that personal loans can not exceed 12%
simple interest. If they do, the penalty is that the lender
forfeits all right to interest and can only collect the principal
amount due. Some exemptions to the usury rule are purchase money
mortgages and agreements of sale.
Two special mortgage loan programs are Hula Mae loans for
first-time buyers and Employee Retirement System loans for ERS
members of the State and County governments. These loans are
structured at attractive rates but contain unique restrictions
In the event of default, the lender's primary remedy is a
statutory foreclosure process. At any time up to the foreclosure
sale following a public auction, the defaulting borrower has the
right of redemption upon full payment of the debt. After the
sale, there is statutory right of redemption (there is a one-
year redemption after a tax sale).
Landlord and Tenant
Hawaii's Residential Landlord-Tenant Code revised the common
law of landlord/tenant by changing the relationship from one
based on the law of conveyance to one primarily based on
contract. The Code sets forth in detail the rights, obligations,
and remedies of both landlord and tenant. The State of Hawaii
Office of Consumer Protection publishes an excellent Handbook
explaining the Code in plain language. They also maintain a
Landlord-Tenant Hotline at 808-586-2634 (Oahu) and 1-800-513-8886
Some of the highlights of the Code are:
- An absentee landlord must designate an agent, who
must reside on the same island as the property.
- Landlord cannot collect more than the first
month's rent, plus the security deposit (which
can't exceed one month's rent).
- Landlord must return the security deposit, less
any authorized retained portion verified in
writing, not more than 14 days after termination
of the lease.
- Leases may be assigned or sublet.
- Landlord may notify a delinquent tenant in writing
that unless payment is made within five business
days, the rental agreement will be terminated.
- In a month-to-month tenancy the landlord must give
a 45-day notice to terminate if the landlord
wishes to terminate the tenancy. Once the tenant
finds a place and moves out, the tenant is
entitled to a prorated refund of rent.
- A month-to-month tenant must give a 28-day notice
- The Code does not apply to occupancy under a sales
contract or agreement of sale.
- Landlord must give tenant 120 days notice prior to
demolition of building or conversion to
The law requires that real estate agents disclose to
consumers material facts in every real estate transaction.
Disputes often arise over what is a material fact. In some cases
a specific state law addresses what must be disclosed.
Seller Disclosure Law - HRS Ch. 508D requires sellers in
residential real estate transactions to disclose material facts
about property condition. Buyers are afforded a right of
rescission in the event they do not approve the disclosure
statement prepared by the seller in good faith using due care.
Megan's Law - A 1997 law requiring convicted sex offenders
to register with the state attorney general. While real estate
agents are not required to search the public records to see if
there are sex offenders in the neighborhood, agents should inform
the buyer that this kind of information is available in case the
buyer is interested. Chick here for a copy of Hawaii's version
of Megan's Law.
Agency Disclosure - HRS Ch. 467 requires that the real
estate broker disclose whom it is the selling broker represents
in every real estate transaction (except leases less than one
year in duration).
Leasehold Disclosure - In any sale of residential leasehold
property (single-family or condominium), the seller must give the
buyer a copy of the original lease and a plain language summary
of the lease. The buyer has a 10-day right of rescission. Check
here of a complete version of both laws.
Encroachment - Sellers must disclose any encroachment
affecting the subject property. A 1997 law clarifies the fact
that minor boundary discrepancies may not create an encroachment
issue. This law was designed to eliminate the need for
complicated agreements when the residential property improvement
is located less than 6 inches over the boundary (3 inches if
HARPTA - The seller must disclose if they are a nonresident
of Hawaii, in which case the buyer should direct escrow to
withhold 5% of the sales proceeds to cover possible taxes owed to
the State Department of Taxation (similar to the 10% federal rule
if the seller is a foreign person).