New and different issues such as wetlands, zoning, remodeling, or waterfront could present themselves here in FLORIDA.
It is usually well worth the money to have a consultation with a professional that is looking out for YOU, and only YOUR interests. In most cases that professional is an attorney concentrating his or her practice in real estate law.
THE FIRST THING FOR YOU TO KNOW IS THAT GETTING THE HELP OF AN ATTORNEY FOR YOUR TRANSACTION IS NOT EXPENSIVE- IN MANY CASES YOU WON’T PAY ANY MORE THAN YOU WOULD IF YOU JUST USED A TITLE COMPANY. Most charge $250 for a one-hour consultation and if the firm handles the closing there is no charge for an initial consultation.
While real estate agents can be very helpful, they are often serving in our area as a “Transaction Broker” which means that they are looking out for and loyal to the transaction as a whole, and not necessarily just your interest.
In short, BUYING OR SELLING REAL ESTATE IS NOT THE PLACE TO BE PENNY WISE AND POUND FOOLISH AND FOREGO PROFESSIONAL LEGAL ASSISTANCE.
IN MOST CASES THE BINDER DEPOSIT REPRESENTS THE MAXIMUM EXTENT OF YOUR LIABILITY IF THE TRANSACTION FALLS APART. The contract will contain contingency clauses like financing, inspections, etc. that if not met will allow you to get out of the contract and get your binder deposit back. The low end of binder deposits is usually about 2% and the high end about 10%.
CLOSING COSTS: Who will pay what? It is typical in our area that the Buyer pays any closings costs associated with financing the transaction, and the Seller pays pretty much everything else. However, IT IS IMPORTANT TO REMEMBER THAT WHO PAYS WHAT CLOSING COSTS IS FOR THE MOST PART NEGOTIABLE.
CLOSING COSTS TYPICALLY PAID BY THE SELLER: It is typical that the Seller pays the following closing costs:
(1) Real Estate Agent Commission: (- if any) The amount is of course negotiable and the negotiation takes place when you enter into a listing agreement contract for the listing of your property as a Seller.
(2) Deed Stamps: These are a tax to the state on all transactions involving real property and the rate is .7% of the consideration paid. In other words, if you sell a house for $100,000, the Deed Stamps will be $700. If your GIVING property that is not encumbered by a mortgage to someone, the deed can recite “love and affection” or “$1.00” as the consideration and in such cases only the minimum amount of $.70 (yes, 70 cents) of Deed Stamps are paid. If you want to give property to someone and it is encumbered by a mortgage, you will typically still have to pay Deed Stamps on either the remaining balance of the mortgage, or the tax appraiser’s valuation of the property, whichever is higher.
(3) Owner’s Title Insurance Policy: Every Buyer has the right to ask the question of the Seller- “How do I know that I’m getting good and marketable title to the property?” In Florida, the ONLY way to answer that question is that the Seller provides the Buyer with a policy of Owner’s Title Insurance which insures the Buyer up to what they paid for the Property that the title to the property has no title defects and is freely marketable. Title Insurance is about .5% of the sales price up to $1MM, and then amounts above $1MM are about .25% of the sales price up and over the first $1MM. So for a $100,000 deal the title insurance is about $500, and for a $1,000,000 deal the title insurance is about $5,000. The total amount for the title insurance is called the title insurance “premium“, and it is split between the title agent and the title insurance underwriter who issues the policy with the agent receiving about 70% as compensation for handling the closing and the underwriter receiving about 30% for underwriting the policy. There are over a dozen title insurance companies licensed to underwrite title insurance in Florida, but the vast majority of the business is divided between Old Republic National Title Insurance Company, Stewart Title & Guaranty Company, First American Title Insurance Company, and the Fidelity group of companies (including Chicago Title and Fidelitiy National Title Insurance Company. Title insurance rates are promulgated by the State insurance commissioner, which means that the agent issuing the title insurance (usually the closing attorney or title company) can NOT charge any more than the promulgated rate. However, the portion of that title premium that the agent receives may be negotiated by the consumer. Any such negotiated discount is called a “Butler Rebate” in Florida.
Many people don’t know what title insurance is, much less think about the cost. For many people, the choice of a title company is made upon recommendation and not price. However, title insurance represents a fair chunk of the third party closing costs associated with purchasing a home. How much? Let’s take a look:
In the state of Florida, title insurance rates are set by the state. The rate schedule varies based on the insured amount of the property and has brackets similar to the income tax. The current rate schedule in Florida is:
||$5.75 per $1,000 insured**
||$5.00 per $1,000 insured
||$2.50 per $1,000 insured
||$2.25 per $1,000 insured
||$2.00 per $1,000 insured
*Minimum premium is $100
**Fractional thousands are calculated as full thousands
Knowing the rate schedule we can know see how much your title insurance policy would cost for your $1,000,000 home
||$575.00 (First $100,000 divided by 1,000 = 100. Multiply by $5.75)
||$4,500 (Remaining $900,000 divided by 1,000 = 900. Multiply by $5.00)
|Total Cost of Premiums
Of course, as with many things in life, and especially with financial products, it’s never that simple. Title insurance is actually made up of two different policies: a Lender’s policy and an Owner’s policy. The lender’s policy is just like it sounds, it protects the lender’s investment, that is your mortgage. Should something go awry with the title of the home you just purchased on borrowed money, the lender wants to be assured that they can recover their capital. The Owner’s policy on the other hand, protects you. The catch is that while it’s called the Lender’s policy, you’re the one who is expected to pay for it and almost every lender will require you to purchase a policy in order to lend to you! The extra cost of issuing both an Owner’s and Lender’s policy is $25. This brings your premiums to $5,100 (for a 1 million dollar house!). For a $200,000 House the Premiums would be $1,100. For a $250,000 Home the Premiums would be $1,350. For a $300,000 House the Premiums would be $1,600.
In addition, there is an enhanced version of the title insurance that almost every lender will also require you to add on to the policy. This enhancement protects against other possible title issues including restriction violations, mineral rights, encroachments into easements and more. In Florida this enhancement costs 10% of your premiums. That’s another $510 (for a 1 million dollar house!). $110 for $200,000 Home; $135 for $250,000 Home; $160 for $300,000 Home.
Finally, there is the environmental liens protection which guards against the title company missing a publicly filed environmental lien in the title search. This costs another $25. So, in total your title insurance premium will be $5,635. That’s a significant cost! (There are other possible endorsements, some of which are required if you are purchasing say a condo or waterfront property, but for simplicity’s sake we’ll stick with these.)
So How Can You Save Money on Title Insurance?
There are a couple of ways. First of all, in Florida there is something called the re-issue rate. If the current owner of the property took out a title insurance policy less than 3 years ago and can provide documentation of that policy being taken out, then you pay a reduced rate on the new title insurance policy for the original amount insured.
To return to the example, say that the house you are buying for $1,000,000 was bought by the current owner for $800,000 2 years ago. That owner took out a new policy and has documentation to prove it. Now when you take out your policy you’re entitled to a reduced rate for that $800,000 of coverage. The reduced rate schedule is below:
||$3.30 per $1,000 insured
||$3.00 per $1,000 insured
||$2.00 per $1,000 insured
||$1.50 per $1,000 insured
This reduced rate means that instead of spending $5,635 you will spend $3,825.50 since the first $800,000 is priced at the reduced rates and only the second $200,000 is priced at full rates. This is a savings of $1,809.5 or 32%! Many people don’t know about this potential savings so it is always worth finding out if a policy has been issued within the last three years.
The second way is through what is known as the Butler rebate. In Florida, only 30% of your title insurance premium is sent to the underwriter. The other 70% is held by the title agent to compensate them for the work done. It used to be that there was a ban on title agents rebating any portion of the insurance premium to their client, but a case in 2000 changed that. The Butler rebate allows title agents to refund a portion of the client’s premiums saving the client money. Using our case above a 10% rebate would provide a savings of $382.55 for the re-issue policy and a rebate of $563.50 for the full price original policy. That’s money back into your pocket! ** A 10% Butler Rebate on a $300,000 Home savings would be $178.85. On a $250,000 Home, savings $151. On a $200,000 Home, savings $123.50.
Butler Rebate in Florida:
Title Insurance. The title insurance industry in Florida is heavily regulated by statute. Attorneys in a Florida real estate or finance transaction often act as “issuing agent” for the title insurance issued in connection with such transactions. While the title insurance product actually issued and the cost of the same should be no different whether issued by an attorney agent or directly by the title company, non-Florida parties are often skeptical of this practice, especially since there are apparent conflicts of interest when a Florida attorney is acting in dual capacities in a transaction. Despite these conflicts, the practice in Florida is not likely to change any time soon since the issuance of title insurance is such a lucrative practice for attorney agents. At a minimum, any transaction party paying for title insurance should inquire about the “Butler rebate”, whether the Policy is being issued by an agent or the underwriter itself. The Butler rebate will result in a significant savings (i.e. as much as close to 70 percent) on the title premium. While in the past this type of rebate had only been available to title agents, it is now available to any purchaser of title insurance as a result of the Florida Supreme Court decision (Chicago Title Insurance Co. v. Butler, 2000 WL 1535354 (Fla. 2000)). It has been my experience that a Butler rebate is frequently not offered by title companies unless specifically requested.
(4) Title Search Fee: In order to be able to issue the title insurance, the title agent must first conduct a title search on the property. The title search process consists of compiling all the documents in the chain of title to the property going back to the “root” of title under the Marketable Record Title Act (MRTA). The documents comprising the chain of title are called the “Abstract“. Then, the agent must examine each document to make sure that there are no defects or problems with any of the documents that would result in a break in the “chain” of title. This process is called the “Examination.” Upon completion of this process, the title insurance agent will prepare a Title Insurance Commitment on a form established by the American Land Title Association (ALTA) which states what requirements must be met to issue the title policy and what matters, if any, coverage will be excepted from in the title policy. The typical Title Search Fee will run about $100.00 for most title agents.
(5) Closing Attorney or Closing Agent or Settlement Fee: This fee may be referred to as any of the three mentioned, and is negotiable. The purpose of the fee is to provide the title agent with compensation for doing all of the things necessary to handle the closing and typically ranges in our area from about $250 up to around $550.
(6) Survey: It is quite typical in our area that the Seller pays for a new staked survey of the Property, although in some areas in Florida, for some reason it becomes typical that the BUYER pays for the Survey. Surveys for typical subdivision houses usually run around $350. REMEMBER- if the Seller has a prior survey which is still accurate, and is willing to sign an affidavit that the survey is still accurate (no new improvements built or removed), then the old survey can be re-used for the closing. However, a prudent Buyer will still require that the property corners be re-staked so that they can verify the property boundaries. The re-staking is often far cheaper than getting a new survey. Also, please NOTE THAT SURVEYS ARE NOT REQUIRED FOR CONDOMINIUMS.
CLOSING COSTS TYPICALLY PAID BY THE BUYER: Pretty simple- usually the Buyer pays any closing costs that are related to any financing being procured by Buyer. As we all know, banks and other mortgage lenders can be quite creative and sometimes it seems, endless in their fees and charges. The good news is however that all of those charges must be disclosed up front when you apply for the loan and if there is anything more than a very minor change in them they have to be re-disclosed. Beginning August 1st, 2015, you must be provided with a document called a Loan Estimate (Previously called Good Faith Estimate) that discloses to you all costs related to your transaction within 3 business days of applying for your loan. Then, at least 7 business days prior to closing you must be provided with the final Closing Disclosure which shows you how much money you will have to bring to closing, all escrow account money, and all closing costs. Impossible to know exactly what charges the bank may come up with, but it goes without saying that you should carefully shop at least 2 or 3 lenders to make sure you are getting the best deal possible. There are a list of costs though that will be present on ALL transactions involving loans, and since they are caused by the fact that you are getting a loan it is typical that you would, as the Buyer pay them. Those include:
(1) Note Stamps and Intangible Tax: Florida doesn’t collect personal income tax, but they make it up in a few places.. if you borrow money in Florida the State charges a “Note Tax” or “Note Stamps” in the amount of .35% of the amount you borrow. If that loan is secured by a security interest or mortgage, the State also charges an “Intangible Tax” of .2% of the loan amount. ** Total of These comes to about 0.55% of the loan amount **
EXAMPLE: So in other words, if you borrow $100,000 secured by a mortgage you will be charged $350 in Note Stamps and $200 in Intangible Tax for a total of $550.
The Florida documentary stamp (“promise to pay”) tax is due in the amount of $.35 on every $100 (or fraction thereof) of indebtedness secured by a mortgage on Florida real property.
(2) Recording Fees: The clerk of court will charge a per-page recording fee for recording the mortgage in the public records. This is typically about $100 or so depending on how many pages are in your mortgage.
(3) Simultaneousl Issue Fee for the Lender’s Title Policy: The normal situation is that when the Buyer is getting a loan to purchase property, the Seller pays for the issuance of an Owner’s Policy of Title Insurance in the amount of the Purchase Price. The Owner’s Policy protects YOU, as the new owner of the property, from any title defects or costs. However, your Lender wants protection against title defects and costs as well, so they will always require that the closing agent also issue to them a Lender’s Title Policy. The good news is that under Florida law, the closing agent can simultaneously issue that Lender’s Title Policy for a “simultaneous issue fee“, usually about $150. ** This fee is negotiable with your closing agent by the way. **
(4) Other Lender Charges: These can include title insurance endorsements required by the lender, application fees, appraisal fees, credit check fees, flood zone certification fees, underwriting or processing fees, discount points buying down the interest rate, origination fees, and the list goes on. They are typically all negotiable with the lender and as mentioned above, you really need to shop at least 2 or 3 lenders against each other to make sure that you are getting the most competitive deal.
(5) Escrow Accounts: Many lenders will require that the Buyer put an initial sum of money in an account towards the property tax or insurance bills coming due later in the year, and then each month to pay into the account an additional payment so that sums accrue which are sufficient to pay the property tax bill or insurance bill when those items next come due. Keep in mind that the money in these accounts is truly the Buyer’s money. When the Buyer sells the property any money left in such accounts is refunded or applied to the payoff balance on the loan by the lender. It is typical that most lenders will require about 2 months of taxes and insurance to be put in the escrow account at the time of closing.
A WORD ABOUT PRO-RATIONS– In our area property values are assessed on January 1st of each year for tax purposes, and then the tax bills come out in November. In other words, the tax bill received in November 2015 is for the WHOLE YEAR 2015. So, if you are closing on June 1st, the tax bills haven’t come out yet and the Buyer will be paying that bill. As such, the Seller owes the Buyer a credit for the portion of the year that the Seller owned the property (In our June 1 exampe that credit is half the year’s worth of taxes). Since the bill doesn’t come out until November an estimate is used in order to extend the credit, and typically the taxes for the year before are used as the estimate. This works except if the property is new construction or there is some reason to believe that the taxes this year won’t be close to the amount they were for last year. The practice of extending the credit to the Buyer for the part of the year during which the Seller owned the Property is called “Pro-rating” the taxes. The pro-rated amount is determined by taking the cost for the whole year, dividing by 365 days to get a daily amount, and then multiplying the daily amount by the number of days to be pro-rated. The pro-ration can also work the other way if you are closing in November or December, after the tax bill has already been paid. In such cases the Seller has paid for the whole year and the Buyer will owe the Seller a credit for the portion of the year that the Buyer owns the Property. Condominium fees, assessments, CDD Fees, Homeowner’s Association Fees, and other such costs or charges are typically pro-rated using the same method.
TIMELINE FOR CLOSING: Think through how much time will be needed to get to the closing table. Usually after the contract is signed you will have 10-15 days to inspect the property for any issues and reach an agreement on how to address any issues with the Seller, you’ll need to apply for your loan if you are getting one and get approved… which is usually about 30 days, and then you’ll need to get everything ready and together to close. If everything moves along perfectly and you are getting a loan, it’s pretty tough to close any sooner than 30 days after the date of contract signing, and more typically 45 days. Some upcoming changes in federal law which go into affect Aug. 1st, 2015 will probably add 2 weeks to this, making it realistic that you can close about 60 days after signing the contract.
FINANCING: Are you going to need financing? If so, you’ll probably need about 30 days to get approved which means you’ll want to include this contingency in the contract so that if you don’t get approved you can get your binder deposit back.
ANYTHING PERMANENTLY ATTACHED TO THE WALLS FLOORS OR CEILINGS AUTOMATICALLY GOES WITH THE HOUSE. ANYTHING NOT ATTACHED DOES NOT.
Therefore, if you want the refrigerator, a countertop microwave, a big jacuzzi sitting on the back deck that plugs in, or a washer or dryer to go then you must specifically include those items in the appropriate part of the Contract. Conversely, is there an antique chandelier in the dining room that has been in the Seller’s family for 100 years? If so, it may not be going with the house and if you are the Seller you need to remember to EXCLUDE such an item in the contract or else it will be deemed to go with the house.
INSPECTIONS/DUE DILIGENCE: Basically, it is up to a Buyer to investigate the condition of the Property and whether it is suitable for what the Buyer intends to do with it. You should NEVER ASSUME that a property can be used for anything other than what it is currently being used for! In other words, if it is vacant land, then don’t assume you can build ANYTHING. If it has a single family residence on it, then it’s usually safe to assume that a single family residence can stay on it.. get the picture? If you want to make any big changes or additions to how the property is being used then IT IS UP TO YOU TO MAKE SURE THAT YOU CAN DO WHAT YOU WANT! Common question: “If someone sells me a lot that means I can build on it right?” The answer is an unqualified NO!! There are many restrictions like zoning, wetlands issues, covenants and restrictions, and comprehensive plan designations that can limit what can be done with a property.
Usually a Buyer will want to have the property inspected to see if any repairs are needed. If you are getting FHA or VA financing, then an inspection is required by those government agencies. In most cases under the NEFAR, FAR, and FAR/BAR contracts you’ll have about 10 days to get the property inspected and then usually about another 5 days to reach an agreement with the Seller on repairs. If you can’t reach an agreement on who will fix what, then you must be sure and give written notice that you want to cancel before the contingency expires, in which case you can’t get your deposit back and move on to look at other properties. Sometimes you’ll need to investigate things other than the property’s condition like zoning matters, comprehensive plan requirements, or covenants and restrictions. In such cases you may need to change the language of the contract to allow yourself more time. Your attorney will be able to give you advice and guide you on important issues like these. Finally, after you conduct your inspections and due diligence you must make sure that if any repairs are to be made or if you need more time or whatever agreement is reached that a WRITTEN amendment to the contract memorializing such agreements is made and signed by both parties! Remember, to be enforceable it has to be in writing!
MAKE SURE THAT YOU UNDERSTAND WHAT TAXES, HOMEOWNER’S ASSOCIATION FEES, CONDO FEES OR CDD FEES, ETC THAT YOU WILL BE OBLIGATED TO PAY. It might shock you to learn that there are communities in our area where if you bought a typical $400,000 house and didn’t even have a mortgage that you would owe about $6,000 a year in property taxes, and then another $300-$400 a month in CDD and HOA fees! That means that without a mortgage you would still have to pay about $900 a month to live there! It is required by law that all HOA, Condo, CDD, and other fees be disclosed to you accurately on an addendum to the contract. Be sure and do your homework on these fees and costs when you first become serious about a property. Also make sure that you check to see if there are any planned, forecasted, or even possible assessments– especially if the property is a condominium. In recent times we have seen assessments levied against condo units that approximated 25% of their total value!
MAKE A GOOD DECISION ABOUT WHERE THE CLOSING WILL BE HANDLED: Like making any other good consumer decision, you should base the decision on who you are going to allow to handle this most important transaction for you on where you will get the best quality service for the most competitive price. In Florida, closings don’t have to be conducted by attorneys as in some states. The only requirement for someone to handle a closing in Florida is that they be a notary, and if title insurance is being issued, that they are licensed by the State as a Title Insurance Agent. If you choose to close with a “Title Company“, which typically describes a non-attorney closing agent, keep in mind that the services that Title Company can provide are limited to issuing the title insurance, preparing the form closing documents, and administrating the closing. A Title Company cannot draft legal documents, give legal advice, or provide you with attorney representation. Some larger Title Companies do have attorneys as employees, and in such case those attorneys can answer legal questions for you or draft documents if necessary. As such, it is very important for you to ask if you are considering using a Title Company, as opposed to a law firm, to conduct your closing as to whether or not they have an attorney on staff that can help with such things. Be sure and ask if the attorney is on staff and available to help you– many smaller title companies will try to create the impression that they have attorney’s on staff by saying that they “have an attorney available” or that an attorney is available through their title underwriter. Such attorneys do not work for the Title Company, usually are not located in the Title Company office, and usually are not nearly as available as an in-house staff attorney.
At this point you may be asking, “Why wouldn’t I just use an attorney for my closing?” The answer is of course that you should! In most cases, an attorney closing agent can provide a greater palette of services than can a non-attorney provider and usually at the same or better pricing! Ask about your closing agent’s experience, number of staff, check out the location of their office, and request their pricing for services. Recently the American Land Title Association (ALTA) has created a “Best Practices” certification standard for ALL closing agents in the U.S., attorney, or non-attorney. This standard is being adopted by most quality closing agents across the country and the date for certification compliance is August, 2015. After that date I would suggest that you eliminate from your consideration any closing agent that is not “Best Practices” certified by ALTA.
*** BeAWARE that if you use a Lawyer for the Closing Transaction – they CANNOT represent the BUYER or the SELLER – they LAWYER can ONLY Represent the TRANSACTION. Most of the time the Lawyer will NOT see the closing documents until the day of closing – everything prior to that day will be done by their Paralegal. Title Companies on the other hand do this on a DAILY basis. It IS what they DO. Lawyers are BUSY with other things – this is just ONE more thing they do – it is NOT what they DO. ***
SOME IMPORTANT FINAL CONSIDERATIONS
1. REMEMBER- MOST CLOSING COSTS ARE NEGOTIABLE AS TO WHO PAYS WHAT: There’s nothing that says that the Seller HAS to pay the Closing Attorney’s fee or the Title Search Fee, and there’s nothing that says that the Buyer HAS to pay the intangible tax and note stamps. Except for some charges which MUST be paid by the Seller on VA or FHA loans, it is pretty well completely negotiable who pays what. The breakdown given above is what is TYPICALLY seen in our market area.
2. BE CAREFUL WHEN BUYING A HOME FROM A BUILDER OR GETTING A MORTGAGE WHERE THEY ARE OFFERING TO PAY ALL CLOSING COSTS OR THEY ARE TRYING TO STRONG ARM YOU INTO USING AN IN HOUSE TITLE OR MORTGAGE COMPANY: As the old sayings go… Nothing in life is free… and if it sounds to good to be true it probably is! When getting a loan if the Lender is offering to pay all of your closing costs, they are probably just bumping up your interest rate a tad so that they recover the money several times over during the life of your loan. By offering to pay your closings costs as you typically would and getting a lower interest rate you will usually save yourself a huge amount of money over time. When a Builder is offering to pay all or a bunch of your closing costs they are simply building those costs into the price of the home, and then some. You can probably get a much better deal by offering to pay the typical closing costs that you would pay and getting a lower purchase price. Especially beware of these situations where the builder is insisting that you use an in house title company or “preferred lender”. Many builder contracts will say that if you agree to use the builder’s preferred lender or in-house title company then the builder will agree to pay their typical closing costs as Seller, but if you don’t then they willl require you to pay them. This is because they have already built into the sales price of the home the costs they would typically pay, and if you agree to use their in house title company or lender they will know you are “captive” to using that provider instead of competitively shopping those costs and they will be able to make sometimes exorbitant fees and profits on the “back end” of the deal (much like the “undercoating” on the new car…).
3. BE SMART AND SHOP AROUND. It’s no different than buying a car or anything else. Always get 2 or 3 quotes to make sure that you are getting the best quality and service for the money.