Mark’s Summary of the REAL ESTATE BUYING PROCESS in FLORIDA
Buying real estate can seem overwhelming, especially without guidance from your buyers agent. Here is a quick summary of the steps to purchase a property in Florida.
1. THE MORTGAGE PRE-APPROVAL OR PROOF OF FUNDS
If you are looking to buy a bank owned property or a short sale then you will be expected to include proof with your offer that you are financially able to completely the transaction. This consists of either a pre-approval letter from a lender which indicates the amount they are willing to lend you and the terms that would apply OR a proof of funds document from your bank that shows sufficient funds to support your offer. A proof of funds document can be either a letter from your bank or a copy of your bank statement (with the account number crossed OUT.) Even in a normal sale, it is a good idea for buyers to be pre-approved prior to starting the home search process. Although the pre-approval is not a final loan commitment, your pre-approval letter is an asset when bidding on a home. It demonstrates your financial strength and shows that you have the ability to proceed with a purchase. This information gives the sellers confidence in your offer and your intentions.
2. PROPERTY CHOSEN – DETERMINE THE OFFER
Negotiating the purchase agreement is part of every transaction. Good preparation lets you negotiate the best price and terms. The first step of the process is to determine what comparable properties in the area are actually selling for. In general an offer is typically for less than the asking price, but this rule does NOT apply to bank owned properties. More than half of all bank owned properties sell for list price or MORE. When it comes to short sales I can check the experience of the listing agent, the number of mortgages on the property, and if the property is vacant.
Short Sales: A short sale is when the seller is trying to sell the property for less than the balance on the mortgage and wants their lender to accept that amount in full settlement of their loan. The lender is, of course, not required to do that, so you end up with an executed contract that is still subject to lender approval. The time deadlines for all the contingencies start from the date that the lender delivers written approval of the deal. To be very clear, the price you agree with the seller on a short saleMEANS NOTHING. The seller’s lender will determine what they are willing to do the deal for and it is almost always going to be for more than you agreed with the seller. If you want to enter into a short sale contract then you should be prepared to wait at least 3 or 4 MONTHS for an answer and you should be prepared to pay more than you originally agreed. My clients typically end up spending an extra $2,000 to $5,000 to make the short sale happen. If you are not a patient person, then short sales are not for you. If you are not willing to have your escrow deposit sit for 3 or 4 months before you can get it back, then short sales are not for you. If the price you agreed with the seller is really the most you can afford, then short sales are not for you. I do short sales and my clients have successfully bought them, but they are messy and frustrating.
3. MAKE THE OFFER
Typically, in Florida, you and I will complete a written offer that will be presented to the seller’s representative (the listing agent). This purchase offer will be on contract forms that have been prepared by the Florida Association of Realtors and the Florida BAR. In addition, there will be other documents that make up a complete offer file for me and my broker. At this point, you will NOT normally be expected to include a check as your earnest money deposit. (The contract will include a provision indicating when your earnest money is due, typically 3 days after the contract has been agreed.) The seller, in turn, may accept, reject, or make a counter-offer. Counter-offers are the norm (ANY change in an offer is a counter-offer, not just a change in price). It is important for you to remain in close contact with me during the negotiation process so that any proposed changes can be reviewed quickly. You will normally have only 48 hours to respond to a counter-offer.
Bank Owned and Short Sales: There is no essential difference in terms of making an offer on a short sale or bank owned property versus a normal sale. There will be more paperwork, sometimes as much as 10 pages extra.
“Highest and Best”: On any type of sale, but especially on bank owned sales it is possible for the seller to receive multiple offers. There are NO rules for how the seller must respond to these offers. The seller can consider them in any manner they choose. Often, the seller will invite all the bidders to submit their highest and best offer. Highest means the highest price they are willing to pay. Best means the best terms they are willing to offer (for example a very quick close or no inspection). The seller will then pick one of the highest and best offers and negotiate only with that buyer.
4. OFFER ACCEPTANCE
When both the seller and the buyer have signed the documents you have a legally binding contract for the sale and purchase of the property. When both parties have signed there is an EXECUTED contract and the date the last party signs is the effective date of the contract. All contingencies with time deadlines start from this date.
Short Sales, Lender Deadline: In a short sale there is a special short sale addendum that spells out the number of days you will give the lender to make a decision. The typical numbers is 120 days. If the lender has not accepted the contract in 120 days, then you may cancel the contract or continue to wait for lender approval. During those 120 days you have a valid contract and you should not make other offers.
5. TITLE AGENT/CLOSING COMPANY SELECTED
Residential real estate transactions in Florida are normally coordinated by a Title Agency, not a lawyer. The Title Agency is also called the Closing Company. They will issue a Title Insurance Policy to protect the new owner’s property right. You may of course retain a real estate lawyer to assist you, but it will be an additional cost.
6. HOME INSPECTIONS ORDERED – PERFORMED – ACCEPTED
Your contract will include an inspection contingency. The home inspection should be ordered within a day or two of the effective date of the contract. A number of inspections are common in Florida residential realty transactions. They include inspection for termites, wood-boring insects, mechanical and structural defects. During these examinations, a state certified inspector determines if there are material physical problems and whether expensive repairs and replacements are likely to be required. Such inspections for a single-family home often require two or three hours. Once you have received your inspection report you can accept the condition of the property, reject the purchase, or enter into further negotiations with the seller on the condition of the property. If is very important for the buyer to respond to the seller prior to the deadline for inspection. If the buyer makes no comments and the deadline passes, then the buyer has accepted the condition of the property.
8. MORTGAGE COMMITMENT – TITLE WORK AND SURVEY PERFORMED
At this time in the process you, as a buyer, have already been pre-approved for a loan and await your final mortgage commitment. Typically, a final written mortgage commitment is received in 30 to 45 days. The process of ordering a survey of the property and title search work now begins.
9. THE HUD SETTLEMENT STATEMENT
One or two days before closing the parties will receive a document called a “HUD-1”, which details all the financial arrangements in the contract. HUD stands for the Department of Housing and Urban Development, a branch of the Federal Government of the US. Virtually every residential real estate transaction in America will have a HUD-1. The HUD-1 will tell the buyer how much money they have to bring to closing or wire to the closing company. It is very important to review this document carefully to make sure that it does not contain any errors and to question any cost that is not understood.
10. WALK THROUGH AND CLOSING
If you are present, then a walk-through inspection is usually performed the day of the closing. The walk-through of the home you are about to close on lets you re-confirm the condition of the home before the closing takes place.
Settlement at closing is a brief process in which the necessary paperwork needed to complete the transaction is signed. Classically, both buyer and seller are at the same table, sometimes with each party completing their paperwork separately. In practice, the buyer and/or the seller may not be present, in which case the paperwork is delivered to them for signature in a process called a “mail away”. Title to the property is transferred from seller to buyer. The buyer receives the keys and the seller receives payment for the home. From the amount credited to the seller, the closing agent deducts money to pay off the existing mortgage and other transaction costs. Deeds, loan papers, and other documents are prepared, signed and filed with local property record offices.
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