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Real Estate Frequently Asked Questions
These Q&A's are offered to help guide you through the maze of a real estate
purchase. Don't take any of this to the bank without verification of significantly important points. We're not accountants or lawyers or mortgage
brokers or title agents. Talk to the professionals in their fields for official answers.
These answers relate to the practice of real estate in the St Petersburg /
Clearwater area of Florida. Different areas may have different
customs or terminology. When in doubt, speak to a professional.
Q. What is MLS?
Q.
Why do I see
properties online that are not available?
Q.
What is
a short sale?
Q.
How much
money do I have to give with an offer?
Q.
Is mortgage
financing available for Canadians and other foreigners?
Q.
Should I
get pre-approved or pre-qualified for a mortgage?
Q.
What does
it mean to 'qualify' for a mortgage?
Q.
How much do I need for a down payment?
Q. What are closing costs?
Q. Do I
need a lawyer?
Q.
Do I need a home inspection?
Q.
What about
a termite inspection or mold inspection?
Q.
If a property is
offered 'as-is', does that mean it has problems?
Q.
What
is a condo-hotel?
Q. What is a
CMA?
Q. What
is an appraisal?
Q. How
much are property taxes?
Q.
What about homeowner's insurance?
Q.
What do
condo monthly maintenance fees pay for?
Q.
What is the
significance of 'Minimum Days Lease' in a condo?
Q.
How is the
United States real estate business different than in other countries? Is a
Realtor like an estate agent?
Q.
Who pays
the real estate brokerage commission?
Q. A
Realtor asked me to sign a 'Buyer's Broker Agreement'. Should I
sign?
Q. Why doesn't
the e-mail link work?
Got a question not
answered here? Got a better answer to a question? e-mail us
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Q. What is MLS?
A. MLS is the database of all properties for sale by
Realtors. This information was formerly available only to Realtors and is
now being made available to the public enabling you to search for the type
of property you want. The MLS database contains complete details and photos
about each property for sale listed by a member Realtor.
The accuracy, quality, and sufficiency of the photos and
property information depends on the quality of the work done by the
seller's agent entering the data into MLS. Some are quite good, some not so
good.
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Q. Why do I
see properties online that are not available?
A. MLS status refers to whether a
property is:
-
Active - available for sale,
-
Contract Pending - under contract waiting
for closing when title is transferred to a new owner
-
Sold
-
'Active with Contract'
(aka Active contingent) is essentially the same as 'Contract Pending'. The
property is under contract to sell and you can only write a backup offer to buy the property if the existing contract
does not close. Our local MLS is the only one in the country using
Active with Contract status that we know of.
What makes
'Active with Contract' status different than Contract Pending is that
Active with Contract listings are displayed on the Internet appearing to be available
(Active). We consider this deceptive to the public and have argued against the policy to no avail.
The
property search tool we offer is the only one (that we know of) allowing
you to select only Active listings. There is a field on the lower left to
select MLS status. We have it pre-set to show only Active listings. You are welcome
to test it by selecting Active Contingent and see how many agents are using
that status to make it appear on the Internet that those properties are
available when, if fact, you can only write a backup offer.
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Q. What is a short sale?
A. A short sale is a
property that sells for less than the seller's mortgage
balance creating a loss for the seller's lender. There are lots of properties offered as short sales
due to the real estate market values being lower than they were a few years
ago.
Short sales require the existing lender's
agreement to take the loss. The wait for lender's approval commonly is months,
sometimes as long as a year, leaving
the buyer in limbo waiting for approval. When lender approval finally is
given, it may contain conditions that the seller can't or won't comply with,
like bringing money to closing or signing a note to repay the lender some of
the loss. Short sales are not for the buyer
who wants or needs a firm contract or to take ownership any time soon.
List price may, or may not, reflect a price
the seller's lender is willing to accept. The lenders give no input on a
price they'll accept until they have a contract submitted for approval.
Therefore, it's up to the listing Realtor to price the property. Some
Realtors for the seller put an unrealistically low price on property to
attract buyers and get a contract to submit. Some time after a contract is
submitted the lender orders a BPO (Broker's Price Opinion, an estimate of
market value ordered from an agent unrelated to the transaction). The BPO is
a large factor determining the price the lender will accept.
The success rate of short sale contracts is
about 30% making them not only an exercise in patience but also in
frustration. Here's a blog post describing the
difficulty of short sales.
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Q. How much money do I have to give with an
offer?
A. There are no rules about how much the 'earnest money'
or 'good faith deposit' must be. It can be any amount agreeable between
buyer and seller. The deposit is placed in an escrow account and kept safe
there until needed for closing. The purpose of the deposit is to show the
buyer's good faith intention to close on the purchase. There are contingency clauses in
the purchase contract which give a buyer the right to cancel and not
lose the deposit if the contingency is not met. If a buyer gets flaky and decides not to close without an
escape clause, the seller gets the deposit. A larger deposit tends to give
the seller more assurance that the buyer is serious about buying the
property.
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Q.
Is mortgage
financing available for Canadians and other foreigners?
A. Yes. It has been
difficult since the mortgage meltdown of 2008 until now. Our favorite
lender,
HomeBanc, can now help Canadians and other foreigners get financing.
We're often asked if people who live
outside the U.S. pay more in property taxes than U.S. citizens. No, the
property tax rate is the same regardless of citizenship.
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Q. Should I get pre-approved or pre-qualified for
a mortgage?
A. Before spending time running around looking at
property, you'll want to know that you're able to buy a house or condo in
the price range that you're interested in. The best way to ensure that
you're on the right track is to contact a mortgage broker or lender's loan
officer. This is commonly done with a brief phone conversation during which
you provide the loan officer information about your income & debts and
authorize a credit check. In a matter of minutes, you can be
'pre-qualified' for a mortgage amount subject to verification of the
information given.
You can be certain of the mortgage amount you can get by
getting 'pre-approved'. To get pre-approved you submit an application for a
mortgage and supporting documentation to verify your income, assets, and
liabilities for the mortgage underwriter to examine and authorize a loan
amount for you. When you receive pre-approval, you can go house hunting
confident of your ability to perform. You just need a property to
get an appraisal approved by the underwriters.
You can use a lender from outside Florida if you want to,
as long as they're licensed to do business in Florida. Things tend to go
smoother, though, if you use a local mortgage company.
We recommend
Ed Koch with HomeBanc. Ed is experienced, attentive, and has been able
to get loans done when other lenders have denied the loan.
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Q. What does it mean to 'qualify' for a mortgage?
A. The mortgage company will consider your employment,
income, credit rating, assets, and debts to determine the amount of money
you're qualified to borrow to buy real estate. Most often, all of your
information will need to be supported by documentation via tax returns, pay
stubs, bank statements, etc. The property you're buying has to qualify, too,
by appraising for the purchase price. This is done by a certified real
estate appraiser chosen by the mortgage company.
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Q. How much do I need for a down payment?
A. Typically, buyers make a 20% down payment. You can
make a lower down payment and the lender will require mortgage
insurance, which serves only to protect the lender if the borrower stops
making payments. In some cases, the mortgage company will waive the
mortgage insurance premium and 'self insure', bumping the interest rate up
a tick. Buyers who are not U.S. residents typically need a 30% down
payment.
In spite of the mortgage crisis, there still are
mortgage programs with a down payment as low as 3% or 5% if you qualify. Talk to a mortgage
lender for more details.
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Q. What are closing costs?
A. Closing costs are the various costs associated with
the transfer of property to a buyer or seller.
A buyer paying cash has very little in closing costs. Typically
only the cost of recording the deed in County Records, closing fee to the
title company, often a processing fee to the real estate company. At your
option, there may be a survey and termite inspection to pay. In all, it
should be less than $1000.
A buyer getting a mortgage incurs closing costs which will
vary by lender. Only the lender can tell you their costs. In addition
to lender
costs, there will be a professional appraisal, documentary tax on the
deed at $3.50 per $1000 of the loan amount, intangible tax on the mortgage
at $2 per $1000, termite inspection (unless it's a condo), land survey
(unless it's a condo), title insurance for the lender, wiring fees.
Sellers will pay at closing
brokerage fee or commission, title insurance for the buyer, documentary
stamps on the deed at $7.00 per $1000 of sale price, closing fee to the
title company, and small miscellaneous fees. We ballpark seller's costs at
1.5% + brokerage fee. Upon receiving an offer for a seller's property,
agents will present an estimate of seller's closing costs and net proceeds.
Property taxes for the current year are
pro-rated at closing. Taxes are paid in arrears meaning this year's taxes
will be billed by the county November 1st. The closing agent will charge the
seller for their portion of this year's taxes and give it to the buyer in
the form of a credit on the closing statement. The buyer then pays the
entire tax bill when due.
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Q. Do I need a lawyer?
A. Your choice. We're not telling you not to. Do you have
to have one? No.
We want you to understand the terms of the
contract before signing. Consult an attorney if you are unclear about
anything contained in the contract.
Closing, or settlement, is typically performed by a
title company. We're impressed by how thorough and organized the people
working for title companies tend to be. They gather all the information
about the transaction from all directions and compile it into a set of
closing documents to be signed by the right people at the appointed time.
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Q. Do I need a home inspection?
A. A home inspection is not required but is advisable.
It is the buyer's option and expense which is normally paid at the time of
the inspection rather than at closing like most other costs.
You're advised to hire a home inspector after you have a
signed purchase contract and before closing. The sale and purchase
contract used by us, provided by the Florida Association of Realtors,
specifies that the seller warrants that everything will be in working
condition. The home inspector will examine the structure, electrical,
plumbing, air conditioning - the functional components of the property.
Cosmetic conditions are not warranted meaning cracked tiles, carpet stains,
etc are not covered by the seller's warranty.
If the home inspector finds anything not be functioning
as it was designed to function, the seller pays to have it repaired. The
seller's liability for repairs is limited to 1.5% of the purchase price, by
default, which can be negotiated. If you don't have a home inspection,
there's nothing to require the seller to make repairs
The property may be offered 'as-is' without the seller's
warranty described above. In this case, we recommend you still have a home
inspection. We protect you from buying a property needing excessive repairs
by including a clause in the contract giving you the option cancel the
contract if you don't like the results of the home inspection.
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Q. What about
a termite inspection or mold inspection?
A. Termite inspections are a good idea, especially for
houses. If you're getting a mortgage, the lender will normally require a termite
inspection for a house. They normally do not require a termite inspection
if you're buying a condo. If termites are found, the seller is typically
required to exterminate unless you're buying 'as-is'.
Mold: We know not what others may do but we include an
addendum for our buyers giving them the option to have a mold inspection
and cancel the contract if mold is found that will cost more than $xxx to
remove.
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Q. If a property is offered
'as-is', does that mean it has problems?
A. No, most often when a property is offered 'as-is',
it's so the seller doesn't have to be bothered fixing a loose doorknob, a
door that doesn't latch, an air conditioner that needs service, stuff like
that. Usually, a home inspection will turn up small things that would need
to be repaired under the strict terms of the seller's warranty. If major
issues are found, you have the right to cancel
the contract without losing your
earnest money deposit.
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Q. What is a condo-hotel?
A. Condo-hotels are like condos but
operate like a hotel or motel. Located in popular tourist destinations,
those in our area are on, or near, the beach. Condo-hotels provide ownership in a
vacation condo that generates revenue to help offset expenses. Being designed for vacationing, square footage tends to be
smaller than for traditional condos. The smallest are studios the size of a hotel room without
separate living & sleeping areas.
Unlike traditional condos, condo-hotels
have onsite rental management, can be rented overnight, and offer maid
service. Some, but not all, have hotel-like amenities such as restaurants
and fitness centers. They typically contain restrictions on the number of
days per year an
owner can use it, due to zoning regulations
or the rental management agreement, so they are not suitable for use as a
primary residence.
Condo-hotels are not to be confused with
timeshare condos. Owners have a deed to the property giving sole ownership
to the individuals. Condo-hotels are not timeshares.
Like traditional condos, there is a
Homeowners Association with an elected Board of Directors and common
expenses to be paid in a monthly maintenance fee for insurance, building
maintenance, swimming pool maintenance, etc.
Also like traditional condos, purchase
contracts are contingent on a buyer's approval of the condominium documents
which, by definition include the association's financial statement and Rules
& Regulations. Florida law provides for a 3 day review for resale condos and
a 15 day review for new construction and developer sales.
Conventional financing is no longer
available for condo-hotels. Sales will have to be cash or private
financing.
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Q. What is a CMA?
A. CMA = Comparative Market Analysis
A CMA is typically created by a Realtor using data from MLS
to show a seller or buyer similar properties for sale, recently sold, or under
contract to be sold as a means of establishing the market value of a
property. The format may be brief or detailed or a combination of summary
and details. It is commonly used to give sellers what they need to price
their property properly. It's also useful for buyers who want to ensure
that they're not overpaying for a property. This is similar to the means
used by certified appraisers though less detailed. It's the little brother
to the appraisal.
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Q. What is an appraisal?
A. An appraisal is a certified document prepared by a
certified real estate appraiser and is used by mortgage lenders
to ensure they're loaning money on a property that is worth the price being
paid. It's also used when refinancing an existing mortgage for the same
reason.
When you have a contract to buy a property
and you're getting a mortgage to buy, the lender will order an appraisal. If
the appraised value comes in lower than the contract price, the buyer may
cancel the contract or re-negotiate the price with the seller.
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Q. How much are property taxes?
A. The property tax will vary somewhat from one
community to the next. As a rule of thumb, we multiply the property value
by 1.7% to get in the ball park.
The property tax bill for the current year is mailed November
1st. The tax can be paid any time before becoming delinquent April 1st.
Property owners receive a 4% discount for paying in November, 3% in
December, 2% in January, 1% if paid in February. If you have an escrow
account with your lender for taxes, the lender will receive the tax bill and
you get a copy for your records.
Homestead exemption applies to owners who
make the property their primary residence and reduces the taxable value by
$25,000. This exemption results in an
annual savings of about $500. On January 29, 2008, voters approved an
additional $25,000 exemption excluding the portion that goes to schools. A
property that qualified for Homestead Exemption on January 1st will be taxed
as such when the bill comes out in November even if the property is sold
during the current year.
More importantly, Florida's Save Our Homes cap limits
annual tax increases to no more than 3% for homesteaded property. An owner
who has homesteaded the property for more than a few years stands to have a
much lower property tax bill than his neighbor who bought recently. That cap
on annual increases is removed upon sale and the new property owner is taxed at the current
value.
Tax and property information can be found by searching
the Pinellas
County Property Appraiser's website. The site contains lots of information
about property taxes in general, homestead exemption, the Save Our Homes
cap, and more.
For property
outside Pinellas County, find the website of your county's taxing authority.
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Q. What about homeowner's insurance?
A.
Homeowners
insurance premiums have risen in Florida the last several years. The state
government has gotten involved in an effort to control premium increases.
Despite what you may have read, insurance is obtainable. Our advice would be
to talk with an insurance agent. The cost of insurance depends on too many
variables for us to give a ballpark rate.
Condo owners associations carry
insurance on the structure and the cost is included in the owner's
maintenance fee paid to the association. If the condo is located in a
designated wind or flood hazard area, policies for wind and flood are also
obtained by the association. The associations' policies do not cover the
interior of each unit.
Though not required by most lenders,
condo owners often get a policy, known as 'contents insurance' to cover the
unit from the interior paint inward. Such policies are of nominal cost,
typically a few hundred dollars per year. Condo owners can also insure the
unit against wind and flood damage.
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Q. What do condo monthly maintenance fees pay
for?
A. Condo maintenance fees are
typically paid monthly to the condo's Homeowners Association and used by
the condo association to pay the common expenses of the association. These
include
·
Exterior maintenance of the building, parking lot, and
grounds
·
Insurance on the structure
·
Water, sewage, trash removal
·
Property taxes for the commonly owned area
·
Utility costs for common amenities such as the swimming pool,
pool heater, pool heater, gas BBQ where they have these amenities
·
Any professional management fees, unless self-managed
·
Basic cable TV is often included
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Q. What is the significance of 'Minimum Days
Lease' in a condo?
A. Condo associations each have
a rule in the by-laws specifying the shortest period of time a unit in the
condo complex can be rented. Some allow rentals for as little as overnight.
Others say a condo can be rented for 7 days or more. The majority of condo
associations require longer rental periods like 30 day minimum, 90 day,
even 1 year minimum rental periods. A few even specify a period you must
own a unit before you can rent it.
The rule about 'Minimum Days Lease' helps
define the nature of residency at a condo complex. Those allowing short
rental periods will have a lot of vacationers there. This is good if you
want to generate rental income from a condo to help pay its expenses. It's
bad if you want a stable community of neighbors.
The reverse is true of condos that require
longer rental periods. You'll get to know your neighbors and establish
friendships but you won't generate as much income as the vacation
rentals do.
You prioritize whether income or a quiet
stable community is more important to you.
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Q. How is the United States real estate business
different than in other countries? Is a Realtor like an estate agent?
A. In other countries, an Estate Agent sells only property his/her company
has for sale. If you want to see a property you go to the company whose sign
is on the property.
In the U.S., Realtors are members of the Multiple
Listing Service and there is cooperation between companies. We can help you
buy any property offered by any MLS member company, which is virtually all
companies.
Another slight difference is in terminology. In Canada, and the UK, for example, sellers are referred to
as vendors, buyers as purchasers. Closing is referred to as settlement. To our UK buyers, once you have a contract, you cannot
get bumped at the last minute. A contract is binding on both parties. See
a testimonial from a Brit..
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Q. Who pays the real estate commission?
A. The real estate commission, or brokerage fee, is
typically paid
by the seller of the property except in unusual circumstances. Of the
commission paid by the seller, one portion pays the buyer's agent and the
other portion pays the seller's agent.
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Q. I met a real estate agent who wanted me
to sign a 'Buyer's Broker Agreement'. Should I sign?
A. A 'Buyer's Broker Agreement' says that if you buy real
estate during the term of the agreement, that agent is due to be paid a
specified commission. The only person this protects is the real estate
agent. Some agents demand this as a means of protecting themselves,
and their commission, in case you go to an Open House you like, meet
another agent who shows you a house you hadn't seen before, or buy from a FSBO (For Sale By Owner). If you enter into a purchase contract after
signing a Buyer's Broker Agreement, that agent will expect to be paid.
We don't ask buyers to sign such an agreement. Maybe
we're fools, but we'd rather trust people to respect the work we do for
them and involve us in their purchase, however it's found. We've met too
many good people who signed a Buyer's Broker Agreement with an agent who
proved to be inattentive or otherwise unworthy of the buyer's loyalty.
We'll earn your loyalty or you're free to go to another real
estate agent.
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Q. Why doesn't the e-mail link work?
A. Internet Explorer is set by
default to prevent ActiveX controls and JavaScript from running unless the
user allows it by clicking on the Information Bar at the top of the window.
You can change your IE security settings to overcome this but we don't
recommend it. Better to just click the button on the Information Bar to
allow the script on the page.
Why don't we have a simple link to e-mail
us? Because there are webbots roaming the Internet gathering e-mail
addresses from websites so they can send spam. Before we employed the script
we got a ton of spam. We hate getting spam as much as the next guy. This is
one method of trying to hide the address from the bots.
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not answered here? Got a better
answer to a question?
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