Posts Tagged ‘buying in st. augustine’

Understanding FIRPTA, or How We Make Foreign Investment Difficult

Wednesday, March 2nd, 2011

by Sean Hess (Sean@StAugTeam.com), Broker and Manager for St. Augustine Team Realty (www.StAugustineTeamRealty.com).   Join us on Facebook.

FIRPTA is hurting investment.Owning an investment property in the USA is attractive to foreign investors.  Some of the reason are that the US market is diverse in its size and selection of available properties, these properties are seen as secure investments, and there are few restrictions on purchasing by a foreign investor.

The downside for a foreign buyer?  According to the National Association of Realtors recent report, Profile of International Home Buyers in Florida, 48% of foreign investors who decide not to buy cite taxes as the reason.  Both in terms of property taxes and exposure to US tax laws.

That brings us to FIRPTA, or the Foreign Investment Real Property Tax Act, which in the Sunshine State stands for “Florida Investors Running Pell-mell To Airport.”

In a nutshell here’s how it works: you are a foreign investor and you sell or rent a property you own here in the US.  When that happens 10% of the proceeds from your sale or rent are witheld by the IRS.  It seems simple enough.

But as a US citizen I am confused by the tax code…just imagine being a foreign investor!  You have to pay property taxes, and if you stay in the US longer than 182 days in three years you may pay income taxes.  Oh, there’s the doc stamps on the sale, too.  Let’s not even talk about the non-tax taxes like CDD fees, condo fees, and association fees.  As a real estate agent, by the time you get to the part about 10% witheld when you go to sell, a foreign buyer is just as likely to throw their hands up and say, “You know what, Costa Rica is just as warm, just as pretty, and I don’t have to worry about taxes!”

The FIRPTA has a noble intention.  “Let me explain it like this,” writes Phoenix broker and Realtor Jay Thompson in his blog, “prior to the passing of FIRPTA in 1980, it was possible for a non-US citizen to purchase real estate in the US, sell it at a profit, and not pay a nickel in taxes. As you can imagine, the IRS was none-to-pleased about this. So FIRPTA became law.” 

To comply with FIRPTA, a foreign citizen who is going to sell (or collect rents from) a property needs what is alternately called a TIN or ITIN (Individual Taxpayer Identification Number) from the IRS.  This may take a few weeks to a few months to get.  And as such it could delay the closing on a residential real property, or delay the rental of a property.  Only then can the sale commence or the rental commence.

And then to get that 10% back the seller will have to hire a US accountant, one that’s familiar with FRIPTA reporting, to prepare an income tax return.

And there’s a bit of back end danger as well…as written the buyer is responsible for collecting the tax, witholding it, and transmitting it to the IRS!  WHOA!

Now, according to the title people I’ve talked to and seminars I’ve attended, and in practical application, it’s the title company that will actually withold the 10%, or the property manager in case of rentals, and transmit it to the IRS.  But the buyer is still technically on the hook if it isn’t collected, and even the real estate agents can lose their commission if it isn’t collected. 

So, like all things taxes, it begs the question…can’t this be done just a little easier?  The law has a good intention and a realistic purpose, but the more hurdles you throw at buying real property…especially investment style properties like beach condos and commercial space in the St. Augustine market…the less investment you see and the more the market stagnates. 

In other words, wouldn’t it make more sense to can FIRPTA and get 10 hard-to-sell beach condos sold to foreign investors, or to have FIRPTA and sell zero condos to foreign investors and have the condos sit and depreciate?

Read more about FIRPTA at the IRS website.

Homes for Sale in St. Augustine: Will I Get My Deposit Back?

Wednesday, February 16th, 2011

by Sean Hess (Sean@StAugTeam.com), Broker and Manager for St. Augustine Team Realty (www.StAugustineTeamRealty.com).   Join us on Facebook.

The real estate deal fell apart.  Will I get my deposit back?

What does the contract say?

Your deposit: what does the contract say?

Your deposit: what does the contract say?

First off, I am not an attorney nor have I ever played one on TV.  Contracts are the perview of attorneys, and even experienced attorneys will disagree on minor points.  So there are no pat answers.

But it is in your power to read the contract and find out what it says about your deposit. 

For example, in the current FR/BAR purchase and sales contract line 89-91 says, “If Buyer does not receive loan commitment, then Buyer may terminate this contract by delivering written notice to seller, and the deposit shall be refunded to Buyer…”

So (in this case), did you receive a loan commitment?  If you didn’t receive loan commitment did you terminate the contract by delivering notice to the seller?  In this case the solution is clearly provided by the contract.

The standard Florida real estate contracts are written for just about any eventuality that will arise regarding the deposit, so the first thing you do is look at the contract to determine how the situation pertains to you. 

What monkey’s things up a bit is that both the buyer and seller have to sign off for the deposit to be released.  So if you have a seller that is really upset about you walking away they may initially refuse to sign the release of deposit.

In my real world experience the seller will typically calm down after a few days and sign off.  But if that doesn’t happen both the buyer and seller might have to go the route of mediation, arbitration or even litigation over the deposit.  The state of Florida Real Estate Commission (FREC) can even order the deposit be released to a certain party.  But the legal route and the FREC route are very rare occurances, mostly because any legal fees and/or time spent preparing paperwork far exceed the value of the deposit.

When won’t you get your real estate deposit back?

Here’s a real world example from last fall.

We received a cash offer on one of our listings that the seller accepted.  But the entire time we had an uneasy feeling about the buyer…their finances checked out okay and they paid for an inspection…but the signals they were giving us were all wrong.  In retrospect what they were doing was holding our home off the market as choice #2, while they used the inspection period to shop for something else.  Then they cancelled the contract.

But their Realtor made a fatal mistake and miscalculated the inspection period, so they had no right to cancel. 

The seller let the buyers out, but to do so he requested a portion of their deposit…these buyers agreed to it and didn’t get their full deposit back.  They were lucky they got anything after playing the seller like that.

If you are really unsure, if you are even contemplating breaking a contract, the best advice is to seek legal advice.  We know some good real estate attorneys, call us and we’ll get you in touch with one.   

Homes in St. Augustine: Are Zillow Zestimates Any Good?

Monday, February 14th, 2011

by Sean Hess (Sean@StAugTeam.com), Broker and Manager for St. Augustine Team Realty (www.StAugustineTeamRealty.com).   Join us on Facebook.

Are Zillow Zestimates any good?

I’ll put it this way: somebody once asked a wedding guest if so and so’s coverage of a celebrity wedding was accurate.  The answer?  “Well, the dress was white.”

And the Atlantic Ocean is blue (most of the time), and the sky is wide…the point I’m trying to make is that Zillow estimates on home prices are accurate in only the most broad sense.

We ran through a short sample of Zillow estimates this morning on homes we know the price history on.  We know the appraised value, what market activity was like when they were on the market, and what these homes eventually sold for.  In every case but one the Zillow estimate was too high. 

In general the Zillow estimate ran between 20% and 27% too high, with a few coming in around a more sedate 10%.  In one case the Zillow estimate was 7% above the appraised value of the home, but 25% above where the offers were coming in at. 

This may have helped us sell these homes (if the buyers were going to Zillow before they made offers), because they may have thought they were getting a deal…

Well, the dress was white.

Well, the dress was white.

In the one case where the Zillow estimate was low, it was 3% under the appraised and sold price.  Not only that, but according to Zillow this particular home gained and lost $30,000 in value twice in the same 12 month period…and homes just don’t do that.

What Zillow doesn’t, and can’t, take into account are things like condition, location, the neighbors, general neighborhood conditions, etc.  For example, homes just a few blocks away from each other might sell for a 10% difference in value just because of the neighbors (yeah, your neighbors really can have that much of an impact).  Or a renovated home sitting next to an unrenovated home could sell for a lot more, just based on the fact that things are newer and the buyer knows he won’t have to work on the house again for another 10 years.

Dan Tabit, a broker from Washington, summed it up this way: “In reality [the Zillow estimate] means little. It reflects that one or more homes which are roughly similar to yours recently sold and affects the data Zillow uses to create their Zestimates. Zillow recognizes that their valuations are a starting point, but not an accurate reflection of the actual value of a home…it may also be that the previous Zestimate was based on a fully updated home with additional features your home doesn’t have.

 “If you are considering buying the home in question, don’t rely on Zestimates, but get an experienced agent to provide a comparable market analysis.”

So should you stay away from Zillow?  No, it’s a fun site and it can alert you to broad trends.  But its accuracy is only broad, and very general.

Is a Lease Option Really an Option?

Wednesday, February 9th, 2011

by Sean Hess (Sean@StAugTeam.com), Broker and Manager for St. Augustine Team Realty (www.StAugustineTeamRealty.com).   Join us on Facebook.

 Is a lease option really worth it for buyer or seller?

Is a lease option really worth it?

Is a lease option really worth it?

Basically, a lease option works like this: The buyer and seller agree on a price for the property a year or two years out (along with the terms, inspections, who will pay for repairs and yard work during the lease term, etc).  They then agree on a rent, of which a portion goes towards down payment on the sale.  The rent is usually high for the property because it also includes the down.

For example: The buyer and seller agree on purchase price for a home of $160,000 two years out.  The buyer agrees to pay rent on the property of $1500 a month for two years (normally this house would rent for $1000 a month).  $500 of the rent will go towards the down payment if the renter decides to buy, so at the end of two years there will already $12,000 down towards the $160,000 purchase price.

There may also be an upfront, non-refundable deposit/down payment of several thousand dollars in addition to rent. 

So if the buyer decides to exercise his option and buy the home in two years, great.  If the buyer decides not to buy he loses his $12,000 to the seller, plus any additional upfront down payment, and any money he spent on repairs and maintenance.

The seller does not typically have the right to walk away from the deal except in the case of eviction/foreclosure.  You’ll need to have an attorney to draw up the paperwork on this one to cover all the variables.

Pros and cons to a lease option? 

In our current market single family home prices are appreciating, but modestly.  If a seller agrees to a lease option at today’s prices, he might lose 6% in appreciation over two years, but he’ll have cash flow.  For the buyer they lock in today’s price and will get equity when they purchase, but will pay an over-market rent for the right to do it.

A lease option may be a great solution for so many of our beach condos (above $250,000) that are still stuck in a buyers market, with buyers scarce.  In this case the seller can lock in a buyer at a favorable price, as this type of property is still expected to experience some declines in value.  The benefit to the buyer is that they can cherry pick which unit they want, and if the price they agree on is unfavorable at the end of the lease, they can walk away.  And at least for the seller an otherwise empty unit has cash flow.

The cons are typically on the seller side of a lease option.

“If the seller can only get a future contract price based on a current appraisal value,” asked Realtor John Walin in a recent online post, “why not just price the house at a fee for appraisal value now and not deal with [the buyer as] a tenant and sell it straight up as a traditional sale?”

Another con for the seller is that if he wants the whole chunk of money to invest now in another, more profitable investment, he won’t be able to while the equity in the property is sidelined.  And if the buyer does walk away from the option, the seller has to go through the process of selling it all over again.

Do Builders Negotiate the Sales Price on a New Home?

Monday, February 7th, 2011

by Sean Hess (Sean@StAugTeam.com), Broker and Manager for St. Augustine Team Realty (www.StAugustineTeamRealty.com).   Join us on Facebook.

 

We can help you negotiate the best price on your new home.

We can help you negotiate the best price on your new home.

Do builders negotiate the sales price on a new home?

 

 

In the current market they generally do…or if they won’t negotiate the price they might throw in upgrades in lieu of a price break. 

The best time to hit a builder up is on weekends and/or at the end of the month when a sales team is trying to make sales quotas.   Also, you’re going to have a better chance on a home that is finished or is nearly finished (the builder has a lot of capital tied up in a home that is just sitting empty). 

“There is no set percentage of price that can be negotiated,” said Denver real estate agent Robert McGuire in an recent online post. “That depends on how much the builder has invested in the home and how soon they need to make the sell. You need a Buyer’s Agent who is familiar with negotiating new home sales.”

What we’ve seen locally in St. Augustine is that when we start to negotiate, the sales rep on site will have to call his supervisor and we’ll have to negotiate through him (a bit like buying a car).  We actually had to walk out once last fall before the builder would budge.  But they did budge, and it was because they had a lot of existing inventory to sell a our well-qualified buyer made a fair offer in line with the market.

Is There Really a Difference Between Experienced Agents and Newer Agents?

Wednesday, January 26th, 2011

by Sean Hess (Sean@StAugTeam.com), Broker and Manager for St. Augustine Team Realty (www.StAugustineTeamRealty.com).   Join us on Facebook.

 Is there really a difference between experienced real estate agents and newer real estate agents?

This is a bit of a loaded question.

The straight answer is, “Yes there is.” 

Real estate is an experienced-based business…you can’t teach it in books, you can’t even teach it in anecdotes, you just have to go through it and survive. 

Youth or Experience?

Youth or Experience?

What makes real estate different is that the problems we face in the typical real estate transaction are “people created.”  In other words, so-and-so won’t get their paperwork in so the financing can proceed in a timely manner.  Or, the seller decides appropos of nothing that he needs an extra three days past closing to stay in the house…or he won’t close.  Or, the appraisal comes in too low and no one wants to compromise.  In other words, and I’m going to use a technical term here, bullsh*t problems. 

On the rare occassion that a house actually creates the problem…something unexpected pops up in an inspection, for example…the “people problems” spin off that.

So, as an good agent, the experience you accumulate helps you handle the endless issues that crop up from people problems, and still get to a closing that both the buyer and the seller are happy with.

Then why would you work with a new agent?

Because a new agent, a good new agent, will exhibit a lot of the same qualities that good experienced real estate agents already possess.  They will understand at the heart of every problem is a customer who wants to feel they’ve been treated with respect and dignity.  A new agent is also typically eager to establish themselves, and will give an effort that is typically over and above someone’s expectations.   In my years as a manager the best new agents are the ones that say, “Just get out of my way and let me go sell something.”  And they will, and they’ll do it well…legally, honorably and ethically with a positive outcome for their customer.

“Being a newer agent myself, its not about everything that you KNOW, its about how hard you will work to make any transaction go smoothly,” said Brook Hengst, a Realtor from Highland Ranch, Colorado, in a recent online post.  “I have found that newer agents can sometimes be more up-to-date on new contracts as well as new technology that can directly benefit a buyer or seller…[and] just because someone has been in the business for a while, does not mean that they know what they are doing, or are any good at working with PEOPLE.”

Well said.

I’m in Town from Canada, Can I Buy Property Here in Florida?

Monday, January 24th, 2011

by Sean Hess (Sean@StAugTeam.com), Broker and Manager for St. Augustine Team Realty (www.StAugustineTeamRealty.com).   Join us on Facebook.

St. Augustine Team Realty's International Buyers Page

St. Augustine Team Realty's International Buyers Page

Yes you can. 

That begs the question, “How much will I actually get to use the property?” 

Here’s the answer, lifted directly from the International Buyers page at the St. Augustine Team Realty website.

Immigration law allows a foreign nationals in the U.S. to stay between 90 to 180 days at a time, and if you don’t require a visa for the first 90 days you will need a visa if you plan to stay longer. If you want to stay longer than 180 days you will have to apply for an extended stay visa.

There are many different types of extended stat visas. Some visas allow you to stay in the U.S. for many years, some for just short periods. Some visas cover your spouse and children, some do not. Some visas require a long wait, some can be had in a few months. Some visas are employment based, some are family based. We can put you in touch with qaulified U.S. Immigration attorneys to help you find your best option if you wish .

A type of visa called the EB-5 (Regional Center) “Green Card” may be attractive to you if you wish for you, your spouse and your children age 21 and under to reside in the U.S. year-round. It requires a $500,000 USD investment in a specific “regional center,” plus as much as another $75,000 USD – $100,000 in set up costs. The benefit versus the traditional EB-5 visa is that you can live anywhere in the U.S. and you don’t have to work in the business…in fact you don’t have to work at all.

The next item is taxes.

If you stay in the United States for more than 182 days in three years, you may be subject to federal income tax. If this is the case you will have to apply to the Internal Revenue Service (IRS) (the tax division of the U.S. government) for an Individual Taxpayer Identification Number (ITIN) for tax witholding. Notice we say “witholding”…you may not have any tax due at all, but the government wants you to put some money aside just in case. 

You will also need an ITIN if you plan on renting your property.

Let’s say you plan to rent your property as soon as you buy it…in that case you will need an ITIN right away.

You do not need an ITIN to BUY property, just to SELL or RENT the property you own.

You will also pay yearly property taxes.

The tax formula is not especially complex, and changes in taxes year to year are typically predictable. Commercial (business) properties are typically taxed at a higher rate than homes are, and second homes or vacation homes are typically taxed a little higher than homes used for permanent (homestead) residents. 

To find out more visit our International Buyers page at: http://www.staugustineteamrealty.com/InternationalBuyers.html

 

Buying in St. Augustine: Now that I am Under Contract, What Will Keep Me From Getting the House?

Friday, January 21st, 2011

by Sean Hess (Sean@StAugTeam.com), Broker and Manager for St. Augustine Team Realty (www.StAugustineTeamRealty.com).   Join us on Facebook.

You are the biggest obstacle when buying a home.Now that I am under contract, what will keep me from getting the house?

There is a famous quote: “We have met the enemy and he is us.”*  It applies here.

The biggest obstacle to you not getting the house after getting the home under contract is…drumroll please…you.

You: may not qualify for the mortgage.

You: may get cold feet.

You: may want something late in the contract and the seller won’t give it, so you cut off your nose to spite your face.

You: may open a line of credit it or buy a car at the same time you’re trying to buy the house, which changes your credit ratios and kills your financing.

You: are told that your offer on a short sale will take 6 months or more to work out, and after being told this, you bail out after 30 days.

Here’s where other factors could come into play keeping you from getting the house.

Inspections reveal the roof needs replaced…you can’t get the loan if the roof isn’t fixed and neither you or the seller have the money to do it.

The mortgage broker you hooked up with is shady…he tells you can buy a house with no established  credit and no cash in the bank.  Guess what?  He thinks he can sneak it through…only this time he can’t.

It’s a short sale and the bank comes back with a different price, or rejects your price, and you don’t counter.

The seller gets cold feet.  It’s very rare, but it happens.

The appraisal comes in low…and you are unable to work out a compromise with the seller.

As you can see, the only true thing that is out of your control is if the seller gets cold feet.

The inspiration for this post is from an Active Rain post by Ripon and Tracy, California, Realtor Christina O’Neal.

*Walt Kelly, illustrator of the comic Pogo was the author of this famous quote.

Fair Housing: Know Your Rights When It Comes to Buying!

Monday, January 17th, 2011

by Sean Hess (Sean@StAugTeam.com), Broker and Manager for St. Augustine Team Realty (www.StAugustineTeamRealty.com).   Join us on Facebook.

Know your rights!  In honor of Martin Luther King Day here is a list of federal laws relating to civil rights and housing taken directly from HUD.  Have a great holiday!martin-luther-king-jr-right

Fair Housing Act
Title VIII of the Civil Rights Act of 1968 (Fair Housing Act), as amended, prohibits discrimination in the sale, rental, and financing of dwellings, and in other housing-related transactions, based on race, color, national origin, religion, sex, familial status (including children under the age of 18 living with parents or legal custodians, pregnant women, and people securing custody of children under the age of 18), and handicap (disability). More on the Fair Housing Act.

  
Title VI of the Civil Rights Act of 1964

Title VI prohibits discrimination on the basis of race, color, or national origin in programs and activities receiving federal financial
assistance.

Section 504 of the Rehabilitation Act of 1973
Section 504 prohibits discrimination based on disability in any program or activity receiving federal financial assistance.

Section 109 of Title I of the Housing and Community Development Act of 1974
Section 109 prohibits discrimination on the basis of race, color, national origin, sex or religion in programs and activities receiving financial assistance from HUD’s Community Development and Block Grant Program.

Title II of the Americans with Disabilities Act of 1990
Title II prohibits discrimination based on disability in programs, services, and activities provided or made available by public entities. HUD enforces Title II when it relates to state and local public housing, housing assistance and housing referrals.

Architectural Barriers Act of 1968
The Architectural Barriers Act requires that buildings and facilities designed, constructed, altered, or leased with certain federal funds after September 1969 must be accessible to and useable by handicapped persons.

Age Discrimination Act of 1975
The Age Discrimination Act prohibits discrimination on the basis of age in programs or activities receiving federal financial assistance.

Title IX of the Education Amendments Act of 1972
Title IX prohibits discrimination on the basis of sex in education programs or activities that receive federal financial assistance.
 
 
 
 
 

 

Home Prices Nationwide are Falling…How Much Farther are Home Prices Expected to Fall in St. Augustine?

Wednesday, January 12th, 2011

by Sean Hess (Sean@StAugTeam.com), Broker and Manager for St. Augustine Team Realty (www.StAugustineTeamRealty.com).   Join us on Facebook.

How much are home prices expected to fall in St. Augustine?

Want to know where the best place to find a bargain is?

Well, home prices aren’t falling in St. Augustine…as we’ve been reporting here since August single-family homes in St. Augustine are appreciating at 3%.

Condos may fall further in price so that’s the place to bargain hunt (see monthly market report video below).  There has been so much investor buying in the low ranges the average sale price has dropped 22% since last year.  The monthly market report we just did for January will tell you what the best bargain hunting ranges are.  Or visit our website for the last several St. Augustine Real Estate Market Reports.