THE BRILEY & DEAL BLOG

Sunday, 21 December 2014 22:29

Closing Costs In Florida

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When buying or selling property in Florida, there are unfortunately some closing costs involved.  In our market area, certain ones are typically paid by the Seller, and some are typically paid by the Buyer.  I say "typical", in that most often this division of closing costs payment are seen.  Our "market area" includes all of Duval county and most of St. Johns, Putnam, Clay, and Nassau counties.  Within the city of St. Augustine, and south thereof, it changes a little bit as noted below. However, IT IS IMPORTANT TO REMEMBER THAT WHO PAYS WHAT CLOSING COSTS IS FOR THE MOST PART NEGOTIABLE.  

CLOSING COSTS TYPICALLY PAID BY THE BUYER.  Pretty simple- usually the Buyer pays any closing costs that are related to any financing being procured by Buyer.  As we all know, banks and other mortgage lenders can be quite creative and sometimes it seems, endless in their fees and charges.  The good news is however that all of those charges must be disclosed up front when you apply for the loan and if there is anything more than a very minor change in them they have to be re-disclosed.  Beginning August 1st, 2015, you must be provided with a document called a Loan Estimate that discloses to you all costs related to your transaction within 3 business days of applying for your loan.  Then, at least 7 business days prior to closing you must be provided with the final Closing Disclosure which shows you how much money you will have to bring to closing, all escrow account money, and all closing costs.  For the purposes of this article, we can't tell you exactly what charges the bank may come up with, but it goes without saying that you should carefully shop at least 2 or 3 lenders to make sure you are getting the best deal possible.   There are a list of costs though that will be present on ALL transactions involving loans, and since they are caused by the fact that you are getting a loan it is typical that you would, as the Buyer pay them.  Those include (1) Note Stamps and Intangible Tax.  Florida doesn't collect personal income tax, but they make it up in a few places.. if you borrow money in Florida the State charges a "Note Tax" or "Note Stamps" in the amount of .35% of the amount you borrow.  If that loan is secured by a security interest or mortgage, the State also charges an "Intangible Tax" of .2% of the loan amount.  So in other words, if you borrow $100,000 secured by a mortgage you will be charged $350 in Note Stamps and $200 in Intangible Tax for a total of $550.  (2) Recording Fees.  The clerk of court will charge a per-page recording fee for recording the mortgage in the public records.  This is typically about $100 or so depending on how many pages are in your mortgage.  (3)  Simultaneousl Issue Fee for the Lender's Title Policy.  The normal situation is that when the Buyer is getting a loan to purchase property, the Seller pays for the issuance of an Owner's Policy of Title Insurance in the amount of the Purchase Price.  The Owner's Policy protects YOU, as the new owner of the property, from any title defects or costs.  However, your Lender wants protection against title defects and costs as well, so they will always require that the closing agent also issue to them a Lender's Title Policy.  The good news is that under Florida law, the closing agent can simultaneously issue that Lender's Title Policy for a "simultaneous issue fee", usually about $150.  This fee is negotiable with your closing agent by the way.  (4) Other Lender Charges.  These can include title insurance endorsements required by the lender, application fees, appraisal fees credit check fees, flood zone certification fees, underwriting or processing fees, discount points buying down the interest rate, origination fees, and the list goes on.  They are typically all negotiable with the lender and as mentioned above, you really need to shop at least 2 or 3 lenders against each other to make sure that you are getting the most competitive deal. (5)  Escrow Accounts.  Many lenders will require that the Buyer put an initial sum of money in an account towards the property tax or insurance bills coming due later in the year, and then each month to pay into the account an additional payment so that sums accrue which are sufficient to pay the property tax bill or insurance bill when those items next come due.  Keep in mind that the money in these accounts is truly the Buyer's money.  When the Buyer sells the property any money left in such accounts is refunded or applied to the payoff balance on the loan by the lender.  It is typical that most lenders will require about 2 months of taxes and insurance to be put in the escrow account at the time of closing.   

CLOSING COSTS TYPICALLY PAID BY THE SELLER.  In our area, it is typical that the Seller pays the following closing costs:  (1) Real Estate Agent Commission- if any.  The amount is of course negotiable and the negotiation takes place when you enter into a listing agreement contract for the listing of your property as a Seller.  (2) Deed Stamps.  These are a tax to the state on all transactions involving real property and the rate is .7% of the consideration paid.  In other words, if you sell a house for $100,000, the Deed Stamps will be $700.  If you GIVING property that is not encumbered by a mortgage to someone, the deed can recite "love and affection" or "$1.00" as the consideration and in such cases only the minimum amount of $.70 (yes, 70 cents) of Deed Stamps are paid.  If you want to give property to someone and it is encumbered by a mortgage, you will typically still have to pay Deed Stamps on either the remaining balance of the mortgage, or the tax appraiser's valuation of the property, whichever is higher.   (3) Owner's Title Insurance Policy.  Every Buyer has the right to ask the question of the Seller- "How do I know that I'm getting good and marketable title to the property?"  In Florida, the ONLY way to answer that question is that the Seller provides the Buyer with a policy of Owner's Title Insurance which insures the Buyer up to what they paid for the Property that the title to the property has no title defects and is freely marketable.  Title Insurance is about .5% of the sales price up to $1MM, and then amounts above $1MM are about .25% of the sales price up and over the first $1MM.  So for a $100,000 deal the titlte insurance is about $500, and for a $1,000,000 deal the title insurance is about $5,000.   The total amount for the title insurance is called the title insurance "premium", and it is split between the title agent and the title insurance underwriter who issues the policy with the agent receiving about 70% as compensation for handling the closing and the underwriter receiving about 30% for underwriting the policy.  There are over a dozen title insurance companies licensed to underwriter title insurance in Florida, but the vast majority of the business is divided between Old Republic National Title Insurance Company, Stewart Title & Guaranty Company, First American Title Insurance Company, and the Fidelity group of companies (including Chicago Title and Fidelitiy National Title Insurance Company.   Title insurance rates are promulgated by the State insurance commissioner, which means that the agent issuing the title insurance (usually the closing attorney or title company) can NOT charge any more than the promulgated rate.  However, the portion of that title premium that tthe agent receives may be negotiated by the consumer.  Any such negotiated discount is called a "Butler Rebate" in Florida.  (4) Title Search Fee.  In order to be able to issue the title insurance, the title agent must first conduct a title search on the property.  The title search process consists of compiling all the documents in the chain of title to the property going back to the "root" of title under the Marketable Record Title Act (MRTA).  The documents comprising the chain of title are called the "Abstract".  Then, the agent must examine each document to make sure that there are no defects or problems with any of the documents that would result in a break in the "chain" of title.  This process is called the "Examination."  Upon completion of this process, the title insurance agent will prepare a Title Insurance Commitment on a form established by the American Land Title Association (ALTA) which states what requirements must be met to issue the title policy and what matters, if any, coverage will be excepted from in the title policy.  The typical Title Search Fee will run about $100.00 for most title agents.  (5) Closing Attorney or Closing Agent or Settlement Fee.  This fee may be referred to as any of the three mentioned, and is negotiable.  The purpose of the fee is to provide the title agent with compensation for doing all of the things necessary to handle the closing and typically ranges in our area from about $250 up to around $550.  (6) Survey.  It is quite typical in our area that the Seller pays for a new staked survey of the Property, although once you get into St. Augustine and south, for some reason it becomes typical that the BUYER pays for the Survey.  Surveys for typical subdivision houses usually run around $350.  REMEMBER- if the Seller has a prior survey which is still accurate, and is willing to sign an affidavit that the survey is still accurate (no new improvements built or removed), then the old survey can be re-used for the closing.  However, a prudent Buyer will still require that the property corners be re-staked so that they can verify the property boundaries.  The re-staking is often far cheaper than getting a new survey.  Also, please NOTE THAT SURVEYS ARE NOT REQUIRED FOR CONDOMINIUMS.

A WORD ABOUT PRO-RATIONS-  In our area property values are assessed on January 1st of each year for tax purposes, and then the tax bills come out in November.  In other words, the tax bill received in November 2015 is for the WHOLE YEAR 2015.  So, if you are closing on June 1st, the tax bills haven't come out yet and the Buyer will be paying that bill.  As such, the Seller owes the Buyer a credit for the portion of the year that the Seller owned the property (In our June 1 exampe that credit is half the year's worth of taxes).  Since the bill doesn't come out until November an estimate is used in order to extend the credit, and typically the taxes for the year before are used as the estimate.  This works except if the property is new construction or there is some reason to believe that the taxes this year won't be close to the amount they were for last year.  The practice of extending the credit to the Buyer for the part of the year during which the Seller owned the Property is called "Pro-rating" the taxes.  The pro-rated amount is determined by taking the cost for the whole year, dividing by 365 days to get a daily amount, and then multiplying the daily amount by the number of days to be pro-rated.  The pro-ration can also work the other way if you are closing in November or December, after the tax bill has alread been paid.  In such cases the Seller has paid for the whole year and the Buyer will owe the Seller a credit for the portion of the year that the Buyer owns the Property.  Condominium fees, assessments, CDD Fees, Homeowner's Association Fees, and other such costs or charges are typically pro-rated using the same method.  

SOME IMPORTANT FINAL CONSIDERATIONS

     1.  REMEMBER- MOST CLOSING COSTS ARE NEGOTIABLE AS TO WHO PAYS WHAT.  There's nothing that says that the Seller HAS to pay the Closing Attorney's fee or the Title Search Fee, and there's nothing that says that the Buyer HAS to pay the intangible tax and note stamps.  Except for some charges which MUST be paid by the Seller on VA or FHA loans, it is pretty well completely negotiable who pays what.  The breakdown given above is what is TYPICALLY seen in our market area.  

     2.  BE CAREFUL WHEN BUYING A HOME FROM A BUILDER OR GETTING A MORTGAGE WHERE THEY ARE OFFERING TO PAY ALL CLOSING COSTS OR THEY ARE TRYING TO STRONG ARM YOU INTO USING AN IN HOUSE TITLE OR MORTGAGE COMPANY.  As the old sayings go... Nothing in life is free... and if it sounds to good to be true it probably is!  When getting a loan if the Lender is offering to pay all of your closing costs, they are probably just bumping up your interest rate a tad so that they recover the money several times over during the life of your loan.  By offering to pay your closings costs as you typically would and getting a lower interest rate you will usually save yourself a huge amount of money over time.  When a Builder is offering to pay all or a bunch of your closing costs they are simply building those costs into the price of the home, and then some.  You can probably get a much better deal by offering to pay the typical closing costs that you would pay and getting a lower purchase price.  Especially beware of these situations where the builder is insisting that you use an in house title company or "preferred lender".  Many builder contracts will say that if you agree to use the builder's preferred lender or in-house title company then the builder will agree to pay their typical closing costs as Seller, but if you don't then they willl require you to pay them.  This is because they have already built into the sales price of the home the costs they would typically pay, and if you agree to use their in house title company or lender they will know you are "captive" to using that provider instead of competitively shopping those costs and they will be able to make sometimes exorbitant fees and profits on the "back end" of the deal (much like the "undercoating" on the new car...).  

     3.  BE SMART AND SHOP AROUND.  It's no different than buying a car or anything else.  Always get 2 or 3 quotes to make sure that you are getting the best quality and service for the money.  

 

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