Your Best Value in Florida
Florida – Buyers guide and purchase costs
There are a number of stages involved in finding and securing your property in Florida, and a number of important legal implications and costs to consider.
When you have found a property in Florida that you want to buy you will normally complete a standard ‘Contract for Purchase and Sale of Real Estate’ produced by the Florida Association of Realtors and Florida Bar Association. You should always have your purchase contract checked by a lawyer. Note that if you’re entering into an agreement to buy a new home in Florida off-plan, a different contract is used to that required to purchase an existing or resale home. The contract sets forth the legal description of the property in Florida, the purchase price and the terms of payment. It also includes the time limit within which it must be accepted by the seller and the terms of financing. The contract also provides that the seller proves he owns title to the property and sets forth a closing date. It also includes any restrictions on the use of the house and any special clauses affecting the purchase.
As with any property purchase it’s advisable to have the contract for your property in Florida checked by an experienced lawyer. This process will cost you around $300 and should provide some peace of mind. If you have a lawyer acting for you as the title agent this should be part of his brief. Don’t necessarily use a lawyer that has been recommended by your real estate agent - shop around and compare fees and services offered by a number of lawyers. Most contracts are fine provided nothing goes wrong. Many builders have had contracts written that limit your rights and their liability, and some contracts are very biased in favour of the developer. As with any other property purchase, in order to avoid possible conflicts of interest, never appoint a lawyer who is acting for any other parties in a property transaction.
When the property in Florida has been selected. the buyer pays an initial ‘good faith’ or binder deposit, usually anything from $1,000 to $5,000. When buying a new home it’s usual to pay a holding deposit of $1,000 to $2,000 to reserve a lot, after which you have 15 days to change your mind before signing the purchase contract. Most agents and builders, not surprisingly, advise prospective buyers to take the binder deposit with them when on an inspection trip. They know only too well that if you’re tempted to go away and think about it you may not buy. A deposit paid on an option or reservation contract on a yet to be built property in Florida is returnable if you don’t proceed. A second deposit of 5 per cent of the purchase price is paid on signing the contract for a new home, with the balance paid in stages or at the closing. When payment is made in stages, the first payment is usually for the lot (land). You should bear in mind that deposits are lost far more frequently in the new home than the resale market. When buying a resale home in Florida the deposit is negotiable, although 10 per cent is normal.
The deposit and all other funds must be placed with a neutral third party, called an ‘escrow agent’, who is usually selected by the buyer’s broker, but is subject to approval by all parties. He is responsible for compiling and checking the documents and ensuring that the transaction can ‘close’ within the escrow period specified in the purchase contract. Once the deal closes, the escrow agent records the deed and disburses the funds to the appropriate parties. When buying a new home, a deposit must never be paid into a builder’s general operating fund. If you don’t complete a purchase you will lose your deposit or can even be forced to go through with a purchase. On the other hand, you can sue the seller if he refuses to go through with a sale. You should ensure that you know the terms regarding the forfeiture or repayment of a deposit.
Making an Offer
Your offer to the seller for the purchase of the property in Florida should be made in writing and must be signed by all prospective buyers, e.g. a husband and wife. If the property owner rejects the offer, then he may make a counter-offer by changing some of the terms in the contract. Any changes made to a printed contract form must be initialled by all parties and changes instigated by a buyer must obviously be made before the form is sent to the seller. This can go on for several rounds until the parties agree or one of them rejects an offer. In some cases it’s better to deal directly with a seller and hammer out a deal face to face. Note that if you really want a particular property you must be prepared to haggle. All amendments and clauses to the contract must be agreed before it’s signed. Once signed, the contract is binding upon all parties and the seller is prohibited from selling the property to a third party while the contract is in force.
Basic Contract Details
The following basic details are contained in all real estate sales contracts for purchasing a property in Florida:
Names of Parties: A contract contains the names of all the parties to the contract, i.e. the buyers and the sellers. The full names of all the sellers in whose name the title is held and all the buyers (e.g. a husband and wife) must be listed and each person named must sign the contract.
Property Description: The identity of the property, which is its legal description rather than its address (which may also be included). Properties in subdivided areas (such as municipalities) are described by their lot and block number; the name of the subdivision; and the plat book and page number where there’s a graphic description of the property (a plat is a printed survey of an area that has been subdivided by a developer).
Purchase Price: The total purchase price must be included, along with a breakdown of where the funds will come from, for example the deposit and any proposed mortgages. Clearly it is important that you have organized in principle any mortgage finance before you commit to purchasing a property in Florida. If you have an agreement in principle from a lender then make sure that you have it with you.
Extras & Options: To avoid confusion and conflict later on, everything that’s included in a home purchase must be listed in the contract. This may include both standard items and any extras you have paid for, and applies equally to new and resale properties. If you are in doubt about any particular item, make sure it is listed.
Closing Date: The closing or completion date must be specified, which is the date when the final documents will be signed, contracts exchanged and the balance of the purchase price paid. The date must allow sufficient time for both parties to perform anything required under the contract and for the buyer to obtain a mortgage. (click here to go to our mortgage application form)
Standard Contract Clauses
Contracts usually include the following standard clauses, some of which may not be applicable. Certain terms and language may not be familiar to you if you are from the UK or have purchased property in other territories. Familiarise yourself with this information before you proceed with purchasing a property in Florida.
Standard clauses describe the obligations of both the seller and buyer with respect to such things as proof of title; surveying and termite inspection; expenses, fees and taxes; home inspection, maintenance and repair; risk of loss; requirements for escrow; and the closing procedure and place. If a clause involves the services of a third party, it should be stated in the contract which party has liability to pay the fee. The actual content of each clause (and who pays any fees involved) is negotiable between the parties.
Acceptance: The time period, e.g. 14 days, during which the seller must accept or reject an offer.
Access: A contract may include an ingress and egress clause; ingress means that you have access to the property from a public road and egress to the public road from the property. This could be a problem in rural areas when access to a property is via a third party’s land.
Addendums & Riders: Some clauses are included in riders or addendums in order to keep the main contract as short as possible. However, they must be referred to in the contract and be attached to it. Riders, for example, may refer to the withholding of 10 per cent of the price by the buyer in lieu of capital gains tax when the seller is a non-resident of Florida; condominium association rules; a list of items or options included in a sale; and permission to rebuild a property located in a coastal or other sensitive area after its destruction (e.g. by a hurricane).
Assignability: Normally a buyer can assign his rights to the property in Florida to a third party, unless otherwise stated in the contract. For example, if you were unable to go through with a purchase after paying a hefty deposit, you could assign your rights to another buyer who would reimburse your deposit.
Broker’s Commission: If a Real Estate broker in Florida is involved there should be a clause recognising his right to a commission, which is signed by the broker’s agent and the party that is responsible for paying the broker’s commission.
Closing Documents: A list of the documents required for the closing or completion of the purchase of the property in Florida. Who has to provide the documents and, most importantly, which party has to pay for their preparation. Usually the seller pays for documents that he signs (such as the deed and bill of sale) and the buyer for those he signs, e.g. loan documents.
Closing Venue: The office, e.g. a broker’s or lawyer’s office, where the closing of the property purchase is to take place.
Conveyance: The contract should state that the seller ‘convey the property by statutory warranty deed’, which means that the seller owns the property and has the right to sell it. A buyer must never accept a quit claim deed instead of a warranty deed, as this merely transfers the seller’s interest in the property, which could be zero.
Deadline: A contract may include a ‘time is of the essence’ clause, which simply means that the failure to meet a deadline stated in the contract is a default of the contract. Make sure that you are comfortable with your ability to meet any deadlines.
Deposits: The escrow agent that is appointed in respect of the purchase of the property in Florida should verify in the contract the receipt of any monies deposited with him.
Easements, Limitations & Restrictions: A contract should contain a clause stating that there are no easements (third party rights to use or access a property), limitations or other restrictions that would prohibit the use of the property in Florida for whatever purposes you have in mind. These may include zoning, building or subdivision restrictions, payment of taxes, assumed or new mortgages, or defects. The contract should require the seller to correct any breaches prior to closing. A survey may be necessary to determine whether a property is free of easements, limitations and restrictions.
Inspections & Repairs: The seller must certify in writing that the property in Florida is in good condition and that all equipment is in proper working order. Special facilities or equipment (e.g. a swimming pool) should be specifically mentioned. It’s advisable to hire a local home inspection company in Florida to establish the condition of a property before closing.
Legal Fees: There’s usually a clause in the contract stating that in the event of a lawsuit over the contract, the winner of the lawsuit can recover his lawyer’s fees and legal costs from the loser.
Liens: A property in Florida must be free and clear of any liens (debts) at closing and the seller should provide a testimony to this effect.
Loss: The contract should state that the seller bears the risk of loss should the property be damaged or destroyed before closing. You should check the state of the property immediately prior to closing to make sure it hasn’t fallen down or been damaged.
Mortgages: When the buyer is taking out a mortgage to finance a purchase in Florida, or assuming the seller’s mortgage, the purchase must be contingent (see below) on obtaining this financing.
Occupancy: Usually a buyer will have sole occupancy of a property after closing. If another agreement is made, for example the seller or a tenant will be permitted to remain after the closing or the buyer is permitted to move in before the closing (which isn’t advisable as the contract could be cancelled for any number of reasons), this must be included in the contract.
Other Agreements: Contracts usually contain a clause stating that this agreement and no other is the legal agreement between the parties. This nullifies any subsequent claims regarding a previous verbal or written agreement.
Payment & Closing: The contract provides that monies due to the seller for the property in Florida be paid in cash or by certified cheque at the closing.
Payment of Fees & Taxes: The contract states who pays the transfer taxes and recording fees, which is usually shown on the first page of the contract. The seller usually pays for documentary stamps on the deed and other documents required to transfer clear title, while other documentary stamps for recording and the state intangible tax on a mortgage in Florida are normally paid by the buyer.
Prorations: The annual expenses on a property in Florida such as property taxes, interest on assumed mortgages and special assessments are usually divided between the buyer and seller on the day a sale takes place, termed prorating the expenses, or prorations. The daily (or ‘per diem’) rate is calculated and multiplied by the number of days assigned to each party. The amount due to the buyer, as it’s the buyer’s responsibility to pay them, is credited to him and deducted from his closing costs.
Signatures: Each party must sign and date the contract. A spouse must sign even when a contract is in the name of the other partner only.
Special Assessment Liens: Any special assessment liens on a property at the time of closing should be paid by the seller and this should be stated in the contract.
Termite Inspection: You should have a termite inspection on a resale single-family home in Florida, where it isn’t unusual to find termite damage. A termite inspection is often required by lenders. If any damage is discovered, the contract should state that the seller must pay an amount equal to a percentage (e.g. 2 to 5 per cent) of the purchase price to repair the damage.
Title: The seller must prove that he has clear and good title to the property in Florida, that it is free from third party claims. The seller must provide his ‘Abstract of Title’ as proof of ownership, which is a document outlining all deeds and other legal events affecting the property. This should be checked by a lawyer or a ‘title company’ who will issue ‘title insurance’ provided it’s ‘clear’, i.e. valid and free of any encumbrances. If you apply for a mortgage your lender will require title insurance to protect his loan, although this doesn’t protect the buyer. It’s advisable (but not a legal requirement in Florida) for a buyer to have owner’s title insurance to protect himself against a claim on the title by a third party. Who pays for the owner’s title insurance is usually negotiable.
Contingency Contract Clauses
A contract for purchasing a property in Florida usually contains a number of conditions, called contingencies or riders, which must be met before it becomes valid and binding. Contingency clauses state that if certain conditions or events aren’t met the contract can be suspended or cancelled by one or both parties without penalty. Clauses may include deadlines in the contract if the failure to meet them permits cancellation without penalty (otherwise deadlines aren’t considered to be contingencies and may result in the loss of a deposit or legal redress). Contingency clauses are designed to permit either party to enter into a contract without being sure that he can do everything necessary to complete the sale (such as obtain a mortgage) or when certain facts won’t be known until later, e.g. after a home inspection. Both parties can agree to contract to do anything that’s legal and contracts can be contingent on any number of events. The most common contingency clauses include the following:
Appraisal: A mortgage lender will make an appraisal (valuation) of a property in Florida before agreeing to a loan. The contract must be contingent on the appraisal not being below the agreed purchase price. In certain cases a lender may insist on two appraisals to prevent fraud. An appraisal usually costs between $250 and $300 and is paid by the prospective buyer.
Approval by Third Parties: If either party requires the approval from a third party (perhaps tied to financial assistance), the sale should be contingent on obtaining the approval. For example, a co-operative association may be able to veto a sale or exercise a first right of refusal and a buyer may want to obtain approval from a family member before going ahead.
Financing: This clause is applicable when the buyer needs to obtain a mortgage in Florida or to assume a mortgage from the seller. The buyer must usually apply within seven to ten days and must be turned down by the lender for the contract to be cancelled, i.e. he cannot reject a mortgage offer if it meets the criteria stated in the contract. The terms of the financing must be stated, e.g. the amount, term, type of mortgage, maximum interest rate, discount points and monthly payments. The mortgage application must usually be approved within a limited period, e.g. six weeks. This clause must be present if you require a mortgage in Florida, otherwise if you don’t get a planned loan you could lose your deposit and be sued for damages or even be forced to go through with a purchase. It isn’t advisable to give up your right to obtain a mortgage if there’s any possibility that you will need one, because if you change your mind and fail to obtain a mortgage in Florida you will lose your deposit.
Home Inspection: When buying a resale home, it’s always advisable to make a contract contingent on a satisfactory home inspection. The inspection can apply to a few items or even a single system only, such as the wiring or plumbing in an old house. The contract should state who should pay for the inspection and any necessary repairs.
Sale of Buyer’s House: If you need to sell a home in order to complete a purchase, this must be included as a contingency clause in the contract. A seller may be wary of agreeing to this unless the buyer makes some concessions (or the seller is desperate).
Survey: In Florida, a survey simply indemnifies a property by reference to a map and its legal description and doesn’t refer to an inspection of the buildings located on the land . It costs from $300 upwards and is usually paid by the buyer.
Other Contingencies: There are numerous other possible contingencies such as a seller needing to remove a tenant before closing, re-zoning for an extension, approval of repairs made by the seller and proof of certain rights. When buying a community property you may wish to include a clause relating to restrictions and covenants such as those concerning renting, the keeping of pets or visitors. This protects you if you discover a restrictive covenant after signing the contract that would have deterred you from buying.
Below is a list of the type of costs you should expect relating to the purchase of your property in Florida. In addition there are a number of mortgage related costs that you will also incur.
Inspection Fees: In a resale property in Florida you will probably want a licensed inspection company to examine the condition of the roof structure and appliances and also check for termites.
Survey: You will want to make sure exactly what the boundaries are to your property and make sure that there are no unusual easements running through your property.
Title Insurance: Title insurance provides you with peace of mind if for some reason your title is no good or in any way in dispute.
Casualty and Flood Insurance: In Florida, you want to protect your real estate investment from fire or storm.
New Construction: Most developers/builders charge a closing fee of between 1.5% and 1.75% to cover the cost of Florida Documentary Stamp Taxes and Title Insurance.
Closing Fee: This is charged by the closing agent for closing on the property in Florida.
Real Property Taxes and Homeowner Association Fees: These items need to be prorated at closing depending on the time of year. They are prorated and shared between the buying and selling parties,
Title Examination: This fee is charged by the closing agent for examining the status of title on the property in Florida.
Recertification Fee: This fee is charged by title company for reviewing recorded deed and issuing title policy on the property in Florida.
Closing Costs for Obtaining a Mortgage or refinancing an Existing Mortgage in Florida
Most mortgage lenders in Florida will charge for many of these items. Be sure to request a Truth and Lending Disclosure form before committing to a mortgage in Florida. This disclosure form will tell you about all of your closing costs such as:
Mortgage Application Fee: Charged by the mortgage lender; usually paid before closing; can range from $50 - $550.
Mortgage Underwriting Fees: Charged by the mortgage Lender; the fee for approving the mortgage.
Flood Certificate Fee: Charged by mortgage Lender to determine if property is in flood zone in Florida.
Tax Service Fee: Charged by mortgage Lender to monitor payment of real property taxes in Florida.
Loan Origination: Charged by the mortgage Lender for giving you the loan.
Mortgage Loan Discount Fee: Charged by mortgage lender for reducing the interest rate on the mortgage.
Mortgage Document Preparation Fee: Charged by mortgage Lender for preparing mortgage documents.
Escrow's: Some mortgage lenders require you to escrow money in advance for real estate taxes and insurance.
Prepaid Interest: If you close on any day other than the last day of the month, you will need to prepay interest for the rest of the month. Your next mortgage payment, however, won't be due until 30 days after the 1st day of the following month.
Title Examination: Charged by the closing agent for examining the status of title on the property in Florida.
Title Insurance: Required by Lender to close. Big savings are available if closing on the mortgage loan is coordinated with the purchase of the property in Florida.
Intangible Taxes: .0020 % of loan amount charged by State of Florida at closing.
Documenting Stamp Taxes: .0035% of loan amount charged by Florida at closing.
Recertification Fee: Charged by title company in Florida for reviewing recorded deed and issuing title policy.
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