- Private money lenders
- Seller financing
- Peer-to-peer lending
- Hard Money Loans
- Personal Loans
Closing costs are inevitable when you’re buying or selling a property. While they vary from state to state, the amount you’ll pay in Florida depends on both the property and the county it sits in. As a buyer, you’ll have to cover most of the fees and taxes. In Florida, you’ll also have to post a fee for documentary stamps (or doc stamps), which is a percentage of the sales price. Then there are the taxes. You’ll likely be subject to property and transfer taxes.
Neither party is responsible for 100% of the closing costs in Florida, which includes fees, taxes, insurance costs and more. The buyer typically pays between 3% to 4% of the home loan’s value and is responsible for the bulk of the fees and taxes. The seller usually pays between 5% to 10% of the home’s sale price. Closing costs also vary among counties.
Condos are regulated by the Florida Condominium Act. The legislation lays out your rights to the property and gives you an “undivided interest” in all the common areas of the building. You’ll have to pay a monthly maintenance fee or a yearly homeowners association fee to cover the servicing of those areas that fall under the “undivided interest.” The fee isn’t tax-deductible.
If you are getting a mortgage The fees shown on the Good Faith Estimate can be difficult to understand but can be broken down into five sections.
- Appraisal fee
- Reinspection fee
- Credit application, credit report and credit supplement fees
- Mortgage origination fee
- Lender’s title insurance policy (optional owner’s title insurance)
- Escrow fee
- Home inspection fee (optional)
- Closing attorney fee
- Courier fee
- Bank processing fee
- Recording fee
- Notary fee
- Loan discount points
- Homeowners insurance
- Property taxes and tax servicing fees
- Mortgage insurance premiums
- Flood certification fee (in some areas)
Lenders typically require an appraisal as part of the underwriting process, before financing a home purchase. Appraisals will vary in price depending on the location and size of the property. The lender hires an appraiser to provide the fair market value of the home, and the buyer pays the lender.
Mortgage origination fee
Every lender will charge a mortgage origination fee, which covers their service and administrative costs. The average loan origination fee is 1% of the total loan amount. Buyers should shop for lenders with both experience and low origination fees.
Title insurance policy fees
Lenders typically require borrowers to purchase insurance to protect the financial institution from future title claims. This policy is called lender’s title insurance and the cost depends on the location and size of the property.
Owners title insurance protects the Buyer from future claims against the title. The customary party that pays for the Owners Title Policy varies by County in Florida. In Sarasota,Collier, Miami-Dade and Broward County, the Buyer pays for title insurance and chooses the title company. In all other counties, it is the Seller’s responsibility.
During the purchase and sale transaction, your funds will enter a holding account managed by a third party — an escrow company. When the transaction is complete, the escrow representative will disperse your down payment, fees, and loan proceeds to the appropriate individuals.
Home inspection fee
A home inspection is a common contingency for a home purchase. As the buyer, you can hire an inspector to evaluate the condition of the home and its systems prior to purchase. Home inspection costs vary depending on the size and age of the property. You will pay the inspector for their service out-of-pocket, and this amount is separate from the purchase and sale transaction.
Florida is a Title Theory state and does not require that an attorney be used to close a real estate transaction. Private real estate attorneys, or borrower’s attorneys, are an additional and optional cost for buyers who want a specialist to assist them with contract-related issues or professional advice beyond the scope of their agent’s abilities. Private real estate attorneys charge by the hour or charged a fixed rate for the transaction and rates vary based on their level of expertise and services provided.
During a financed home purchase, several institutions need to process information and create official records.
- The courier fee allows lenders to send your documents to necessary parties
- The bank processing fee pays the bank for handling the necessary loan documentation.
- The lender uses the recording fee to pay the county to file a public record of the transaction.
Loan discount point fees
When locking your interest rate with your lender, you’re allowed to buy down the rate. To do this, you pay “points” — essentially, paying interest in advance. One point is equal to 1% of the loan; but that does not translate to a 1% drop in interest rate. Not all buyers choose to buy down their interest rate, but when they do, the rates vary by lender.
As a stipulation of your financing, you will be required to purchase homeowners’ insurance. You will continue to pay the insurance premium on a yearly or twice-yearly basis directly to your insurer, or monthly via an escrow payment that is part of your monthly mortgage payment to your loan servicer. Homeowners insurance policy fees range based on the amount of coverage and the size of the property.
Your property taxes will be prorated based on your closing date. Some buyers pay their taxes in lump sums annually or biannually. If you don’t pay this way, you might escrow the taxes, which means they would be included as an escrow line item in your monthly mortgage payment to your loan servicer. Property taxes are paid in arrears in Florida.
Mortgage insurance premiums
If your loan amount is more than 20% of the value of the home, you are typically required to pay insurance to protect your lender’s investment. Mortgage insurance is generally escrowed but may vary from lender to lender. Some lenders will also charge a one-time application fee for mortgage insurance.
Depending on the location of your property, you may also be obligated to purchase flood insurance to help protect your lender’s investment. Flood insurance policies range by risk level, based on location and are a Federal Program and the pricing cannot be competitively shopped for.
What are the closing costs for cash buyers?
Cash buyers are still required to pay for things like notary fees, property taxes, recording fees, and other local, county and state fees. Unlike a buyer who is using financing, cash buyers won’t have to pay any mortgage-related fees. But most cash buyers still opt to pay for things like appraisals, inspections, and owner’s title insurance.
Closing costs can vary depending on where you live in Florida, the type of property you buy and how much it sells for. While the seller forks over some money, the buyer pays for the bulk of the fees and taxes, which typically add up to 2.5% of the average sale price depending on the time of year you close ( proration sensitive).
Nationally, expect slower housing price appreciation, easing inflation and rising interest rates in 2022, according to a survey of more than 20 top U.S. economic and housing experts by the National Association of Realtors® (NAR). “Overall, survey participants believe we’ll see the housing market and broader economy normalize next year,” Yun said. “Though forecasted to rise 4%, inflation will decelerate after hefty gains in 2021, while home price increases are also expected to ease with an annual appreciation of less than 6%. Slowing price growth will partly be the consequence of interest rate hikes by the Federal Reserve.”
Fed boosts to interest rates do tend to move rates higher on longer-term loans, such as 30-year mortgages. Yun expects the 30-year fixed mortgage rate to increase to 3.5% as the Fed raises interest rates to control inflation but noted this is lower than the pre-pandemic rate of 4%.
In South Florida Home prices are projected to continue to grow, but slower than the past year. “We don’t expect to see the same price appreciation we had last year, though we don’t expect to see a decline in pricing,” said Eli Beracha, director of the Hollo School of Real Estate at Florida International University. A Realtor.com forecast predicts that South Florida housing prices may rise almost 6% over the next year, while a Zillow forecast predicts that home price appreciation could shoot up by 15%.
A few factors are going to cause slower price growth: more inventory as sellers try to capitalize on the hot market, new developments hitting the market and an increase in mortgage interest rates. Demand from foreign and out-of-state buyers will continue to drive South Florida’s housing market, but experts also expect new inventory to alleviate some of the pressure that has been fueling the pandemic-era housing boom.
Experts say the market will still favor sellers, as demand and limited inventory will keep the balance in their favor. Bidding wars and multiple offers on homes will probably still be a common.
The supply chain issues, and lack of labor will continue to lead to increased construction costs and thus higher prices for buyers.
- The appraiser didn’t use appropriate comparable sales, and you have proof of more accurate options
- The appraiser missed features or upgrades in the subject property
- You found mistakes in the report
- The appraiser only conducted a drive-by or exterior appraisal
- Dealing honestly and fairly
- Full disclosure
- Accounting for all funds
- Skill, care, and diligence in the transaction
- Presenting all offers and counteroffers in a timely manner, unless a party has previously directed the licensee otherwise in writing
- Disclosing all known facts that materially affect the value of residential real property and are not readily observable
A bidding war is when at least two prospective buyers have made legitimate offers for a home that are similar and the Seller wants to select the best offer and terms for themselves. Bidding wars are common—in most of 2020, over half of home offers presented have faced competitive bids, according to Redfin’s study. Although historically low interest rates have sparked buying activity recently, some neighborhoods are always sought-after and attract multiple offers whenever a home comes up for sale. Exclusive Buyer Agents are experts in winning bidding wars and getting credits during the due diligence period.
Expect to be in a bidding war In a hot housing market, it’s often not enough to quickly make an offer on a house but to have the highest price and best terms.
Here are a dozen ways you can get an edge on the competition.
- Offer to Pay in Cash
If you have the ability to offer an all-cash bid, you gain a distinct advantage because you eliminate the possibility of a mortgage falling through before closing. Buying with cash will make the process go quicker because you won’t need to go through the approval process with a lender, who would also request an appraisal. If you can’t cover the entire purchase price in cash, you could agree to a larger down payment on the house, which increases your approval odds and might make your bid more attractive.
- Get Pre-Approved
Pre-approval is a step most buyers will take anyway, but it’s absolutely essential for anyone in a competitive bidding situation. Pre-qualification is not enough, as it doesn’t show that the lender conducted the same amount of due diligence—such as checking your earnings and doing a hard credit check—that a pre-approval would require.
- Know Your Financial Limits
When you’re preparing for a bidding war, think of it like an auction—you need to know how much house you can afford before you actually bid. Once you know the maximum amount you’re willing to bid, you can include an escalation clause in your purchase offer to ensure you can instantly counteract any other bid. An escalation clause lets you increase your bid to avoid being outbid by another buyer up to a specified amount.
- Provide More Earnest Money
Buyers typically provide 1% to 5% of the purchase price as earnest money—a form of a security deposit—in a purchase contract, which gives sellers the assurance that you will follow through with the purchase. If you bail out on the contract without citing a contingency, you will likely lose the earnest money. If you put down more than the typical earnest money amount, it will tell the seller that you’re determined to follow through to the closing.
- Be open to making offers sight-unseen
Speed is key in a seller’s market as competitive as this one. If you’re interested in a home but live far away or just haven’t been able to tour it, you can still throw your hat in the ring. Video tours and 3D walk-throughs have made sight-unseen offers much more feasible. Almost two-thirds (63%) of people who bought a home last year made an offer on a property that they hadn’t seen in person.
- Remove Some or All Contingencies
When you make an offer to purchase a house, you know the deal could fall through for numerous reasons, and you don’t want to lose your earnest money because of it. That’s why you include contingencies in the purchase contract; if the home inspection uncovers major problems or you can’t sell your current home in time to close on the new one, you can get out of the contract without penalty. Almost no offers contingent on the sale of a home will win a bidding war. Sell your home, rent and then start trying to get a home under contract. Simultaneous closings are so 1990’s.
If you can’t waive contingencies, sweeten them for the seller. Opt to expedite the contingency timeline.
- Be Flexible on the Move-in Date
First-time home buyers and those who have already sold their previous home might be in a position to be flexible with the sellers on their move-in date. A seller might ask for more time if they have concerns about potential delays for a new home build. In this case, they could go through the closing and then rent the home back from you for a few weeks or a month. This flexibility could be as valuable—if not more valuable—than a higher bid on the house.
- Start low, bid high
A lot of successful buyers today win by making an offer that exceeds the asking price…in fact it is expected. This also means that a lot of buyers end up exceeding their budgets. To prevent this, only search for homes that are listed 10-15% below what you can afford, so that you can make an over list price offer.
- Offer to pay some of the seller’s costs
Home buyers can make their offers more competitive by offering to pay for expenses that are typically covered at least partially by the seller.
- Write a Personal Note
Home sellers, especially ones who have lived in a home for a long period of time, can sometimes be swayed by a personal note that explains why you believe this is the home of your dreams. For example, you might know that the current owner raised a family in the home, and you can discuss how you hope to do the same. It might seem a bit over the top, but it’s certainly worth a try when not much separates your offer from others. And yes—sometimes it works. Avoid putting any personal information in the letter that may expose the Seller of real estate agents from violating Fair Housing laws.
- Prepare to lose before you win
With more than half of offers facing competition these days, it’s more likely than not that you’ll get into a bidding war if you’re in the market for a home. It’s also wise to know when to walk away. It’s OK to put your search on hold if you reach the point where you’re not comfortable making the aggressive offers that are often necessary to win in today’s market. You don’t want to end up with buyer’s remorse, after all.
- Use an experienced Exclusive Buyer Agent that has been successful with winning bidding wars and speak with their references. Be prepared to ask to be in a Back Up position if you lose the bid. The market is too competitive and offers move too fast for novices to be effective at winning bidding wars in a multiple offer situation.
An escalation clause is language inserted into a purchase offer for a home that’s intended to make sure a buyer is the highest bidder. It’s typically used when a buyer and their real estate agent strongly believe a house will receive multiple offers.
An escalation clause states that the buyer will pay a certain amount of money above the highest offer the seller receives. It generally includes a ceiling cap to make sure the buyer doesn’t agree to pay more money than they can afford.
An escalation clause can be a powerful technique when used correctly, but unfortunately it is seldom used as effectively as it could be. Such a clause increases, or escalates, a contract above its originally offered Sales or Contract Price when the Home Seller has received another Contract. The intent of the Clause is to crush competing contracts by automatically and incrementally increasing the buyer’s offer price by a pre-determined amount above other offer(s).
Typically, there are three distinct parts to any escalation clause that’s included in a real estate contract.
Proof of a bona fide offer: You can rest easy knowing that sellers can’t just use an escalation clause as an excuse to make you pay a higher sale price. When the contract asks for “proof of a bona fide offer,” it means that the listing agent must be able to prove that another offer came in with a purchase price higher than your original suggestion. Typically, the listing agent will send over a copy of the page from the other buyer’s purchase agreement that shows the higher price. However, any identifying information for the other buyer will be redacted.
An escalation amount: The escalation clause should also include an amount by which you’d like to outbid any higher offers.
A price cap: The price cap represents the maximum amount you’re willing to pay for the property, or how high you’re willing to allow your offer to go. If an offer is submitted that is higher than this amount, be aware that your offer may be taken out of the running.
Pros of Using an Escalation Clause
- Including an escalation clause in your offer indicates to the sellers that you’re truly invested in buying the property. It shows that you’re willing to go above and beyond what’s required in order to become the home’s new owner.
- Some buyers love the idea of negotiating; others don’t. If you fall into the latter group, including an escalation clause in your offer might be a smart idea. Since it gives the seller a solid idea of your positioning upfront, it cuts down on the back-and-forth that needs to happen between you and the sellers.
- If the market conditions are highly competitive — a “Seller’s Market” — or the particular property is head and shouldersabove the rest, or both, you as a Home Buyer are likely going to find yourself competing for the home against other would-be homeowners.
- Using an escalation clause will continually bump up the price you pay, but only if there are other offers that trigger it.
Cons of Using an Escalation Clause
- If a buyer includes a maximum price in an escalation clause, the seller will immediately know the buyer’s top price thereby compromising the buyer’s bargaining position. By providing a price cap for your escalation clause, you’re essentially telling the sellers how much you are willing to pay for the home, and there’s nothing to stop them from simply presenting you with a counteroffer at that price.
- An offer containing an escalation clause may not become enforceable until a specific price is entered into the contract and the buyer sees the price the seller has specified.
- The seller may fabricate a fictitious offer in order to drive up the sales price for a buyer who uses an escalation clause.
- Real estate brokers are prohibited from drafting escalation clauses, because doing so would constitute the unauthorized practice of law. Hiring an attorney is recommended but will increase the buyer’s costs.
- If multiple buyers were to include escalation clauses in their offers, a bidding war may follow. If no buyer is willing to commit to a specific price, then no contract is ever formed and no property is sold.
- Since the use of an escalation clause implies that a prospective buyer is willing to pay more than other buyers, it may motivate sellers to seek higher prices, a disadvantage to the buyer using the escalation clause.
- While the use of escalation clauses may lead to higher sales prices, a benefit to the sellers, they could also discourage buyers who do not want to use escalation clauses.
- A broker who discloses the price/terms of an offer without the buyer’s consent or otherwise gives one party an unfair advantage over another risks disciplinary action by the Commission. A seller’s best response in a multiple offer situation where one or more of the buyers is using an escalation clause will likely be to invite all buyers to make their highest and best offers. That way, each buyer is given an opportunity to buy the property at the price and terms he or she is willing to pay and the seller will receive the best offer from each buyer rather than an incremental offer from a buyer who wants to offer slightly more than a competing buyer.
Don’t make the mistake of thinking the Highest Contract Price will always win; other TERMS of a contract can often prove more valuable to the Sellers.
Having a knowledgeable Exclusive Buyers Agent is invaluable for situations like this and for understanding the risks and possible benefits of opening negotiations in this manner. The seller has the right not to respond to any offer, whether or not it contains an escalation clause.
Buying a home in a Seller’s market always has its challenges. But when you’re trying to do it in a seller’s market, the difficulty can reach a new level. When the market favors the seller, time is of the essence. Multiple offers happen with more regularity in a seller’s market than a buyer’s market, because a seller’s market is defined in part by low inventory and a surplus of home buyers. A beautiful home that is priced well can attract more than one offer.
In a seller’s market, you should always assume you’re competing against several other offers. However, that doesn’t mean you can’t buy a new home in a seller’s market, when there are more buyers than homes, and sellers can afford to hold out for higher offers. You just need to make sure you do it right and arm yourself with the right information:
Here are a few things to consider as you prepare your offer when buying in a seller’s market:
Choose an Experienced REALTOR: In sports and in business, it’s important to have the best players on your team when facing fierce competition. In a seller’s market, that means choosing a real estate agent who not only has proven expertise in the neighborhoods you’re interested in but is also highly responsive and efficient. Make sure to use an Exclusive Buyer’s Agent that owes you a fiduciary and works in your best interest.
Demonstrate Credit Worthiness: You should get Pre-Approved for a home mortgage with a local lender before touring homes if you need to get financing. By obtaining a pre-approval for a mortgage before you start home shopping, you’ll know how much buying power you have. Your offer may have far more credibility than competing ones where buyers didn’t take this step.
Lower Your Expectations: When the inventory of homes is limited, you probably can’t afford to wait for the perfect house to hit the market. Prepare yourself to adjust your expectations. It makes the most sense to make exceptions to your criteria for things that can be changed. For example, you can renovate or add a bathroom someday, but you can’t change the home’s location or lot size.
Make your Best Offer first, be Ready to Bid: Make your best offer but be prepared for it not to be your final offer. High home prices can lead to home appraisals that don’t climb as fast, leaving lenders to not fund the loan. Home buyers should have money set aside the pay the difference between a contracted purchase price and the appraisal.
By Prepared to Make Concessions: Your relative lack of power in a seller’s market doesn’t just affect the question of price. It carries over to every other aspect of the deal, too. Shorten the inspection period, be flexible on closing dates; you should be prepared to accommodate the seller’s needs even if it is an inconvenience to you.
Don’t be that buyer who wants to wait until the weekend to view a home in a seller’s market. By the weekend, that home could be sold. Try to be one of the first showings. Sellers usually don’t enjoy having buyers come through their homes at all hours of the day, so most would like to see their home sold quickly. If you write a good, fast, and clean offer, your chances of acceptance are far better than those of a buyer who is unprepared or is unrealistic on price.
Finally, don’t get carried away with the pressure to buy, even in a seller’s market. Remember that a home decision has a long-term impact on your financial future. It may be better to let a house go than make a poor decision that’s expensive to change.