The New York - Florida Connection
It is hard not to fall in love with the beautiful weather in Florida. That is probably why so many of us travel there for vacation, especially during the winter months. If you are like me, you probably want to move to just about every place you ever visit on vacation. Real estate is commonly sold based upon the “good feeling” and emotion you experience when vacationing. Timeshares are a great example of this. Rarely do you hear of a person say they were sitting home in New York and decided they wanted to buy a timeshare interest.
The customs, practices, and laws of buying or selling a home in Florida are very different when compared to New York. Florida is often called a “title” state. Many clients do not really understand what that means. In New York most buyers and sellers retain an attorney to represent their interests in the transaction – thus the term “attorney” state. Having been an attorney for more than thirty years, I understand most clients get anxious when they need to retain an attorney. And given the opportunity, most would avoid doing so. That is why, when people hear that Florida is a “title” state and you are told by a realtor or others “we do not use attorneys in Florida”, one might be ecstatic! But it is a matter of personal choice; but before you make that decision you should understand that there are differences when buying and selling real estate in New York and Florida.
New York vs. Florida
Perhaps the most important difference comes at the very beginning with the contract. In New York, most contracts contain an attorney approval contingency. This is like a get out jail free card. In short, the attorney approval contingency allows for the buyer or seller to have their attorney review their contract, typically within three to five days of all parties signing the contract. If after reviewing the contract with your attorney you decide not to move forward, your attorney may disapprove of the contract, for any reason. We do not even need to disclose the reason.
In comparison, Florida has no attorney approval contingency contained in the initial contract. That means once all parties have signed the contract, it is binding, and the terms cannot be changed unless mutually agreed to by all parties in writing. Remember that trip to Florida last winter on vacation. You decided to take an afternoon and “just look” at some houses. You get swept up in the moment - the next thing you know you are sitting down with a realtor and signing that contract. Two days later on the long trip back to New York, reality sets in and you think - maybe that was not such a good idea.
In New York, with the attorney approval contingency your attorney could disapprove of the contract, obtain the return of your deposit and you move on. In Florida, without an attorney explaining the process, you are now faced with the option of completing the purchase or breaching the contract. At best you’d lose your deposit, at worst, you’ll get sued. For reasons such as this –you can still retain an attorney even though it isn’t required. The realtor and the seller may not like it, but they are also not looking out for your best interest.
I have referred to Florida as a “title” state. What does that really mean? It basically means that rather than retaining an attorney to represent the individual parties to the transaction, one party selects and pays for the title search and insurance and the title company acts as a settlement agent for the entire transaction. Even if you select and pay for the title insurance, it does not mean the title company represents you. The title company is an escrow agent. Their responsibilities include:
Holding the funds pending the closing
Preparing the closing papers
Coordinating the signing of the documents
Disbursing the funds
And recording the documents.
The one thing they do not do is specifically represent either party to the transaction. If there is a conflict between the buyer and the seller, the title company does not advocate for either party and they do not work to protect one side or the other.
Very often a real estate contract contains contingencies that are a prerequisite to the closing. The most common contingencies are the inspections and the mortgage. There are others depending on the specific circumstances of the transaction. The mortgage contingency process is very similar in New York and Florida; however, the inspection contingency is very different.
In New York, the buyer has the right to conduct several inspections. The type of inspection will determine the threshold and whether the buyer has a right to terminate the contract. The threshold for the standard inspection is as follows:
Structural – a single item that will reasonably exceed $1,500.00 to correct;
Pest – an active infestation that requires treatment;
Radon – a level of 4.0 picocuries per liter;
Septic – the system, and all of its component parts must be working properly;
Water purity – must meet NYS Health Department standard for potability; and water flow – typically 3 to 5 gallons per minute for two hours.
If any of the above-referenced thresholds have been met the buyer has three options:
Cancel the contract immediately
Proceed with the purchase and address the issues presented in the reports after closing at buyer’s expense
Defer cancelation for ten (10) days to obtain further estimates from a qualified contractor to determine the true nature and extent of the problem
Based upon these estimates, the parties will attempt to reach a compromise and proceed. If no compromise is reached, the buyer may exercise option 1) or 2).
The Florida inspection contingency is dependent upon the type of contract you sign. There are two basic contract forms in Florida: the “as is” contract and the standard contract. Both contract forms allow the buyer to complete inspections. With both contracts, the threshold is the buyer’s satisfaction, except as to matters of aesthetics. If the inspection report reveals a defect, regardless of the cost to correct the defect, the Buyer may terminate the contract.
The “as is” contract simply does not require the Seller to make a repair or offer a credit. The buyer can ask, but if Seller does not agree, the Buyer may proceed with the transaction “as is” or terminate the contract.
The standard contract: obligates the Seller to make repairs, regardless of the value of the repair, up to the stated amount in the contract, which is generally 1 to 2.5% of the purchase price. For a $500,000.00 home that could be $5,000 to $12,500.00.
Homeowner or Condominium Association Communities
Another big difference between New York and Florida is they type of community your home may be located in. In New York, we certainly have condominium communities, and many others require membership in a homeowner’s association; but that is more the exception than the rule. In Florida the opposite is true. It is much more common to purchase or sell a home that requires membership in one or more homeowner’s or condominium association.
Many Florida communities can have as many as three different associations each charging separate assessments and requiring compliance with different rules. It is important to understand the type of community you are buying into and to know what is required of you as an owner and when you sell. Communities in New York may routinely charge an annual assessment of a few hundred dollars, while a Florida community may charge several thousands of dollars a month.
Lastly, the closing process is very different between New York and Florida. While the pandemic has certainly changed how we do business in New York, it is still very common for all the parties to meet at the office of the attorney for the Buyer’s lender, or at the Seller’s attorney’s office, if there is no lender, and exchange documents and funds.
In Florida, there is rarely a “sit down” closing. Closings are handled remotely, where the Seller’s documents are forwarded to the Seller and Buyer’s documents are forwarded to the Buyer, all to be signed and returned to the title company. The buyer typically wires their funds to the title company and when they have all the documents and the money, the closing is completed. The closing documents include the closing disclosure, which sets forth the finances for the Buyer and the Seller. These figures are prepared by the title company; but unless you have an attorney, they are not usually reviewed by anyone before you receive them. Thankfully mistakes are rare, and most title companies are very responsive and will work to resolve any issues. Nevertheless, if the numbers can be reviewed in advance and problems avoided, that is certainly preferable.
This is a small sampling of the differences between a New York and Florida real estate transaction. Most adults may buy or sell three or four homes in our lifetime. When all those transactions occur in one location, it is easy to fall into a false sense of security that all real estate transactions are the same regardless of where you go. That could not be farther from the truth when it comes to buying or selling a home in Florida when compared to New York. Starting with the contract review and ending with the closing, the differences are significant, and you deserve to have confidence that your interests are being protected.
Written by Michael W. Schafer, Esq.