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The Honolulu Advertiser
Posted on: Thursday, May 4, 2006

Selling leasehold home requires careful thought

By Greg Wiles
Advertiser Columnist

Q: I inherited a four-bedroom townhouse last summer. It is leasehold, and I am thinking about selling it. There's less than 30 years left on the lease.

My agent told me people would hesitate buying a leasehold property and recommended I look into purchasing the unit's fee-simple interest. The price of the fee almost doubled within a few months of my getting the place.

Is it true that leasehold properties are difficult to sell? Is my agent correct in trying to get me to buy the fee? Is there anybody I can complain to about the fee price going up?

A: Leasehold homes, those built on leased land, have attracted a smattering of interest with the jump in real-estate prices in recent years.

There's been increased interest by new buyers in leasehold because the properties generally cost less. The price difference between a leasehold condominium and a fee-simple unit in the same building can be substantial.

But before you place your townhouse up for sale on a leasehold basis, you should know that many people avoid leasehold properties. That's in part because of controversies in past years about lease-rent increases.

Buyers may also face problems getting an attractive mortgage for leasehold purchases where the lease is for less than three decades. Lenders typically will offer loans that are five years less than the term of the lease, said Claude Phillips, president of Mortgage Plus on Fort Street Mall.

You'll want to talk with your real-estate agent and a mortgage officer to figure out whether its feasible to offer it leasehold. They may recommend that you point out that the fee interest is available when you advertise the property.

It's likely a family would be interested in your townhouse because of its size, and that this type of buyer would balk at buying something that's not fee-simple, said Kay Osman, principal broker of Del Osman Realty Inc.

She said the key in your situation is the availability of the fee interest. "Anybody can buy the fee interest and the leasehold interest simultaneously, and close it at the same time," Osman said.

Phillips said there is a little more coordination involved with this dual purchase, but that buyers can get a mortgage for such purposes with the property valued as if it was fee-simple.

Your other option is to purchase the fee and then sell the property as a fee-simple unit. You'd incur costs, and Osman doesn't recommend this route.

If you do choose this alternative, you could end up paying a commission on the entire price. She said that in this case, you may negotiate with the agent to pay a commission only on the value ascribed to the leasehold portion of the sale.

As for complaining to a government or other official about your fee owner raising the price for the land, good luck.

Property prices have been going up, and landlords are entitled to raise their prices.

Do you have a question about personal finance, taxes or other money matters? Reach Akamai Money columnist Greg Wiles at 525-8088 or gwiles@honoluluadvertiser.com