Considering a real estate investment in Florida, you may not be quite familiar with the transaction aspects of buying and selling Florida real estate.
Based on 16+ year experience, Tobias Kaiser has written a short guide “Buying and Selling Florida Real Estate”. The brochure is currently in it’s 11th edition and available as a PDF in English and German. Below you will find an abbreviated version. For the full - free - version, please don’t hesitate to email Tobias Kaiser.
Note: All information contained herein comes from experienced and reliable sources but is not warranted and – very important – not supposed to replace professional advice.
The brochure covers:
Property Types
Step by step
Agents, Brokers and Realtors®
Client representation
Offer and contract
Financing
Inspections
Immigration
Taxes
Closing
Broker: yes or no?
1: PROPERTY TYPES
One generally differentiates between
Residential Real Estate
Commercial Real Estate
Business Opportunities
Residential refers only to Single Family Homes, Townhomes and Condominiums (apartments)
A good broker or agent will assist you in defining your real estate investment goals and advise you in selecting a matching property.
2: STEP BY STEP
Real estate transactions in the US mostly follow this sequence:
Selection of a broker or agent
Definition of investment goal
Property definition
Property search
Property selection
Offer and contract
Inspections/due diligence
Closing
Improvements if necessary
3: AGENTS, BROKERS AND REALTORS®
Now it gets a bit more tricky. When buying or selling US real estate, to protect your interests you should use a real estate broker (called estate agent in the UK) to represent you. He or she should fulfill the following criteria:
Current valid real estate license (mandatory)
For residential transactions, membership in the local Board of Realtors®
Experience with the property type you consider buying or selling
In order to broker real estate in the US, one has to be properly licensed by the state, either as a real estate broker or a real estate agent. Both must renew their license every two years; an agent always works under a broker's supervision, while a broker may work for another broker or self-employed.
For residential real estate, work only with a Realtor®, meaning the broker (following for agent or broker) belongs to the local Board of Realtors®. The Board is a voluntary professional association with strict business and ethical guidelines which often exceed state law. Membership allows full access to and listing privileges in a proprietary computer database called MLS, which contains nearly every residential property in the region offered for sale, thus matching sellers with buyers. As a result, buyers can concentrate on working with only one broker of their choice who is able to offer and sell any property listed in the MLS.
If you consider commercial real estate, choose a commercial specialist. Residential brokers are not experienced, trained and qualified in the selection and analysis of commercial investments. Also, commercial properties are mostly offered either through closed data exchanges or personal contacts between commercial practitioners.
4: CLIENT REPRESENTATION
In residential transactions (slightly different in commercial and business transactions), brokers often decidedly represent one of the parties. Commissions, at least in residential, will typically be paid by the seller. This is accepted practice.
Ideally, your broker represents you and your interests only. Buyer’s advantage in using a broker: without extra cost, he has a professional representing his interests – not the case if a buyer contacts the selling broker or even the seller directly, for example by calling a telephone-number on a “For Sale”-sign.
Advice: if you are happy with your broker, remain loyal. As soon as a seller or his real estate agent learns your name in any other way than through your broker, he will be excluded from the transaction and will not receive any renumeration for the services rendered to you. That will cause a sudden and unhappy ending of your business relationship, as you can imagine.
5: OFFER AND CONTRACT
Based on your criteria, your broker will assemble a list of suitable properties. The better you define your wishes, the better the list will be. Once your broker finds a property to your liking, you will make a written offer through your agent, accompanied by a small deposit. This as well as all following deposits will be paid into an escrow account, never to the seller directly.
The seller he can accept, reject or counter your offer, which only becomes a binding contract when both parties agree and sign without any further changes. Time periods contained in the contract typically commence with the last signature, and missing a vital date may constitute a default or even a breach of contract.
6: FINANCING
Many U.S. banks and lenders will accept mortgages from foreigners, some banks in Europe and Canada as well. Loan-to-value ratios of 80% to 95% for US-citizens and 60% to 90% for non-US- applicants are typical, depending on credit history, documentation and income. Some US banks insist that the mortgagee opens an account with the bank as an additional security.
In selecting a lender, make sure he is experienced in dealing with non-US-citizens if you happen to come from another country, or ask your broker to recommend one. Prudent lender selection can streamline the purchase process considerably.
7: INSPECTIONS AND DUE DILIGENCE
Between the signing of the contract and the closing, several activities run parallel: property inspection, title inspection, possibly a loan application, and in case of a commercial or business transaction the so-called due diligence.
It is the buyer's obligation to check for restrictions that impede on the planned use of the property, i.e. possible usage restrictions such as commercial use, permitted vehicles or rentability.
A buyer should carefully decide how he will own the property (as an individual, in the name of a company, in a living trust etc). This may have a direct influence on the his tax obligations, and/or how his estate is passed on when he dies. Please do consult a CPA or tax advisor to structure the ownership under tax perspectives as favorable as possible.
8: IMMIGRATION
Non-residents can, for the most part, enjoy and visit their US-properties without many restrictions or difficulty. There are very few restrictions on real estate purchases, commercial or residential, for non-residents.
In most cases, purchase of residentialproperty does not qualify for a long-term visa or for permanent residency. Commercial investments are different: though no one should offer guarantees for the decisions of the immigration authority USCIS, but chances for a long-term visa or permanent residency can be drastically increased when following specific acquisition criteria in the purchase of investment property.
If you are a non-US resident, please consult with a recommended immigration specialist prior to any purchase.
9: TAXATION
It is prudent to consult an experienced tax advisor before buying or selling property in the US, for citizens and non-residents alike. Among other subjects, this consultation will clarify what length of stay per year could trigger US taxation and how (e.g.: company, land trust, your heirs) you should take title to the property. Inheritance tax in case of the death of an owner or co-owner will be directly influenced by this and can be substantial (in excess of 50%).
Additional issues that may be discussed are taxable income from investment properties, FIRPTA and tax treaties with such countries as Austria, Germany, Luxembourg or Switzerland to avoid double taxation.
10: CLOSING
This is the change of property ownership against monies. The buyer does not have to be present if his lawyer or broker hold a proper power of attorney.
Payment mostly takes place in form of a cashier's check drawn on a local bank or a wire transfer into the escrow account. Transfers, especially internationally, should thus be ordered in time to make sure that the funds arrive punctually and a closing doesn’t have to be postponed, which can cause considerable effort and irritation for everyone involved.
11: BROKER YES OR NO?
So, do you really need a real estate broker?
Unless you also enjoy operating on yourself, or representing yourself in a court of law, the answer is Yes.
Your broker is privy to information, knowledge and also property access that is not available to you, and his experience will not only ease a real transaction considerably, but can make the difference between success or failure. A broker fulfills several key functions:
he facilitates the property search through his network of contacts and databases
he is familiar with the region
knows the market’s current supply- and demand-status
he is experienced in evaluating property prices through a competitive market analysis
he writes and presents the offer and conducts the negotiations
he has access to reliable local sources and experienced professionals in all related fields
he coordinates all services involved in the transaction and
he supports the client after the closing
In one of the biggest investments one typically handles in a lifetime, it is prudent to utilize the kind of support a good broker can and should offer.
The information above has been obtained from sources believed reliable but is made without any guarantee or warranty of completeness or accuracy. Before you engage in any real estate transaction, it is your responsibility to consult with your tax, financial, and legal advisors.
