"Tobias invests major time in his clients' interests and doesn't disappear after the closing." – George & Susi Schu, Fort Lauderdale
Considering a real estate investment in Florida, you are already aware of the advantages such as property appreciation, diversification of your assets, political and economic stability, favourable taxes, warm and sunny climate or cultural richness. Less familiar you may be with the transactional aspects of buying and selling Florida real estate.
As a service to prospects and clients and based on his 14+ year experience in the field, Tobias Kaiser has written a short brochure “Buying and Selling Florida Real Estate”. The brochure is currently in it’s 9th edition and available as a PDF in English, French and German. Below you will find the abbreviated version - please don’t hesitate to request your free copy of the full version.
Note: All information you are about to read comes from experienced and reliable sources but is not warranted and – very important – not supposed to replace professional advice.
Contents:
• Property-Types
• Step by step
• Agents, Brokers and Realtors®
• Forms of representation
• Offer and contract
• Financing
• Inspections
• Immigration
• Taxes
• Closing
• Broker yes or no
• Further information
Property Types
One generally differentiates between:
Residential Real Estate,
Commercial Real Estate and
Business Opportunities
Residential refers only to:
Single Family Homes
Townhomes
Condominiums
Commercial includes, among others:
Multifamily
Duplexes/Triplex/Fourplex (though often grouped with Residential)
Warehouses
Retail
Office buildings
Office condos
Medical
Single Tenant
TIC (several tenants own one property)
Land
Hotels/Motels
Farms
Special use (e.g. Marinas)
Business Opportunities mean for example
Restaurants
Bakeries
Gas stations etc.
A good broker will assist you in defining your real estate investment goals and advise you in selecting a matching property.
Step by Step
Real estate transactions in the US mostly follow a specific structure:
Selection of a broker
Definition of investment goal
Property definition
Property search
Property selection
Contract
Inspections/due diligence
Closing
Improvements if necessary
Below you will read about every of those steps in more detail.
Agents, Brokers and Realtors®
When buying or selling Real Estate, you should at least consider using a Real Estate Broker. Ideally (s)he fulfills the following criteria:
• Current Real Estate license
• Member of the local Board of Realtors® (for residential transactions)
• Experience in the property type you consider
In order to broker real estate in the U.S. one has to be properly licensed, 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.
If you consider 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 of Realtors® is a voluntary professional association with strict business and ethical guidelines which often exceed state law. Membership also allows full access 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 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.
Forms of Representation
In residential transactions (slightly different in commercial and business transactions) brokers often decidedly represent one of the parties:
• representing the interests of the seller as a seller's broker or
• representing the interests of the buyer as buyer's broker
Commissions for both seller’s and buyer’s broker will typically be paid by the seller; this does not constitute a conflict of interest but is part of most listing contracts.
You should always insist that your broker represents you and your interests only. Buyer’s advantage in using a broker: without additional cost he has a professional representing his interests–not the case if a buyer contacts the selling broker or even the seller directly, for instance by calling a telephone-number on a “For Sale”-sign.
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 as your representative will be excluded from the transaction and will not receive any renumeration for the services rendered to you.
Offer and Contract
Base on a client profile, a broker will assemble a list of properties suitable for showings. The better you define your search criteria, the better the list of properties will match your expectations.
Having found one to your liking, you will make a written offer through your broker, which is accompanied by a small deposit. This as well as all following ones will be paid into an escrow account of your broker (agents are not allowed to open escrows), your lawyer or a title insurance company, but never to the seller directly. Only at closing, all deposits will be handed over to the seller together with the remaining balance of the purchase price.
The seller he can accept, reject or counter your offer, which only becomes a binding contract when both parties agree and sign without further changes. All time periods contained in the contract commence with the last signature of seller or buyer, and missing a vital date may either constitute a default or even a breach of contract.
Financing
Many U.S. banks and lenders will accept mortgages (a mortgage being an IOU) 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 mortgagor (the recipient of the funds) 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, especially for non-US- citizens, considerably.
Inspections
Between the signing of the contract and the closing, several activities run parallel in time: property inspection, title inspection, possibly a loan application, and in case of a commercial or business transaction the so-called due diligence, which also includes inspection of all books and records.
Building inspection: the buyer has the opportunity to have the property – resale or new – inspected for functional and structural deficencies. Subject to conditions specified in the contract, the buyer can demand repairs or possibly withdraw from the contract if claims are presented in time.
Title search: an examination of the property title history to ensure that it has clear and marketable title and is free of any unpaid mortgages, liens or other surprises. A title insurance policy will guarantee this to the buyer for the duration of his ownership.
It is the buyer's obligation to check for restrictions that impede on the planned use of the property, i.e. possible usage restrictions of the property, 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, especially estate tax, 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.
It is the sellers’ duty to hand the property over at closing in the same state and condition as it was at the signing of the contract. The buyer has the right to a final walk-through immediately before closing.
Immigration
Non-residents can for the most part enjoy and visit their US-properties without many restrictions or difficulty. They should – besides tax consequences – realise though that a purchase of residential property does not qualify for a long-term visa or permanent residency.
There are no guarantees for the decisions of the Bureau of Immigration, especially after 9/11, but chances for a long-term visa or Green Card can be increased when following specific criteria in the purchase of investment real estate. As with residential property, there are very few restrictions on real estate purchases for non-residents. If you are a non-US resident, please consult with a recommended immigration specialist prior to any purchase to obtain an overview of what your options are.
Taxes
It is also 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 for non-residents 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.
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.
Recording the change of ownership with the community or county records will typically be handled by the buyer's counsel.
Broker yes or no?
Do you really need a real estate broker?
The answer is clearly “yes”, unless you also like to operate on yourself or represent yourself in court. Your broker is privy to information, property access and knowledge that are 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 the databases you don‘t have access to
• 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
• an experienced agents‘ knowledge pays off in contract 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 utilise the kind of support a good broker can offer.
More information
For any questions you may have (as well as comments and corrections), Tobias Kaiser cordially invites you to contact him for a free consultation without any obligation on your part.
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.
Copyright 1996–2006 ©Tobias Kaiser. Use or reproduction, in part or whole, only with written permission.
