General Real Estate FAQ

You have CUSTOMERS, not clients.  Get the word “client” out of your vocabulary.  You will hear other agents (not one of our agents) refer to their customers as “clients”.  You may think the words “client” and “customer” are interchangeable, but they are NOT.

Words Matter– using the wrong word could lead to trouble, especially if a dispute arises from a transaction.  We are transaction brokers.

According to Florida Statute 475.01, a customer is a member of the public who is or may be a buyer or seller of real property that may or may not be represented by a real estate licensee in an authorized brokerage relationship. (Customers are not required to have an agent, customers may represent themselves.)  Anyone who is not represented in a single agency relationship is a CUSTOMER.

The word “client” suggests a fiduciary relationship, which is found in single agency.

Additional reading and reminders…

There is a presumed transaction broker relationship in Florida, unless established otherwise in writing with a customer (you are not authorized to enter into a different relationship with a customer).

TRANSACTION BROKER RELATIONSHIP.—A transaction broker provides a limited form of representation to a buyer, a seller, or both in a real estate transaction but does not represent either in a fiduciary capacity or as a single agent. The duties of the real estate licensee in this limited form of representation include the following:

Yes, all offers must be submitted to the owner in a timely manner, even if an offer seems ridiculously low.  Send it as an email so you can prove that it was presented to the owner.  You telling an owner is not considered proof, and sometimes proof is needed.

The only exception is if an owner provides WRITTEN instructions that offers below $x should not be sent.  A copy of these written instructions needs to be sent to Broker and included with the listing file.

No.  There is not a requirement to disclose a death at a property, even if a suicide or homicide.  If asked, you should provide accurate information.

The Condo Rider (and Florida Law) gives a Buyer a 3 day period (Saturdays, Sundays, and legal holidays excluded) to review condominium documents.  Buyer can void the contract without penalty during this period.  This period cannot be waived, buyer can extend closing 3 days if buyer is waiting to review missing documents, and buyer’s right to void the contract terminates at closing.  The time period can run concurrently with the inspection period if ALL documents are delivered.

So, what does this mean?  A missing item could have major consequences when things go wrong that will lead to the disappointment of many.

If you have a listing, make sure your seller obtains the following items.  Most items are available in an owner’s condo portal.   They will be needed when a contract is formed:

1. complete set of condominium documents including all addenda also called  Declaration of Condominium (DCO)
   • condo articles of incorporation (typically included in the DCO)
   • condo by-laws (typically included in the DCO)
2. rules and regulations
3. condo FAQ
4. most recent year-end financial statement
5. current year budget
6. current year
7. current year most recent annual financial statement

PLUS the additional items listed on the Condo Rider

1. Condo Governance Form (available in Form Simplicity)
2. Milestone Inspection Report Summary
3. Structural Integrity Reserve Study OR a statement from the association that the association has not completed a structural integrity reserve study

Send these items immediately to the buyers agent.

The seller should also ask the condo office/association (in writing):

1. Are there any current or pending special assessments?
2. Has the condo discussed special assessments in the past 12 months (either as an agenda item or recorded in meeting minutes)?
3. Other than the buyer’s condo application, is any other notice required from the seller prior to selling? (FYI some condos require formal notice from a seller to alert the members for the right of first refusal.)

Remember, a seller has a duty to disclose special assessments according to the Condo Rider requirements.

If you have a Buyer… be sure to request these documents (items 1-7 listed above PLUS the secondary list 1-3 above) in writing from the listing agent.  The buyer does not have to sign a condo document receipt until all items have been received.  Many times, you will receive them piece-meal, so follow up with an email about the missing items.

Condominium owner typically have an HO6, which is condominium unit insurance that covers the interior of the unit and liability coverage.

If a buyer asks, policies usually start at around $1200/year.  A buyer needs to obtain a quote from their insurance agent and get coverage guidance from their insurance agent.

If a buyer obtains a loan, insurance is required and the coverage amount will be determined by the lender.  Most condominium have master insurance policies that provide adequate master insurance coverage.  If the master insurance policy falls short, a buyer may need to purchase additional coverage.

Condo owners without a mortgage are not required to have an HO6 policy, but it is a good idea for the liability coverage.  What if the refrigerator water supply line breaks and floods the units below?  Anything could happen.

A 4-point inspection covers:

• HVAC (heating, ventilation, and air conditioning)
• Electrical (wiring and outlets)
• Plumbing (pipes and water heater)
• Roofing (age, material, and life expectancy)

A 4-point inspection is either a stand alone inspection– buyer only wants an inspection for purposes of obtaining insurance OR and add-on to a general inspection– buyer wants to know the overall condition of the property.

Typically, only houses need a four-point inspection.  In addition, a buyer of a house should get a wind mitigation report as well (another add-on).

It depends.

Ultimately, it is up to the lender to determine a buyer’s minimum down payment amount.  The buyer’s intended use is usually a consideration.  Under current general guidelines with limited review:

• Primary Residence- minimum of 10% down PLUS 15 % 2nd mortgage (2 loans) OR 25% down with one mortgage
• Second Home- minimum 25% down PLUS 5% 2nd mortgage (2 loans) OR 30% down with one mortgage
• Investment Property- 30% down

Occasionally, a condominium will establish a minimum down payment amount, but this is not common.

All of this is good-to-know information when you are working with a buyer or evaluating an offer when you have the seller.

When a buyer applies for a loan, the lender evaluates the buyer and the property.  Both must qualify.

Almost all properties will need be be appraised (lender determines the value for loan purposes).

If the buyer is purchasing a single family home, the buyer needs to have a 4-point inspection AND obtain insurance according to the lender’s specifications.  If the property cannot be insured, the buyer can’t get the loan.  So, if a house is in poor condition, it may not qualify for financing.  You would be surprised that sometimes what is seemingly minor can prevent a house from getting insurance (example: a double tap in the electric panel– simple fix but it must be done in order to obtain insurance).

With a condominium, the lender will request a condo questionnaire.  The guidelines for condominium lending are ever-changing, but here are a few items that may prevent a lender from approving the project/condo:

under insured, major litigation, special assessment and/or work in progress for major repairs that are possibly deemed as deferred maintenance, high percentage of owners in arrears with maintenance fee payments, etc.

As you can see, mortgages are not only based on the buyer’s qualification, but the property as well.

When a Buyer has a pre-qualification letter or a pre-approval letter from a lender, it simply means that have spoken to a lender and submitted information.  Based on the provided information, the lender states the buyer may qualify for a loan under certain terms.  The letter will usually state a purchase price amount, loan amount, down payment amount, and state that is is not a loan approval.

The positive part about a pre-qualification or pre-approval letter is that the buyer shows a degree a seriousness because the buyer has already spoken to a lender and provided preliminary information.

The bad part is the letter does not mean that person will indeed get the loan.

EXTRA TIP: It is important to note that most of our sales are in condominiums.  If I see a preapproval letter from a big institution like Bank of America, Wells Fargo, Rocket Mortgage, etc, I caution the buyer and suggest using a Florida mortgage broker that knows how to process a loan in South Florida.  When a buyer purchases a property, both the buyer and the property need to qualify for the loan.  South Florida has different guidelines for condominium loans than other states, and the larger institutions typically have workflow offices outside of the state that are not aware of the guidelines until the last minute, which typically means disappointment when the loan cannot be secured.

FIRPTA stands for Foreign Investment in Real Property Tax Act. FIRPTA applies to foreign sellers.  Foreign Sellers (a nonresident alien individual or foreign corporation) are subject to an automatic tax withholding of 15% at closing.  A resident alien is not considered a foreign seller for FIRPTA purposes, but this needs to be determined by an attorney.  The IRS obligates the Buyer to collect the tax and pay it (through the title company or attorney).

If you have a foreign seller, make them aware of this withholding.  The seller can file income taxes to seek a refund of any over payment of tax collected (from the withholding).  There is a process to obtain an exemption or reduction of the withholding amount, but it could delay the sale and complicate the process.  The seller should seek the advice of an attorney and accountant.

Foreign sellers will sometimes ask buyers for things that to reduce the withholding or possibly eliminate the withholding (property less than $300k that will be owner occupied for 24 months could potentially be exempt), but the Buyer should seek the advice of an attorney and accountant PRIOR to agreeing to any arrangement other than collecting the 15% withholding at closing.  The Buyer is responsible for payment to the IRS if the tax is not collected, or later determined to be due (if an exemption was used).

This is a common question during a listing appointment or when an offer is presented.  Seller closing costs are calculated and finalized by the Closing Agent, however, you can provide a ballpark figure of 8% of the sales price.  Broken down, this is 2% for typical closing costs (recording fees, stamp taxes, document preparation and closing fees, estoppel letters, etc) and 6% for commission.

This rough estimate does not include the payoff amounts for mortgage(s), special assessment(s), or past due amounts owed to the association, or anything out of the ordinary of typical closing costs.

For the purposes of using and understanding the correct terminology when speaking to others, this response will be simplistic.

An offer outlines what one party is willing to do.  In real estate, it should be written and presented to the other party (typically through an agent).

A contract is created when an offer or counteroffer of one party is accepted, and acceptance of the offer is communicated back to the party who made the offer.  Delivery of the contract to all parties is proof of communication of acceptance.  A contract does not exist until this communication has taken place.

Many agents will try to use these words interchangeably, but they are not interchangeable.  An offer on the table means the property is still available to any buyer or renter.  A contract on the property means that a property is only available for back up offer purposes.

To learn more about contracts, use the search bar to find the article.

This is a common question during showings. Though property taxes are NOT based on the sales price, a rough estimate of future property taxes (the calendar year after the sale) is approximate 1.8% -2% of the sales price.

Buyers can use property tax estimators on the Miami Dade County Property Appraiser and Broward County Property Appraiser websites.

It is important to note that buyers typically inherit the tax base for the year of the sale (property taxes are paid in arrears), but the property will be reassessed for tax purposes the following year and a new tax base will be created. Most ownership transfers result in higher property taxes the following year.

Special assessments are levied for improvements or expenses that are outside of the ordinary budget.

There are two types of Special Assessments that appear on real estate purchase and sale agreement forms.

1.  Public body or municipal special assessments are addressed in the main body of the agreement.  We rarely deal with these.
2. Condominium special assessments are addressed in the Condominium Rider/addendum.  We deal with this addendum frequently.

It is a seller’s duty (and yours) to disclose any existing or pending special assessments.  The term “pending” is defined on the condominium rider as any item that has appeared on the condominium’s agenda or in the minutes in the 12 months prior to the effective date.

Many sellers do not want to disclose pending special assessments for fear of losing a buyer, but the seller has an obligation to do so.  According to the standard language on the condominium rider, if the seller fails to disclose and a special assessments exists or is pending, the seller must pay it in full at closing.  Or, a buyer might sue after closing if they get an unexpected surprise.

If you are aware of a special assessment, you have a duty to disclose the information.  You do not need to say, “hello, we have a special assessment,” but you should answer truthfully if asked at a showing.  In addition, if you have the listing, you should advise the seller of the necessary disclosure on the condominium rider.  If a seller refuses to provide a disclosure, and you are aware of a special assessment, you should CYA (“Cover your a**”) and put it in writing to the cooperating agent, even if you gave a verbal disclosure at a showing.  It might be as simple as an email during negotiations stating, “The seller has not attended meetings and is unaware of upcoming special assessments, but the property manager told me… and a special assessment is expected in June.”

If the buyer is going to walk away from the deal, it is better that they walk at the beginning than it is to get three weeks into the process before they discover an unexpected surprise and walk away (and file a complaint).

Remember, you have a duty to deal honestly and fairly, and to disclose all known facts that materially affect the value of the property.

The words “maintenance fee”, “condo fee”, and “assessment” are sometimes used interchangeably when referring to regular periodic payments.  Most commonly, you will hear “maintenance fee”. Condominium associations charge maintenance fees or assessments to their members (unit owners).  Typically, these are paid monthly, and occasionally quarterly or annually.

Special Assessments are NOT the same as maintenance fees, condo fees, or assessments (used without the word “special”).  Special assessments are for expenses outside of the ordinary budget and are paid in addition to the regular periodic payments to the association.  After a special assessment is paid off, an owner only pays the ordinary periodic payments to the association.