Hawaii Real Estate Contracts: What's on the Exam

Contract law is heavily tested on the Hawaii real estate exam. Beyond general contract principles, Hawaii has unique considerations for leasehold properties and the HRS Chapter 508D seller disclosure law. Here's what to know.

Essential Elements of a Valid Real Estate Contract in Hawaii

1. Offer — Specific proposal to enter a contract on defined terms
2. Acceptance — Unconditional agreement to all terms of the offer
3. Consideration — Something of value (purchase price, earnest money, promise)
4. Competent Parties — Both parties must be 18+ and mentally competent
5. Lawful Purpose — Contract cannot require illegal activity
6. Written and Signed — Required by Hawaii's Statute of Frauds for real estate transactions

Types of Contracts by Enforceability

Void contract: No legal effect. Example: contract with an illegal purpose (attempting to transfer title to government land without authority).

Voidable contract: Valid unless one party elects to void it. Example: contract signed by a party under duress or a minor.

Unenforceable contract: Cannot be enforced in court even if valid between parties — typically an oral real estate agreement (Statute of Frauds violation).

The Deposit Receipt, Offer and Acceptance (DROA)

Hawaii's standard residential purchase contract is the Deposit Receipt, Offer and Acceptance (DROA), published by the Hawaii Association of Realtors. It includes:

• Identification of buyer and seller
• Property address and legal description (including whether fee simple or leasehold)
• Purchase price and earnest money amount
• Financing terms
• Closing date and possession date
• Contingencies (financing, inspection, seller's disclosure review)
• Inclusions and exclusions of personal property

Leasehold Contract Considerations

When a transaction involves a leasehold property, the DROA (or a leasehold addendum) must address:

• Ground lease terms: Monthly rent, escalation clauses, remaining lease term
• Lessor's consent: Some ground leases require the landowner's consent to the transfer
• Assignment fee: Some leases require a fee payable to the landowner upon transfer
• Lease expiration: Buyers should be informed of when the lease expires and the risk of non-renewal

Exam tip: A buyer who is not told that a property is leasehold — or who is not fully informed of the lease terms — may have grounds for rescission or damages against the licensee.

HRS Chapter 508D — Seller Disclosure in Hawaii

Hawaii law (HRS Chapter 508D) requires sellers of residential property to provide a written Seller's Disclosure Statement before or at the time the buyer makes an offer.

Key provisions: - Must disclose all known material conditions affecting the property's value or desirability - Applies to single-family homes, condominiums, and multi-family properties up to 4 units - Buyer's rescission right: After receiving the disclosure, the buyer has a right to rescind the contract within a specified period without penalty - Sellers who fail to provide the disclosure may face liability for damages

Common disclosure items: structural issues, roof condition, electrical/plumbing systems, flooding history, presence of hazardous materials, HOA/AOAO disputes, ground lease terms.

Earnest Money in Hawaii

• Earnest money demonstrates the buyer's intent and is deposited into the broker's trust account
• Hawaii Commission rules govern deposit timelines
• If the deal closes: applied to purchase price
• If buyer defaults without valid contingency: seller may retain as liquidated damages
• If seller defaults: buyer recovers earnest money and may sue for breach

Common Contingencies in Hawaii Contracts

Financing contingency: Buyer can exit if unable to obtain mortgage financing at agreed terms

Inspection contingency: Buyer may inspect and request repairs or exit

Seller's disclosure review period: After receiving HRS 508D disclosure, buyer has a right to review and potentially rescind

Leasehold-specific contingency: Buyer may condition the purchase on satisfactory review of all ground lease documents

Breach of Contract

If buyer defaults: - Seller keeps earnest money as liquidated damages - Seller may sue for specific performance or actual damages

If seller defaults: - Buyer may seek specific performance - Buyer may sue for monetary damages - Buyer may rescind and recover earnest money

For Hawaii contract practice questions and full mock exams, visit [CARealestate.com/states/hawaii](https://carealestate.com/states/hawaii).