Yet Another Real Estate Update
March, 2004
We've head Real Estate professionals describe the buying frenzy here as "frightening." And indeed it is, from several perspectives. People are pouring in here from all over the country, most notably from the West Coast, buying up everything in sight. Properties get listed and sold the same day. The day a listing appears on the Multiple Listing Service (MLS), there are usually several over-full-price offers in place within hours. Matter of fact, most properties are sold before their listings actually appear on the MLS.
How does that work?
Simple. Say you want to sell your Hilo home. You go to the Realtor of your choice, that person takes the info and writes up a listing agreement. Every Realtor has a long list of eager and waiting buyers, so a few calls will bring in the offers, the lowest usually being full price. After the dust settles form the Realtor writing up the offers for her clients and presenting them to the seller, she will eventually get around to the required task of typing the listing in the MLS, even if the property is already sold. That's how it works.
How does this all relate to you as a person looking for that perfect Big Island property? It means that you are wasting your time calling from the Mainland about a property you see advertised somewhere, even if you find it on the Internet. If you see it in print somewhere, it's long gone. On the Internet, you might get lucky enough to call before one of the offers already in place is accepted, but probably not.
Don't even bother to ask a Realtor to take your deposit on a property subject to your coming over to inspect the property. No seller will be willing to wait for you when s/he has several full-price offers on the table.
About the only edge you have in this market now is if you are here, you find out about the property the instant it is listed, and you have the cash on hand to make the purchase. By "cash on hand," I do not mean your ability to secure a mortgage. I mean that if you're looking at a $250,000 house, you have $250,000 in cash available-right now-to make the purchase.
Sellers are getting more savvy about the potential problems with purchases that involve mortgages, particularly if the buyer requires a big mortgage. By "big," I mean big compared to the price of the property.
When we have a property for sale, we will not accept an offer from anyone who needs more than a 70% mortgage. Sure, there are lots of people out there who can easily qualify to borrow $225,000 on a $250,000 house. Or at least, their credit report says they can. But there's more to it than that. We had one property tied up in escrow for several months while a strong buyer tried working with several lenders to secure a mortgage. In the end, this buyer failed to perform, and we had to start all over again. Fortunately, we had a full-price cash backup offer from the beginning, but that full-price buyer had to wait several anxious months for buyer #1 to drop out. We got lucky; most backup buyers don't have the time or patience for that sort of thing.
Just one of the reasons even a highly qualified buyer might have to drop out after a long time in escrow (this happens all the time) is that the house doesn't appraise for enough to support such a high mortgage. We've also seen a case where the house did appraise for enough, but in the final hours of loan approval (again after months in escrow), the lender went through the paperwork and discovered that there was an addition to the house for which no permit was shown on the County records. So the house had to be re-appraised, and in this market, there's another three-week delay. When it was re-appraised, it came in just low enough that it no longer qualified for the big mortgage. The buyers were not willing to come up with the difference in their down payment, so the deal fell apart.
And so it goes. The bottom line: Cash Talks.
The median home price on the Big Island is now $197,000, meaning that there are still lots of homes available for much less than that figure. But the $100,000-and-under homes are now limited to homes in low-price subdivisions and rural properties, usually far from any town.
This crazy need for so many people to relocate to Hawaii has caused great difficulty for the folks who live here and have lived here for years. Many of these people have been diligently saving money so that they could buy a home one day. That dream is no longer viable for many of them. The prices of homes in any of the more desirable have just about doubled in the last two years. In the really desirable areas, like the best parts of Hilo or Kona, or some of the tourist-destination spots, prices have gone up unbelievably. A little cabin in the once-spurned community of Vacationland that only two or three years ago would have been a hard sell at $75,000 will now bring $250,000 in a heartbeat.
It is our feeling that a lot of these properties are being purchased in the heat of some kind of misdirected emotional charge, and that within a few years they'll be on the market again. People come over here and get all psyched up about "living in Paradise," and they don't take the time of initiative to feel what it is really like living here.
I go through a lot of the realties of Island living in Affordable Paradise, and in the near future I'll have another update on some good reasons why NOT to move to Hawaii.
And one more time, I would like to encourage those who are looking for Hawaii properties just as investments, to please consider looking elsewhere. Investors do nothing but drive prices up and wonderful people out. Hawaii is a magical, special place that in our opinions should be reserved for those who feel in their hearts that this is where they must be. The March Issue of AARP Magazine has a great article on retiring in Mexico!
If you have spent some wonderful time in Hilo and have fond memories of the peaceful, slow-moving energy there, you will be surpprised at the "new Hilo." The sudden addition of a few thousand newcomers, most of them from the mainland, have seriously changed the face of our precious little town.
We have traffic jams now, there are long lines wherever one goes, parking lots are packed to the limit, and forget trying to find a table at a restaurant and lunch time. Aloha is still alive and well, but it is being diluted. That's why we respectfully ask everyone considering this move to really think about it carefully. If you love Hawaii for her feeling of Aloha, then you must be prepared to live that life yourself. You cannot bring mainland ways to Hawaii and expect that you will not have an influence on your new environment. We must all honor and practice the ways of Aloha in our own lives if we are to maintain that for which we seek to live in Hawaii.
That's it for now!
A hui hou!
Skip Thomsen
Updated 9/24/03