Whether you’re a first time home buyer, trading up to a larger home, or down sizing to a smaller home, there are extra costs to be aware of when buying a home here in Southwest Florida. Almost every home purchase has costs or fees associated with it in addition to the contracted purchase price. These costs and fees must be considered when budgeting for your new home purchase, so you aren’t surprised by not having enough money on closing day!
Some of these costs may require a monthly or yearly commitment, while others will be a one time fee or payment for your own protection as the purchaser of the home. These are the most common costs and fees and not every purchase will require them. Each transaction is different, but this serves to inform you, the potential buyer, of the most common so that you can be educated as to the process and budget accordingly. Remember, the purchase of a home is one of the largest financial obligations most people will undertake. However, as a fully informed and educated buyer, you will no doubt have a lifetime of happy memories and financial advantages to owning your own home. Read through the following list and make sure that, as you prepare for your next move, you have budgeted accordingly.
1. Home Inspection
The home inspection is not required by Florida law to be performed, however, in our expertise as Realtors®, it is the single most important action to be taken when buying a home or condo. Home inspection costs are a one time fee and vary in price from $150 to $300 for a condominium, and $300 to $500 for a single family home. This fee is due when services are rendered and not at closing. The home inspector will check all major systems of the home including the roof, HVAC, plumbing, electrical, and pool, if applicable. They also inspect attics, appliances, lawn irrigation systems, fireplaces, and overall condition of the interior and exterior. Also, for an additional fee, the home inspector will complete a Wind Mitigation Form. This form records the construction attachment of the roof and trusses and is necessary for additional home insurance credits for any home built before 2002. The fee for the Wind Mitigation Form is normally $50 to $75 at the time the home inspection is performed, or $100 to $200 if performed separately. We here at Bishop Realty Group recommend using home inspectors that are also general contractors, which not all home inspectors are. We feel that if the inspector doesn’t know how to put a house together, then how can that accurately tell us what’s wrong with it.
2. Septic Inspection (If Applicable)
The septic inspection, again not required by law to be performed when purchasing a home, is probably just as important as the home inspection. In fact, if you are purchasing a home that has a septic system, then you should consider the septic inspection as going hand-in-hand with the home inspection. A septic inspection will normally cost between $300 and $600, and while it sounds expensive, it is worth every penny. Consider this, if there is a complete failure of the septic system, then the average cost for a new system is $6,000 to $8,000. In fact, we represented the buyers that purchased a waterfront home for sale in Punta Gorda, FL back in November of last year. The house had a septic system and we made sure that we ordered a septic inspection. Upon completion of the septic inspection, it was determined that the septic tank itself, which was made of concrete, had large holes in the side and was essentially crumbling. Those large holes in the side meant that raw sewage was leaking out into the soil surrounding the tank. Also, the previous owner had planted a large palm tree so close to the drain field that the roots had grown into the drain field and were preventing proper drainage. The entire septic system needed to be replaced to the tune of almost $8,000. Had we not conducted the septic inspection, then the buyers would have had a HUGE shock in just a short time of owning their new home.
3. Appraisal Fee
Most, if not all, banks and lending institutions will require an appraisal of the home during their mortgage approval process. The lender will order the appraisal from their rotating list of certified appraisers, but it is you, the buyer, who will incur the cost. The cost of an appraisal in the Southwest Florida real estate market varies anywhere from $300 to $500, but is a required cost when financing the purchase. Buyers paying cash for a home do not have to pay for an appraisal, but it can be a good step to take, especially if that buyer thinks they are paying too much for the home. The Florida Association of Realtors and Florida Bar actually provide a form for us to use known as the Appraisal Contingency Form. This form calls for the house being purchased to meet a certain appraisal value. If that appraisal value is not met, then the buyer and seller can renegotiate the contract to that appraised value or the buyer can cancel the contract with timely written notice and be refunded their deposit. The buyer also has the option to continue with the purchase price as stated in the contract, but most buyers would see that as having immediate negative equity in the home.
4. Survey Fee
The land survey is not required in the state of Florida when purchasing a home, however, just like the inspections, you should never purchase a home without a survey. This is holds true especially if the subject property or neighbors have sheds or fences. The fee for a survey in the Southwest Florida market ranges from $300 to $600. I realize that adds a considerable chunk of cash to the purchase, but consider the alternative. If the home you’re buying has a shed or fence and it encroaches on a neighbor’s property, then how much will it cost you to rectify the problem when a neighbor discovers it? Conversely, if you discover that a neighbor has a fence that encroaches your new property, what will it cost you in legal bills to sue the neighbor to move their fence? You can bet it will take a lawsuit to get a neighbor to comply, especially if the encroachment has existed for a considerable amount of time. Also, when you order a survey, it is a good idea, and often a necessity to order the Elevation Certificate along with it. The Elevation Certificate will tack on an additional $75 to $150 at the time of surveying, but it will be required to obtain insurance in flood zone areas.
5. Property Insurance
Perhaps, more commonly known as homeowner’s insurance, property insurance covers the replacement value of the home you are buying, including the structure and contents. If you are financing your purchase, then the lending institution will require proof of insurance, as it is needed to protect the collateral of the loan. One misconception is that homeowner’s insurance can be acquired the day or two before closing. It is NEVER a good idea to wait until the day or two before closing to obtain your property insurance. The best time to acquire your property insurance is immediately following the inspection period. Once all of your inspections are completed and you have decided to continue with the purchase of the house, you should immediately find the best insurance coverage for you and get it bound. One major issue that most buyers don’t realize has to do with purchasing a home in Florida during hurricane season. Hurricane season runs from June 1st to November 30th and once a storm has been named, insurance companies will cease to underwrite any new policies until that storm has passed. So, by waiting until closer to closing day to start your insurance search, you run the risk of not closing on the home at all and forfeiting your earnest money deposit along with all of the other costs we have mentioned up to this point!
6. Utility Connection and Service Charges
The house that you are purchasing will require connection to utilities, such as water, electric, phone, or cable. Sometimes these utility companies will require a connection or installation fee. It has also become very common, such as with Florida Power and Light, to require a hefty deposit before connection of service, until you have developed a satisfactory billing history.
7. Legal Fees
At Bishop Realty Group, we conduct our business with contracts and addenda co-authored by the Florida Association of Realtors® and the Florida Bar Association. So, you can have a certain sense of confidence that the template documents were created by the governing body of Florida attorneys. While attorneys are not required to be involved in a real estate transaction, it is always a good idea, especially if you already have a trusted real estate attorney, to have one review the documents of the transaction. Attorney rates vary greatly depending on the experience of the attorney and complexity of the transaction.
8. Mortgage Loan Insurance
Some lending institutions will require mortgage loan insurance, depending on the equity in the home you’re purchasing. This type of insurance will normally cost 0.5% to 3.5% of the total amount of the mortgage you are taking. Payments are normally made monthly in addition to the mortgage and tax payments.
9. Mortgage Broker’s Fee
A mortgage broker is generally paid by charging you a fee to source and organize your financing. Be sure to shop around though. Many mortgage brokers will not charge you this fee, because they have developed relationships with the lending institutions and those institutions will cover this cost.
10. Moving Costs
Moving costs and moving companies vary greatly depending on whether you are moving across town or across the country. Be sure to shop around and develop a sense of comfort and confidence with whomever you ultimately choose. Remember, these people will be handling all of your most cherished valuables. Also, if you will have excess time between selling one home and closing on another, some movers will provide short term storage of your belongings at little or no additional cost.
11. Community and Maintenance Fees
Condominiums and some single family home communities charge a monthly maintenance fee. This fee covers common area costs such as painting the outside of the building, maintaining parking lots, lawn maintenance, trash removal, and amenities, such as pools and tennis courts. Most gated communities have Home Owner Association (HOA) fees. In fact, a lot of these master planned type of communities have one fee for the overall development, and a second fee for the particular neighborhood in which the house is located. If the community has a golf or country club, then it is also very likely that an annual membership of some kind will be required to own a home in that community.
12. Local Improvements
Most cities and towns throughout Southwest Florida have ongoing or proposed projects to improve the quality of life for their residents. These projects include sewer system expansions, road improvements, sidewalks, and new parks. All of these projects come at a cost and most are funded by the property owner’s taxes in the improved areas. These costs are more commonly referred to as assessments, and are reflected on your tax bill. It is common for these assessments to reach hundreds or thousands of dollars, especially in the case of sewer expansion. Be sure to ask about any current or future assessments in the area that you want to buy.
13. Land Transfer Tax
Land transfer tax is applied any time that a property changes hands in ownership. The amount of tax that is applied varies depending on the transaction.
14. Broker’s Transaction Fee
This is, perhaps, the most ridiculous fee of all. In the state of Florida, buyers of real estate do not pay a commission to the real estate agent that represents them. There are some cases where they might, but as a general rule, the buyer’s agent is paid their commission from the seller pursuant to a listing agreement with the seller’s agent and broker. Some real estate brokers also charge a Transaction Fee. This fee varies from $100 to $400 in our market and serves no other purpose than to pad the profits of the broker charging it. Real estate brokers who charge this fee will also charge it to buyers in a transaction, thus negating the fact that buyers do not typically pay any portion of their agent’s commission. Make sure you ask your real estate agent or REALTOR® whether or not they charge a transaction fee. Keller Williams Realty Peace River Partners and Bishop Realty Group has never and will never charge a transaction fee to their customers.
We hope you have found this information to be very helpful and that you consider these extra costs to be aware of when buying a home, as you budget for your first or next purchase. If you have any questions about the home buying process, then we are always here to help you. You can reach us at 941-281-5002 or online at www.BishopHomeSearch.com.
If you are looking to buy a home anywhere in Southwest Florida from Lakewood Ranch to Punta Gorda, then we would love to represent you.
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