Advice for a First Time Home Buyer in Miami

Being a first time home buyer in Miami may seem scary, but we’ll show you in the following article why the process is actually much more standardized in South Florida vs in New York, and why the offer and contract process is actually much more advantageous to buyers, and how you can take advantage.

Just remember, always budget for more time and don’t wait until the last minute for things like wiring and transferring money, and do as much diligence as possible, as early as possible. And if you’re getting a mortgage, make sure you get a head start before submitting any offers.

Sellers may be opportunistic but still have room to negotiate

In a seller’s market where inventory is low and buyers are scrambling to buy, like we’ve seen in Miami after the pandemic of 2020-2021, you’ll see sellers who will opportunistically list their prized properties at astronomical prices just in case some crazy New Yorker comes down and decides to buy without even seeing the place.

As a result, you’ll see astronomical listing price increases especially on the higher end of the market. However, just because some sellers would entertain selling if they got a crazy price, there will also be real sellers who actually do need to sell.

As a result, don’t assume a listing is out of your budget just because of its listing price. A real seller might have a lot of room to negotiate.

Difficulties with financing in South Florida. How to verify common charges, property taxes. Why the offer process favors buyers & more.

Don’t be afraid to give feedback to sellers with unrealistic listing prices, and then walk away. Sometimes you’ll see that they end up lowering their listing prices based on your feedback down the road, which by the way is a sign of a seller who actually wants or needs to sell.

In contrast, a seller who doesn’t need or really care to sell, but who just wants to test the market for a crazy buyer, will not budge on their unrealistically high listing price and will be content to just sit on the property.

Another great tip to see if a seller actually needs to sell is to check the unit’s public property tax bills and see if the seller is delinquent, or has a tax lien on the property. If so, you can bet that this is a desperate seller who needs to sell!

Pro Tip: Similarly, don’t assume assume rental listing prices in Miami are the bottom line. Rent prices usually reflect the “seasonal rate,” i.e. for snowbirds who want to come down here and rent for 6 months, typically from November until April. You should be able to secure a significant discount for a full year lease.

Be open to checking out other neighborhoods

One of the mistakes that first time home buyers in Miami make is only sticking with what they know, what they’ve seen, or what they’re comfortable with. For New Yorkers, that often means myopically focusing on one specific neighborhood on Miami Beach, or in Brickell, that they’ve visited before as tourists.

For example, for transplants from blue states who are nearing the end of their first year renting in Miami on the beach, they may be laser focused on finding a place in their section of the beach because it seems like the greatest thing ever.

Let’s take some real world examples of some New Yorkers who have almost finished their one year lease in North Beach at the Carillon Miami Wellness Resort. They are laser focused on buying a property in their building because the beach is all they know, and they think they’ve seen and know the market from their frequent walks up and down the boardwalk.

They think to themselves, the Carillon really is the best building on the beach unless you want to pay $3,000+ PPSF for the rare new construction, oceanfront building in Miami Beach or Surfside.

After all, where else can you get 20-30+ fitness classes per day, a 70,000 sq ft spa, a Publix right across the street, world class amenities, a hydro aromatherapy circuit and the beach as your front yard, in a pretty new building, for a reasonable price?

They may be right, if Miami consisted of just their bubble of oceanfront properties. But Miami is not like New York where everyone wants to live in the West Village.

As soon as you realize that there’s a bigger world out there than just the one neighborhood you’re familiar with, you’ll realize part of what makes Miami amazing is that there are a plethora of diverse, interesting and attractive areas to live.

For example, let’s say that you’ve had a direct ocean view these past few months as a renter, and can’t get over it. Well, did you know that the views from Edgewater across the bay can be just as good?

In fact, as soon as you hit the 30’s in floor height, you’ll get a direct ocean view because low-rise Miami Beach becomes a thin strip of sand in the blue.

Pro Tip: If you’re early in your search and don’t know whether you want to live in the beach vs in-land, live in a house vs condo, etc. then please check out our guide on where to live in Miami. If you’re further along and ready to consider what other neighborhoods Miami has to offer, then check out our in-depth Miami neighborhood guide, curated specifically for transplants to the Magic City.

Start searching well in advance of your lease expiration

Renting a furnished apartment is one of life’s great pleasures, and it’s a common sight to see in the South Florida real estate market. When renting, it can be easy to become complacent and assume, or hope, that your landlord won’t significantly raise your rent when your lease expires.

However, we’ve seen that type of complacency backfire time and time again in a seller’s market, like we’re seeing now in the Miami real estate market, which we expect to continue to be hot in 2021, 2022 and beyond.

If you’d prefer to renew your lease vs buy, then at least reach out to your landlord well in advance to see what rate you can renew at.

In today’s market, it’s not uncommon for renters in Miami to suddenly hear from their landlord that their rent is going up 50% to 100% or more. Wouldn’t you rather get this news in advance, after you proactively ask your landlord, vs at the last minute when you don’t expect it?

The other reason for getting a head start on the decision to buy vs rent is to give yourself plenty of time to find your new home, and to give yourself up to a couple of months for the closing process, depending on whether you are financing or not.

If you’re purchasing all cash, then you can typically close in under 30 days assuming the seller is also ready to close in that time frame. If you are financing, then closings typically take a month or two longer due to the mortgage process.

Pro Tip: First time home buyers should read up about the process of buying a condo in Miami. Don’t just assume that you can bring a check and get a deed in return. It’s actually quite complicated of a process!

Trust but verify during the inspection period

Although it’s better to come in with a friendly attitude and assume that what’s being marketed or represented to you is the truth, it’s critically important for you to verify as much as you can during the inspection period.

This includes the basics, like how much common charges per month are, or what property taxes are.

For example, a first time home buyer in Miami told us that he and his wife assumed the advertised common charges were accurate. After all, it was even listed in the contract rider.

As a result, the buyer failed to verify with the building’s managing agent what the common charges actually were.

Then, a few weeks before closing, the buyer bothered to check with the managing agent and finds out that the common charges had increased 10% almost 9 months ago, well before the listing was put on the market.

When the buyer asked the seller for a concession to make up for this misrepresentation of the common charges, the seller responded, “I did not know there was a change in the monthly fee. As you aware there was a 15 day due diligence period. Unfortunately, the sellers will not willing to make any concession for this matter. Thank you.”

The closing attorney advised the following, “The listed agent is not obligated to verify association fee and technically you are supposed to verify it. The difference is about 10% higher than what was disclosed. It is a hard argument to make that the extra $5000 per year for the association is a material issue based on the purchase price. I don’t think it’s a big enough difference to create a right to cancel the contract, not that you want to do that. Though it can’t hurt to ask for a credit especially since the Seller is not ready to close by the contract closing date.”

Pro Tip: Verify as much as possible as early as you can to avoid any delays to closing, or getting contractually obligated to buy something that’s not what you expected. For example, most counties will allow you to look up any property’s real estate tax bills in public records. This way, you can verify a unit’s property taxes before you even submit an offer!

Start on the mortgage process before making offers

The mortgage loan process can take longer than usual in South Florida, especially if you are intent on financing with one of the large banks headquartered in New York.

Mortgage bankers from New York can’t seem to wrap their heads around the South Florida real estate market, and usually perceive it to be much more risky due to the prevalence of litigation, extreme weather and apparently building collapses after the tragedy in Surfside.

For example, it’s quite common for buildings to have some sort of litigation in place, which is usually a no-no in New York when it comes to financing.

However, many of the litigation cases you’ll see in Miami buildings are against the developer, or against a hotel lot owner who is being unscrupulous, not against the HoA itself.

As a result, there’s usually only upside vs downside, aside from the running costs of the litigation which show up as special assessments.

Litigation is especially prevalent in newer construction buildings where the HoA sues the developer for construction defects before the warranty period runs out.

This is almost guaranteed to happen because when a HoA takes over from the developer after a building is built, the HoA is required to order what’s called a Florida 558 inspection, which is a detailed building wide property inspection.

The inspector will come up with a lengthy report, which invariably will list a whole bunch of defects, serious or not, and the HoA will use this as the basis to sue the developer for funds to remedy or repair the defects.

This is a good thing that can only help improve the property’s value, but many big banks will have trouble with litigation of any kind, even when the HoA is a plaintiff and not a defendant. As a result, it’s important to shop around early to make sure your mortgage lender has no issues with the building, and to get a headstart with the underwriting process.

Pro Tip: Even well over a decade after the Great Financial Crisis of 2007-2008, banks are still extremely strict with their underwriting standards. As a result, get a head start on this process before you submit an offer, especially if you are self-employed or have other factors that make you a “non-standard” borrower profile.

Why the offer process favors buyers in Florida

The offer process in Florida favors buyers, in contrast to the offer process in New York which favors sellers. This is primarily because serious offers in Florida are submitted as filled out standard purchase contracts that have already been signed by the buyer. Although this may seem disadvantageous, these signed offers typically have expiration periods of 1-2 days if not counter-signed.

Then, once the seller “accepts” the offer by counter-signing the contract, both parties are locked in and then the buyer has typically 10-15 days for an inspection period where the buyer can back out for essentially any reason.

During this period, the seller is bound to the buyer, but the buyer has a window where he or she has the exclusive look on the property but can still back out or try to re-negotiate.

In contrast, in New York the accepted offer is essentially non-binding, and the buyer has the do an inspection, if desired, and complete due diligence prior to signing a binding contract.

This is much more advantageous to the seller as the buyer is forced to spend money, do due diligence, and enter into a binding contract with “eyes with open.”

After a contract is signed in New York, only specified contract contingencies can provide an out for the buyer, such as the financing contingency.

So whereas in New York the seller can accept multiple offers and negotiate contracts with multiple parties without even informing the bidders that they’ve done so, in Florida once an offer is accepted, meaning the contract is counter-signed, the buyer has an exclusive due diligence period where they can still back out.

Which one of these processes do you think sounds better for the buyer?

Pro Tip: It’s fairly common for buyers to ask for a concession on price or a closing credit during the inspection period, after their home inspection comes back invariably with issues. In a hot market, the seller can flat out decline and dare the buyer to cancel the contract. In a slow market, the seller may counter or agree with the ask. Learn more about this strategy in our guide on re-negotiating after inspection.

Use a buyer agent commission rebate to reduce closing costs

Commissions are high in Miami and South Florida, with many new construction projects offering as much as 7%, sometimes more, in commission to buyer’s agents.

As a result, what better way to lower your closing costs or to reduce your purchase price than to get some of that commission for yourself?

However, execution is more difficult than your typical first time home buyer in Miami will assume. Sure, you can be the typical buyer asking a Realtor to reduce commission on his or her listing, but that’s extremely hard to pull off precisely because it’s so hard to verify.

How do you know that the price reduction the listing agent comes back with was due to a reduction in commission?

Since these types of conversations invariably tend to be done verbally, the listing agent could easily pressure the seller to reduce the price, and then just tell you that it was because he or she gave up some of the commission.

Since the listing agreement is a private contract between the seller and the seller’s broker, how can you verify what actually happened?

Or, in another scenario the listing broker might agree but tells you that he or she will only deploy it at the last minute, because they want to see if the seller will come down in price first. What happens if the seller comes all the way down in price? Then too bad, the listing agent gets the whole commission.

Don’t forget about the very real possibility that the listing agent will flat out reject your request, or worse, start ignoring you altogether. This is entirely possible in a hot market with multiple bidders, as the listing agent may just ignore you and move on to the next more reasonable bidder.

In reality, this strategy of going direct to the listing agent and asking them to reduce their commission only works in a soft market where you are the sole bidder on an aged listing. Any hint of competitive pressure and your listing agent will be steering the seller onto someone else less troublesome.

So how can you get some of the commission?

The best way to keep some of the built-in commission for yourself is to work with one of our partner brokers who will sign a simple, half-page, non-exclusive commission rebate agreement with you outlining the amount of your rebate after closing.

This way, you will contractually lock in your ability to earn up to 2/3 of the commission, as of this writing, at closing.

Your buyer’s brokerage has a contractual MLS co-broke agreement in place with every other MLS member firm, meaning brokers must split commission with each other on their listings.

Lastly, you won’t have to worry about referral fees being charged by us to our partner brokers. There are no external referral fees to worry about because we exclusively work with our partner brokerage brands that are jointly owned, i.e. common ownership.

Pro Tip: Co-broking between brokers is extremely common, with some studies showing 75%-90% of all buyers being represented by buyer’s agents. As a result, there won’t be any unnecessary conversations and headache about reducing commission with the listing agent for you to worry about.

Disclosure: Hauseit® and its affiliates do not provide tax, legal, financial or accounting advice. This material has been prepared for informational purposes only, and is not intended to provide, and should not be relied on for, tax, legal, financial or accounting advice. No representation, guarantee or warranty of any kind is made regarding the completeness or accuracy of information provided.

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