Buying

Do I need an agent? Can I buy a house by myself?

You may buy a home for yourself without an agent in FL.  If you have significant experience, are a quick self-learner, or are doing a transaction among trusted family and friends, this is a possibility for you.  There are important things to consider, though:  Typically, the buyer prepares the offer in the form of a Sale and Purchase agreement, which is the actual contract for the home sale and a binding document.  In FL, there is no "standard" contract, while there are contracts available for download on many websites.  We strongly suggest that, if you are flying solo, you should hire a real estate attorney to assist you with the documentation.  There are brokers who will help you with the transaction at a reduced fee, working with limited or with "no representation".

- Do the transaction at a Title Company; make sure they search for any liens and title defects, and they will know how to handle the deed documentation, government fees and taxes, and how to record the deed.  They will charge you a few different and cumulative fees for their services.

- Seriously consider Title Insurance. If you are financing your purchase, your lender will require it, and it's a protection for you too.  There could be liens on the property that the trusted owner may not be aware of, that may have not yet been recorded.  If your brother-in-law forgot to pay contractors, property taxes, or several months of public water or gas, that may haunt you later.

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What if I'm pretty good at searching by myself?

You should search for yourself, whether you have an agent or not.  Some decisions and responsibilities in life are not to be entirely delegated:  it's your home and you want to be on top of things.  Internet search and valuing tools make it very easy to be engaged in this process, even lead it.  But agents have good local knowledge, understand pricing and availability in the market, can help you negotiate, and may spot things you might miss in the home or in the documentation. 

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Note: new construction homes: You may be driving by a new development that has a model home and decide to stop by.  It is typical that they will have a sign-in sheet, asking for your information and if you are represented by an agent.  If you say at that time that you are not represented, you will have a hard time in the future, adding an agent to represent you and getting the Developer to pay your agent.  Keep in mind that the agent on site is there to represent the Developer. It is not illegal in FL for the developer's agent to offer you limited or non-representation, but they are not allowed to be a fiduciary agent to both seller and the buyer at the same time.   While there's nothing unethical about the same agent facilitating a transaction for both sides, there are complexities and multiple steps in buying a new construction home, and things can go bad, such as long delays and construction defects, and it can be beneficial to have someone dedicated to representing your interests, especially considering that a developer hardly ever will give you a discount for not being represented by your own agent.

 

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Who pays for the buyer's agent?  What changes in July 2024?

It has long been the practice in America that in most cases the buyer's agent is paid by the seller, at the closing, through the seller's agent splitting their commission with the buyer's agent. 

As a result of a class action settlement, two major changes will be implemented in July 2024:

a) a buyer's agent must have a written agreement with the buyer in which they specifically stipulate the buyer's agent's commission, either in exact dollars, or as a percentage of the sale's amount.  That will be the buyer's agent compensation, independent of what is being offered by the seller.    In other words, the buyer commits to their agent's commission payment, and that amount may or may not be covered by the commission being offered by the seller, if any. 

b) A seller may still offer commission compensation to buyers' agents, as an incentive for buyer's agents to showcase their property, but that information will not be available on the MLS, or on any site that feeds their data from the MLS.

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What is the best value, new construction or an older home?

As a rule, you pay a premium for a new construction home, just like you pay a premium for a new car.  If it were possible to compare two identical houses in identical locations, the one a few years older would be less expensive than the new construction.  However, there are nuances to defining the best value:

a) If you are handy and not super-picky, find a house in good structural shape, that has the layout you want, but has some dated features and mostly cosmetic flaws.  Let's say, it has questionable taste in wall colors, an old carpet, a dated kitchen cabinet, and the rest, you can live with.  If you are up to the task of repainting the walls, replacing the carpet by yourself with a hard floor, and perhaps paying to repaint the cabinets and install a granite countertop, this could be a good value.  Most people look for a house in "perfect" moving-in conditions, that they fall in love at first sight, and these flaws may impact the asking price or keep it longer in the market, motivating the seller to accept a discounted offer.  Where it gets complicated is when you identify too many projects for which you will need to hire contractors, or when it needs major repairs, like a new roof and new sidings all around.  At that point, you will need to do some math, adding all the required work into the price you are willing to pay, to assess if it's a good deal.

b) If you like upgrades, you may find a used house that has a lot of them at a good value, because when people add a $50,000 finished basement, it rarely increases the resale price by the full $50,000.  Also, when the market compares the prices of used homes in the same development, it has a tendency to pull the lower and higher-priced homes towards the average.   What that means is that often the smaller models will increase in value slightly more than the bigger models, and the home with all the fancy upgrades may not be proportionally more expensive than the home without them.  So, you will be paying for all those upgrades, but not the full price they once cost.  

c) If you want many upgrades: cathedral and tray ceilings, extra windows, premium flooring, high-end appliances, fancier cabinets, premium baseboard and crown moulding, etc, rush to get the model home in the new construction development. There are likely to be upgrade incentives in the model home that you won't get for another unit.

d) If you like everything new, or want things just the way you want it, that is a perfectly legit reason, beyond pure economics, to want a new construction home.  The cost to reform a home to look exactly how you want it may not make economic sense, compared to buying a new construction.

e) In some cases, depending on market conditions, the developer may offer incentives in the form of features and upgrades, as well as closing cost rebates and low interest rates, which may make the value of a new construction very competitive and attractive.

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What is a good offer? Do I have to pay the asking price?

The asking price is someone's estimate of the property value. Usually a well-founded one.  There may be a strategy to slightly under-price to receive multiple offers, or over-price, so the seller would be happy to accept a discount and the buyer may think they got a great deal. Then it's up to the market: there may be multiple offers in the first weekend or none.  The seller is not obligated to disclose if they have multiple offers, but they usually do, indicating that it may be difficult for you to have an offer accepted significantly below the asking price.  It is unethical and likely illegal to suggest that they have multiple offers if they don't.  Then there are other factors beyond the price that will make an offer attractive:

- Deposit: a significant deposit will demonstrate commitment, because there are situations, albeit rare, in which the seller will be allowed to keep your money if you forfeit the transaction.

- Mortgage Pre-Approval*: A strong pre-approval from a reputable financial institution will give the seller peace of mind that you won't dissolve the contract for lack of financing, especially if your offer is conditional on attaining a mortgage.  A savvy seller will also look at the loan-to-value ratio, and if you are financing 95% of the purchase, your condition will seem more fragile.  If you are financing a lesser percentage of the home price, let's say, 60 or 70%, there is a better likelihood that your loan will be approved even if the house is appraised below the sales price.

- Waiving Contingencies: The seller will value a cash offer, not conditional on having a mortgage approved, or that is not conditional on a satisfactory home inspection.  

- Expediency or renting back: Depending on the seller's needs, they may appreciate an offer that results in a fast closing, or the possibility of them staying in the house for a period after the sale.

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*Note: pre-qualification is not the same as pre-approval.  Pre-qualification is a quick assessment based on the information provided, with little or no verification.  Pre-approval has a greater degree of scrutiny, and the bank is assuring that as long as they don't find anything new or undisclosed, and if your financial conditions don't change, they will give you the loan.

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Is everything negotiable?

In theory, yes, you can ask the seller to include a sofa and dining set that fit perfectly, or discuss who is paying for specific closing costs, or for a home inspection report, but it's the market conditions that will determine if your terms will be accepted.  You may try to negotiate very aggressively, but you must be open to the possibility that you may lose the deal if there are better offers on the table, or if the seller calls your bluff and rejects the offer.

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What happens if the house I'm buying fails to appraise?

First of all, the most likely reason the house is being appraised is that the bank originating the mortgage has required it, so to be certain that it's worth the amount the loan is based on.  When a home "fails" the appraisal it means the appraised value was less than the value on the agreement. 

Homes may "fail" the appraisal for many reasons:  it may be a volatile market or a very competitive seller's market where buyers are bidding over the asking price, and the sales history appraisers use hasn't yet caught up with very recent data.  It may be that houses are wildly different within the area, and comparisons are difficult.  It may be that the home is indeed overpriced, but that's the one you want anyway.

Appraisals are an assessment of value, by a certified and qualified appraising professional.  There are clear methodologies that will be described in the appraisal report, but there's always an element of judgment, and it's not entirely free of the possibility of errors and misjudgment.

When the appraised value is lower than the sales price, the bank will likely recalculate the amount they are willing to lend to you.  At that point, you may have a few options to choose from.

a) If the Sale Agreement includes a Mortgage Contingency**, you may:​

- ask the buyer to appeal the appraisal, and ask the bank to request a new one.  They may need to pay for the second appraisal, just like they paid for the first one.

- re-negotiate the price with the buyer.

- ask the buyer to pay for the difference between what the bank is willing to finance, and the sales price.

- allow the buyer to exit the contract, at no fault and without penalties, and have their deposit refunded.

b) If the Sale Agreement includes an Appraisal Contingency*, you may:

- re-negotiate the price with the buyer.

- ask the buyer to pay for the difference between what the bank is willing to finance, and the sales price.

- allow the buyer to exit the contract, at no fault and without penalties, and have their deposit refunded.

c) If the Sale Agreement does not include an Appraisal Contingency*, you may:

- re-negotiate the price with the buyer, from a strong position.

- ask the buyer to proceed with the purchase, paying the difference between what the bank is willing to finance and the sales price.

- allow the buyer to exit the contract, where there may be penalties and you may keep the security deposit.

 

**  A mortgage contingency clause typically includes 2 factors:  that you will try in good faith to secure a mortgage within a certain period, and that the appraisal will be satisfactory to the bank.  If either fails, you may exit the contract without fault and have the deposit refunded.  You may include an *appraisal contingency addendum, which would allow you to exit the contract at no fault, and have your deposit refunded, if the house does not appraise by a certain value, by a certain date.  Read your agreement carefully before signing and consider these clauses carefully.

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What is a typical timeline?

1) First, get pre-approved for a mortgage.  You may work with a mortgage broker to guide you though the process, or, if you have good credit and you are tech savvy you can do it easily online at sites like Rocket Mortgage or Better, and it shouldn't take longer than 24 hours, often just a few minutes.  You will have time, later, to shop around for better rates and terms.  For that matter, start gathering documents for the mortgage application and scan them to a folder: last 2 years of tax returns, last W2, last two pay stubs, bank statements from all your banks, proof of assets like your home's deed and your life insurance policy; scan of your driver's license and passport, bank statement showing the last 12 months of rent payment or a statement of such from your landlord.

2) Start searching on your own, so when you hire an agent you can give proper guidelines that they can target the right properties and won't waste your time. Tell your agent: your target areas, required features (garage, number of bedrooms, basement etc), budget, planned financing and any other important criteria, such as unwillingness to live under restrictive covenants of a homeowners association. 

3) Keep an open mind, but only go see houses that broadly match your criteria, or you will get frustrated very quickly.  It's unpredictable, it may take one or 30 showings to find your home.  in a competitive market, you will need to make decisions quickly.

4) Once you find a great match, things will indeed move fast and you must be very involved in the process, so, don't do it when you have a busy season at work. Often, the closing, i.e. actual transfer of the title will occur 30 to 60 days from the acceptance of the offer, 30 days being a tight schedule for you, the Mortgage, and the title companies to complete all tasks:

• In a hot market, you may have just a few hours to decide whether to make an offer.  It will take your agent a few hours to prepare and review the offer with you, then submit it to the seller. It is not unusual for all of this to happen on the same day you viewed the house.  Pay close attention before signing (usually electronically).  Remember that the offer is a binding document where you are promising to pay hundreds of thousands of dollars.

• It is typical to give the seller 48 hours to accept or refuse the offer. In that timeframe, you may continue to search for houses, and you may withdraw your offer (revoke) at any time before the seller signs their acceptance.  You should make sure that you revoke your offer, in writing, if you will make an offer for another property.​

• If you offered under the asking price, or if the seller has multiple offers, you may receive a counteroffer.  The seller may also counter offer based on conditions, like moving the closing date or being conditional on the home inspection. Once a counteroffer is issued, the original offer is void and you are no longer bound.  It is your time now to accept or reject the counteroffer.  If you accept the counteroffer you are bound once again, if you reject it by making a new offer or re-offering your original offer, the process starts over.  This back-and-forth process often happens within one or two days.​

• Once a (counter)offer is accepted by both parties, it is typical for you to have 3 days to deliver the earnest deposit, and  10 days of Discovery Period to complete the home inspection.  With the inspection report, you may require the seller to repair or compensate you for the costs of repairs.  The seller may agree, partially agree or refuse, at which point you may exit the contract and receive your deposit back.  Not all home inspectors are alike. Some are precise, some are sloppy and some, are overzealous.  It isn't unusual for sellers to be angry at suggested repairs they might find unnecessary.  Once again, it becomes a negotiation and the market will determine each party's chance of success.  It is not typical for buyers to back away from contracts due to minor repair issues.

• Apply for insurance immediately.  You want to find out during your discovery period if you will have issues insuring your property, or if premium prices will be exorbitant.

• You will typically have 30 days to secure financing for your purchase.  If you can't, the seller may agree to extend or the contract may become void and your deposit returned.  If the seller can demonstrate that you didn't really try to get financing, they may be able to retain your deposit.

• The seller also has an obligation to promptly provide you with property disclosures and homeowner association documentation, without which you may be able to void the contract.

• You will be able to inspect the home one day before the closing for any new damages.  

• Your Lender must provide you a final closing disclosure at least 3 days before the closing, which should mirror the one you will receive from the Title company.  That document details all the closing costs and who pays for them, showing how much you will have to pay out-of-pocket that day.

• On the closing day, the Title company agent and your agent will walk you through the closing costs, and the mortgage, title and sale documents you will need to sign and you will get the keys to your new home.  Bring some basics in, and celebrate!