For many international buyers, an adequate knowledge of the intricacy of real estate transactions, as well as legal and tax issues are essential before committing to invest in Miami real estate.
This is a step by step guide for foreign buyers of Miami real estate properties.
The following is the usual sequence of real estate transactions in Florida.
- The Purchase offer. It is done through the buyers' real estate agent.
- The acceptance of the Offer by the seller, or a counter-offer and further negotiations to reach an agreement.
- The inspection (optional)
- The financing process, if needed.
- Contact with banks and mortgage lenders.
- The Property Title search: this is the first step in order to issue a Title Insurance policy that will guarantee a clean title.
- The Title Insurance, usually issued by a Title company or an attorney, specialized in real estate.
- The Closing and recording of the sale. This is done by the Closing Agent or the Title Company. In general it is the same company or attorney in charge of the Title search and Title Insurance.
We use Florida Realtor Association standard forms (F.A.R.) or FAR/BAR forms which are standard contract forms of the Florida Realtors Association and the Florida Bar. (Attorneys Official Organization)
Within those contract forms are included the usual clauses regarding designation of the parties, of the property, the price, inspection procedure, eventually the appraisal and payment conditions. (That means if it is a cash based transaction or if it is conditioned on getting a mortgage loan)
There are "AS-IS"contracts which could allow the seller to refuse any repairs of the property, after an inspection is conducted, giving the buyer the option to cancel the contract if he/she is not comfortable with the amount of repairs recommended in the inspection.
The offer is made by means of a contract, signed by the buyer and presented to the seller through the participating brokers.
It is usual to accompany the offer with a good-faith check in US funds which demonstrates the seriousness of your offer.
The real estate agent has the obligation to present all offers to the seller.
The seller will respond by either accepting the offer, reject it, or make a counter-offer. If he does not respond within a specific date, the offer is considered cancelled. A counter offer will modify the amount, or any other condition presented in the initial offer.
The negotiations conducted in this manner will possibly end in a contract, signed by both parties. We name this an "executed"contract.
These contracts will require the buyer to complete his deposit with a specific date and it is common to deposit 10% of the sale price but it could be more or less. This deposit will be kept in an "Escrow Account" which is a "Trust Account" used by the Attorney or the Title company chosen to hold escrow deposit.
It is common to have the inspection (if agreed upon) performed within 5 to 10 days.
When it is a sale of a NEW condominium or single family home the buyer has the option of canceling the contract within 15 days after he has received all the required documentation from the Condominium Association, as well as their Financial Statements and Budgets.
If it is the RESALE (NOT NEW) of a condominium property or single family home the term will be 3 days instead of 15 days.
Commissions are generally 6% of the purchase price (although that could vary) and are usually paid by the seller and will be shared between the seller and the buyer's agent.
When the sale has been made through the listing agent, without the cooperation of another broker, then the listing agent will be entitled to the full commission.
There is no advantage for the buyer to try to deal directly with the listing broker since it will not reduce the commission paid by the seller who is already obligated by his agreement when putting his property for sale.
The buyer will have - in my opinion - much better leverage when he uses his own agent who will choose between thousands of options instead of trying to steer a client to a specific property where he is the listing agent.
The closing and recording of the sale are usually done at the office of an attorney or the office of a title company, both of them will work with the mortgage bank (if there is one involved) and will further coordinate all documents, recordings, payments to third parties and handling of the funds.
Residential real estate taxes paid annually are presently about 1.75% per year of the market value or a 2% of the assessed value (which is the value that the county appraisal has given to the property - and is usually lower than the market value). These percentages could eventually change when cities and counties increase their millage (percentage by which the assessed value is multiplied in order to obtain the tax amount). Foreign buyers who have made their property permanent residence can take advantage of the Homestead Exemption, which reduces the assessed value by $50,000 for calculation of taxes, and is reserved to homeowners.
Buyers' expenses are variable - in case of a CASH purchase including the title insurance, recording fees, and all other expenses, they fluctuate between a total of 0.80 % and 1.0% of the purchase price.
In case of financing the purchase through a mortgage all the expenses of the loan must be added.
There will be taxes of 0.55 % (from the loan value) on the mortgage, appraisal fees, and additional expenses that banks and mortgage companies will charge.
Apart from "Points" charged by the bank to reduce interest rates, the total mortgage expenses in this case could be between 2.0 % and 3.0 %.
Let me explain the "Points". As an example, a client wants a $100,000 loan at a fixed rate for 30 years. The bank will propose a fixed rate of 5% per year. However, if the borrower would like to lower the interest rate, the bank could propose him an interest of 4.75% for example, and in compensation, the bank will charge upfront $1,000 (1% of the loan amount, or one Point), as a fee. Sometimes the bank could propose for example a $2,000 (which is 2% of the loan amount, or 2 Points) and lower the interest rate to 4.50%. It is up to the borrower to calculate if it is to his or her advantage to accept any of these deals or just go with the 5%. It will depend on how long is the term of this loan; if he expects to repay it in full before the 30 years, or any other consideration that can justify paying these "Points" upfront.
For the seller, there will be a tax of 0.70 % charged in all cases plus miscellaneous expenses by the attorney or title company.
Mortgage companies and banks, when dealing with foreign buyers require a higher down-payment of about 20% to 30%.
The required documents for a foreign buyer to obtain a mortgage loan are usually:
Letters of credit references by third parties
For more information on the real estate process for international buyers or learn about investing in Miami property, contact me at firstname.lastname@example.org or phone me at 786-704-8482. Visit my website www.TheCondoShopMiami.com.
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