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When looking for a real estate investment in Florida, and in the United States in general, it is always advisable to contact an attorney and a real estate agent (the “Professionals”) before entering in any kind of transaction. The Professionals will draft a written offer following the standard form generally used for residential (or commercial, as the case may be) real estate transaction, that shall be submitted to the seller. This offer will already contain all terms and conditions of the transaction and, if the offer is accepted by the seller, it will become the final Purchase and Sale Agreement (the “Agreement”). Any missing non essential information may be integrated in the Agreement at a later date.
The Agreement is the singular most important document of a real estate purchase and sale transaction because it underlines the seller’s intention to transfer the property in exchange for the agreed upon price and the buyer’s intention to receive the property in exchange for the payment of the price. Hence, it is the document that binds buyer and seller to comply with the terms of the transaction.
Before entering into the Agreement, the parties should have negotiated how to apportion the costs of closing i.e., whether certain payments should be allocated to seller or to buyer (some sellers may be willing to shoulder some of the costs in exchange for a quick sale).
Usually, the costs of a real estate acquisition (“Closing Costs”) in Florida include costs of the lender (if the buyer needs financing), attorney’s fees, title insurance costs (or Title Company’s closing costs), costs for registration of the deed (and the mortage, if any); generally, buyer will pay for the former and seller for the latter (excluding the mortgage registration).
The Agreement must also include the amount of the “good faith deposit”, also known as “guarantee deposit”. The buyer has to pay this amount in order to prove his real intention to buy the property (and to prevent the same buyer from submitting offers for several properties with the intention of buying just one of them). Usually, the amount of this deposit consists of a percentage of the purchase’s price, unless the purchase is from a developer, in which case the deposit is structured in several parts according to the timing of construction (e. g., 20% upon signing of the Agreement, 20% upon pouring of foundation, 20% upon reaching the floor in which the unit bought is situated, 20% upon finishing the roof, and 20% at closing). Since there are no specific rules regarding this matter, the specific amount of the deposit will follow customs and traditions of the local market.
If the transaction does not close for no fault of buyer, the deposit will be returned to the buyer. However, if buyer defaults on the terms of the Agreements the deposit will be forfeited. If the Agreement goes to closing the deposit will be credited towards the purchase price.
Usually, the deposit is paid to the Escrow Agent which may be an Attorney, a Title Company or a Real Estate Broker (never in the hands of the seller). It is always advisable to pay the deposit to the attorney for buyer to guarantee a quicker refund.
All the sale conditions specified in the Agreement have to be strictly observed by the parties. For instance, a condition could contemplate that, if the purchase is subject to financing, the buyer is not obligated to buy the property if the specified financing is not obtained.
The inspection of the property is also a relevant aspect of the inicial purchase, specially when the property is a free standing structure which may have serious problems not readily detectable. A licenced inspector will check scrupulously the property to ensure to the buyer that there are no problems that could affect the value of the property. Of course, an unsatisfactory property inspection may be cause for withdrawal under the Agreement.
The attorney will do a title search to insure the authority of the seller to convey the property and to verify whether there are mortages, open liens or debts pending on the property. All the foregoing will have to be satisfied before the closing.
As mentioned in the beginning, the proper drafting of the Agreement is very important in a real estate sale transaction because it reflects in advance the rights and obligations of the parties. Therefore, remember to seek the advice of an expert that can guide, advise and support you before and during the transaction.