Instalment transactions for the purchase of real estate in Florida is a financing option that allows the buyer to make periodic payments instead of a lump sum payment.
Content:
- Houses and apartments in Florida in instalments: What is the benefit?
- Instalment sale agreement
- Risks of buying real estate in instalments
- Apartments and villas in Florida in instalments with a lawyer’s help
Houses and apartments in Florida in instalments: What is the benefit?
When purchasing a house in Florida with a deferred final payment, the corresponding contract is often beneficial to both parties: both the seller and the buyer. This is due to the reasons below.
Benefits for the seller
More often than not, the seller enters into such an agreement out of a desire to spread capital gains over years for federal tax purposes. Thus, the initial owner, whether it be a developer or an individual, also pays income tax in stages.
Benefits for the buyer
Instalment payment is a very popular solution if the buyer is unwilling or unable to get a mortgage and is looking for other ways to finance their purchase of property in The Sunshine State. Under an instalment sale agreement, the buyer pays the seller the purchase price in instalments over a specified period. In this case, the buyer immediately takes possession of the property, while the seller retains ownership as a guarantee until the buyer has paid the contract in full. Such a scheme is ideal when you urgently need a property, but you do not have enough funds to pay the entire amount at once.
Instalment sale agreement
A standard agreement for the purchase of a villa or apartment in Florida by instalments includes the following sections:
- Purchase and Sale of Assets.
- Excluded Assets.
- Purchase Price.
- Possession.
- Buyer Covenants.
- Indemnification.
- Seller’s Remedies upon Default.
- Miscellaneous.
It is worth noting that depending on the specific transaction and agreements between the parties, as well as on what type of real estate is being acquired, amendments and additions may be made to the standard agreement. For example, when buying an off-plan project in Florida, the buyer’s lawyers are likely to require adding a clause on the protection of their client’s rights in the event that the developer delays construction and cannot deliver the property within the time specified in the agreement.
What does a standard agreement cover?
The first section indicates the address and other characteristics of the property for sale, and describes additional assets that may be included in the transaction (for example, furniture, if the house or apartment is sold furnished). The second section specifies assets that are not included in the transaction, such as paintings and other works of art that were placed by the seller in the residential property for promotional purposes.
The Purchase Price section includes the price of the property and the terms on which payments will be made: say, in equal instalments every quarter, for six payments. It also specifies the form of payment, whether it is made via bank transfer or another method.
In the Possession section, lawyers will indicate who can use the property and under what conditions and at what point the legal title will be transferred to the buyer. It must include that the seller is obliged to provide the buyer with immediate access to the residential premises, give the keys, allow the locks to be changed, etc. The title will be transferred to the buyer only after the final instalment has been paid. Again, depending on the specific development project in Florida and whether the property being purchased is ready or off-plan, the conditions may differ. The same section also indicates in whose favour the residential property will be insured.
The Buyer Covenants section explains what exactly they are liable for. The buyer acknowledges that they are familiar with the condition of the property and confirms they are willing to purchase it as is. It establishes the covenant of the acquiring party to maintain the good condition of the property until the end of the agreement.
In the Indemnification section, the parties agree on how they will indemnify each other for losses in their area of responsibility.
The Seller’s Remedies upon Default section may prescribe a specific procedure in case of missed or stopped payments by the buyer. For example, it may be specified that in the event of a delay in payment for one month, the seller retakes possession of the property. This is an important clause. As a rule, if the buyer fails to make a timely instalment payment, they will face greater losses than when failing to make a mortgage payment on time. The period to cure the default, after which the unpaid property can be seized, is also usually shorter than that agreed by banks.
In the last section, the parties may add various provisions that they consider important.
It is worth pointing out that a specific agreement can be very different from a standard one and include any number of additional clauses.
Risks of buying real estate in instalments
Most agreements for the purchase of real estate in Florida have a forfeiture clause. It means that if the buyer fails to make the necessary payments, they will lose the right to the property. In this case, the seller will be entitled to keep all payments and not pay for any improvements made by the buyer during the term of the agreement.
Forfeiture
Forfeiture is the biggest risk for someone who buys property in instalments. If the buyer’s financial situation changes during the term of the agreement and they can no longer continue to pay the amounts required by the contract at the agreed due dates, they risk losing not only the right to use the property, but also all the money already paid earlier. That is why before entering into an instalment sale agreement, the buyer should assess how likely it is that their income will decrease in the next year or two or another period during which the agreement is in force.
Balloon payment
A common feature in an instalment sale agreement is a balloon payment. In this case, after a certain number of equal monthly or quarterly instalments (depending on the terms of the agreement), the buyer must pay the remainder of the debt in one large payment. As a rule, this final balloon payment is at least twice the amount of previous instalments. This condition is also unfavourable for the buyer, especially if their income is unstable.
Apartments and villas in Florida in instalments with a lawyer’s help
Every agreement gives buyers and sellers room for negotiation, and this must be used wisely. It is worth keeping in mind that the distribution of instalments over time can be beneficial to both parties, so flexibility when discussing the finer points of the agreement is also expected from the seller.
There are many small details that may slip an inexperienced buyer’s mind when entering into an agreement, but which estate agents and lawyers who are constantly working on the market are well aware of. When buying real estate in Florida, you should always first seek the guidance of an experienced agent.