The Anatomy of a Complex Real Estate Deal

n real estate, every deal has its unique challenges, but some seem to have a little more than others. This recent sale was one of those. It had all the elements of a complex transaction—international sellers, a tricky market, and a cloud on the title—all with a tight timeline.

But instead of letting these hurdles derail the deal, we navigated each one strategically to ensure a successful closing. Here's a look at how we did it.

Hurdle #1: The HARPTA and FIRPTA Puzzle

When my clients decided to sell their condo in Honolulu, we immediately faced a significant challenge. The owner was a U.S. citizen living in Japan, and his wife, a Japanese citizen, was also on the title. This situation brought up two major tax withholdings common in Hawaii real estate sales involving non-residents or foreign citizens: HARPTA and FIRPTA.

• HARPTA (Hawaii Real Property Tax Act): This is a state law that requires a 7.25% withholding of the sales price from non-Hawaii residents. The funds are held at closing to cover any potential Hawaii capital gains taxes.
• FIRPTA (Foreign Investment in Real Property Tax Act): This is a federal law that requires a 15% withholding from the gross sales price for foreign sellers (those who aren't U.S. citizens or green card holders).

If both of these applied, the total withholding could have been a staggering 22.25% of the purchase price.

Here's where the strategy came in: since the husband was a U.S. citizen, we could avoid the 15% FIRPTA withholding if his wife's name was removed from the title before the sale. This wasn't a simple step, as it had to be carefully coordinated, but it was a crucial move that saved the client a substantial amount of money.

Hurdle #2: Selling an Occupied Unit Off-Market

The next challenge was the market itself. At the time, three other units in the same building were also for sale. And unlike my client's unit, which had its original 1980s cabinets and countertops, these competitors were much more updated. This meant we couldn't compete on price with a traditional listing. With a tenant in place, renovating for the sale was no longer an option. Selling a tenant-occupied property can be challenging, as traditional marketing strategies like staging, professional photography, or open houses are often not feasible.

Rather than listing the property on the MLS and hoping for the best, we decided to go an off-market route. I have a network of investors who specialize in buying and renovating properties, and this was the perfect opportunity to leverage those connections.

Selling off-market can be a win-win for both the buyer and the seller. The buyer gets a property without the stress of a bidding war, and the seller benefits in a few ways:

• No Buyer's Agent Commission: Many off-market buyers aren't represented by an agent, which can save the seller up to 3% in commission fees.
• Reduced Listing Fees: I was able to offer a reduced listing fee of 2%, which put even more money back into my client’s pocket.
• A Quicker, Simpler Process: After a few targeted emails to my investor network, we received a great offer and were in escrow almost immediately.

Hurdle #3: A Cloud on the Title

Just when we thought we were in the clear, a "cloud on title" appeared late in the escrow process. A cloud is an unresolved issue with the property’s title, like an old, unpaid mortgage or lien. In this case, an old mortgage from a previous owner had never been properly cleared from the title records.

A cloud can stop a closing dead in its tracks. To resolve it, we shifted the transaction to Old Republic Title, the company that had originally insured the title during the previous sale. Because they had a history with the property, they were able to "insure over" the old mortgage. This means they effectively protected both the new buyer and my client from any future claims related to that debt, allowing us to move forward without a lengthy and complicated legal process.

The Power of Timing

With our client in Japan and the buyer in town for a limited time, timing was everything. We coordinated with the title company to execute the two key actions—removing the wife's name from the title and signing the final closing documents—in one back-to-back session.

This eliminated the need for the client to make a separate trip or coordinate with the U.S. embassy in Japan, saving them both time and travel costs. It was the final piece of the puzzle that brought this complex deal to a close.

This sale proves that even with multiple challenges, a combination of strategic thinking, local market knowledge, and strong relationships can lead to a successful outcome. It’s all about working through the problems and focusing on a creative solution that benefits everyone involved.

Do you have any questions about this process, or are you facing your own real estate challenge? I'm here to help. Book a free consultation.