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What Are Buyer Closing Costs And Prepaids In Florida

Ben DeLoach — Fri, 03 Jan 2020 11:46:50 +0000

Many Walton County property buyers are from out of state. They are familiar with buying and selling, but most do it only occasionally, so while they know the process, they may forget the details. This article will help them to come up to date with the buyer side of their closing costs. Not all costs apply to every purchase; lender costs being an example. Some costs are typical for Walton and Florida closings, and an out-of-state buyer may not know what they are.

Our hope is to paint a broad and clear picture for your clients to make it easier for you, their Realtor, to explain the closing docs when they get them.

Price of the Property

The major cost is, of course, the property’s price. It appears on the Integrated Disclosure as the Contract Sales Price. The buyer’s escrow deposit shows as a credit.

Lender’s Fees and Charges

The Application Fee covers the costs of setting up the file.
The Processing Fee covers the costs to arrange the loan and manage the processing.
The Underwriting Fee is the cost for the underwriter to do their due diligence work.
The Credit Report charge is for pulling and examining the borrower’s credit details.
Some borrowers pay ‘Points’ which is an upfront amount in exchange for the lender lowering the interest rate.
The Appraisal Fee is paid to the appraisal company. The appraiser uses an approved method of determining the property’s value. so the lender can approve the loan. This is often paid upfront.
The Owner’s Title Insurance Policy covers a one-time premium to insure the lender against any unforeseen title issues which may surface in the future.

Prepaids

Many lenders require some portion of the new owner’s taxes and insurance premiums to be held in escrow, so the lender has the money available when needed. Some buyers agree with the lender that they will handle such payments when due, and so the lender does not charge prepaids or collect such monies with the mortgage payment. If there are prepaids on the closing statement, then they will include:

The Homeowner insurance premium: usually collected a year in advance at closing.
Property taxes, future insurance premiums, etc.
Partial Loan Interest: loan interest is due from the day of closing until the first full mortgage payment is due, usually at the end of the following month.

Government Fees

Florida charges a documentary stamp tax on mortgages. Walton County charges for recording the mortgage and deed in public records.

Miscellaneous Fees

Flood Certification: is a fee charged to determine the property’s flood zone location.
Tax Certification: is a cost incurred to confirm that all due property taxes have been paid by the current owner.
Homeowner or Condo Association Fees: Associations often charge to record the new owner. They may also charge to issue a new set of Association documents.
Monthly, quarterly or annual Association fees may have been paid in advance by the seller, so the appropriate amount is refunded by the buyer.
Home and WDO (termite) Inspection Fees: if the buyer did not prepay them.
Home Warranty Premium: if the buyer takes out a warranty on their new home’s plumbing, HVAC, etc.

Settlement Fees

These are amounts charged by the title agent. There may be a charge for an out-of-office closing, etc, where courier or other costs are passed back to the buyer.

Buyers will anticipate some costs, but they may be unfamiliar with others. They may expect to see an attorney fee, for example, because in some states all closings are handled by an attorney, not a title company, and some Florida counties have fees that others do not.

As always, if you have any closing cost questions, please feel free to contact us.

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What You Need To Know About FIRPTA – Foreign Investment in Real Property Tax Act

Ben DeLoach — Fri, 06 Dec 2019 12:53:10 +0000

Many citizens from other countries want to own a vacation home in Walton County. If you work with foreign buyers or sellers you should be familiar with the rules found in the Foreign Investment in Real Property Transaction Act of 1980, commonly known as FIRPTA. Ignorance of FIRPTA can result in major problems at closing. However, knowing the basics can help to avoid those issues for your client.

The IRS taxes foreign transferors on the property’s value. The IRS makes the transferee responsible for withholding 15% of the property’s contract value until the IRS is satisfied that the transferor has met their tax obligations. We use the word “transferor” because FIRPTA applies to any disposition, including sales, gifts, and exchanges of real property.

FIRPTA Requirement

In a real estate transaction, the transferee becomes the federal government’s withholding agent. If the tax is not withheld, the transferee may become liable for any tax that is due. It is important, therefore, that the buyer understands the seller’s nationality and tax status so the appropriate conditions are included in the contract and closing instructions. As long as all parties are aware of the requirement, it can be handled with minimal additional paperwork.

Exceptions to the Withholding Requirement

Even if the exceptions apply, it makes sense for Realtors to explain a buyer’s options. If your client is the foreign national seller, then, again, it helps if they can plan ahead. The 15% withholding can be avoided if:

The buyer intends to use the property as “a residence,” rather than purely as a rental property. The term residence, in this case, means the buyer, or the buyer’s family member, will occupy the property for at least half the time that the property is actually occupied, during the first two 12 month periods.
The seller gives acceptable proof of their taxpayer status to either the buyer or the title agent.
The IRS shows, prior to closing, that no withholding is required.
The seller proves the transaction is covered by a “nonrecognition provision” in the Tax Code or in a tax treaty the USA has with the foreign seller’s own country of residence.
The seller’s profit on the sale is zero.

If the buyer and seller are out-of-state, it adds to the need for forward planning.

Tax laws are complex. This is only a brief introduction. If you are the listing agent, and the seller is not a US citizen, you may want to either introduce the subject of FIRPTA to your client or ask us to do it for you. The seller will either know that 15% of the sale price will be withheld, or they will have time to give you the necessary details to avoid the withholding. When you pass the details to us, we will be able to work on the matter so all will be in place for closing.

If you are working with the buyer, and you know the seller is a non-US citizen, contact us and we can answer any questions you may have.

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What Are Seller Closing Costs In Florida

Ben DeLoach — Tue, 12 Nov 2019 12:24:39 +0000

Most sellers want to know how much walk-away money they will get at closing. The answer depends on several factors such as contract selling price, any outstanding debts or liens, newly-incurred debts because of the property sale, and closing costs. Let’s look at each area to give you a broad understanding of what may be subtracted from the selling price.

Broker Fees

The biggest single cost is usually the sales commission. You will have agreed a percentage or a fixed fee when you signed the listing agreement. Some real estate brokers also charge administration fees. As an example, Florida law requires brokers to keep the client file for seven years, so costs such as this can get passed on.

Outstanding Debts

Anything you owe that is related directly to your property must be settled at or before you close. These include paying off your mortgage or HELOC, plus any admin fees your lender charges to handle all the admin associated with closing the file, recording the “note of satisfaction” in public records, etc.

All other unpaid liens against the property, if any, must also be settled at closing. These may include loans secured by the property, this year’s unpaid property taxes prorated to the day of closing, homeowner or condo association fees, etc. If you have paid fees in advance, the closing officer will calculate how much credit you get back. Your homeowner or condo association may also charge you an admin fee to change their ownership records.

The utility companies will take a final meter reading, and the amounts due are paid at or before closing.

Documentary Stamp Tax

Doc Stamps on the Deed, as this fee is often called, is charged by the Walton County Recorder. It is calculated at a rate of 70 cents per $100 of contract price.

Withholding Tax

If you are a non-US citizen, you may have 15% of the contract price withheld until the IRS is satisfied that all due taxes are paid. After that work is done, you will receive any remaining amount. If you are a non-US citizen, it pays to plan ahead, in case you can avoid any withholding of the sale proceeds, so seek advice from an attorney or the title agent.

Title and Closing Agent Fees

If in the contract you agreed to pay the title insurance premium, the rate is calculated on a sliding scale. The premium for the first $100,000 of contract price is a fixed $575, then the premium is calculated at $5 per $1000 up to $1 million of contract price, and then at $2.50 per $1000 up to $5 million.

The closing officer will charge settlement fees for managing the entire closing process, ensuring the documents are correct, handling the money involved, paying off debts, liaising with the Realtors, the property owner association, your lender, updating the public records, and forwarding all final documentation to you.

Miscellaneous Costs

You may have agreed to cover some of the buyer’s costs, so they will need to be included as well as any repair costs agreed to. There may also be additional costs such as fax, courier and wire fees, especially if you choose to close by mail.

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