Purchasing a home and/or any other real estate should be a pleasure, a time for great excitement and joy, and a transaction that will provide many years of enjoyment and everlasting memories. If done correctly, that is exactly what the buying experience will be. If done incorrectly, it can be one of the most unpleasant experiences that one will ever endure. It is the calling of Hilton Head Island Realty Plus (hereinafter referred to as Realty Plus) to make sure that your buying experience is one that will be remembered as both gratifying and a wise decision.
The purchase of real estate can be quite intimidating to some, particularly if you are new to the area and not familiar with the marketplace, never purchased real estate before, or if it has been some time since your last real estate purchase. The list of things to know and do and those to watch out for is extensive and partially include the following:
- Location – “Is the property located in an area that meets my wants and needs…lifestyle…amenities...activities…fees...restrictions? On island or off island (pros and cons)?”
- Price Versus Value – “Is the property priced fairly to current market….is it overpriced…underpriced…can I do better?”
- Condition – “Is the property move-in ready or does it require substantial repair and/or improvement….does it have deferred maintenance issues…what is the remaining life expectancy of the roof, HVAC system, hot water heater, etc…are there termites or wood infestation present?”
o HOA (Homeowner’s Association) Fees also known as POA fees (Property Owner’s Association) and COA fees (Community Owner’s Association) – “Is the property governed by an HOA…How much are the annual fees and what do they include?” According to the community the property is located within, these fees can range from under $500.00 to in excess of $20,000.00 per year…Communities with higher HOA fees typically include full membership and privileges to a wide range of amenities including club membership, golf privileges, tennis privileges, etc.
- Regime Fees (also known as condo fees) – If the property being purchased is a condominium (condo) which are locally oftentimes referred to as villas, there will be additional fees which may or may not include items such as insurance, exterior maintenance, landscaping, water/sewer, trash pickup, etc. “Exactly, what are included in the fees?”
- Property Taxes – “How much are they…how are they calculated…does it make a difference if the property is my primary residence or 2nd home and/or investment property?”
- Transfer Fees – “What are they….how much are they…do they apply to my transaction?” There are three primary types of transfer taxes and/or fees that potentially can come into play.
o South Carolina Deed Recording Fee (formerly referred to as deed stamps) – This fee is collected on each and every real estate transaction that has a recorded deed and is a seller’s expense.
o Hilton Head Island Transfer Fee - If the property being purchased is located on the island of Hilton Head, the town assesses a ¼ % transfer fee to be paid by the buyer (Ex: Sale price of property is $100,000 x ¼% Town of Hilton Head transfer fee = $250.00.)
o Community Transfer Fee – Planned unit developments that are governed by HOA’s (Homeowner’s Association) oftentimes have a one-time transfer fee to be paid by the buyer. According to the community the property is located within, the transfer fee could be as low as $-0- and as high as in excess of $20,000.00. (Communities with higher transfer fees typically include full membership and privileges to a wide range of amenities including club membership, golf privileges, tennis privileges, etc.)
- Flood Zone – “Is the property located within a flood zone, and if so, is flood insurance required and how much is it?”
- Insurance – “What type of insurance is required and how much is it?” Property insurance is generally of three types – general casualty, wind & hail and flood. There are many variables that factor into the amount of the insurance premium such as the buyer’s age, credit score, location of the property, type of construction, age of roof, usage of property, type of property (single family residential or condominium), amount of deductible, etc. A buyer should be prudent and obtain quotes from several different insurance companies to obtain the best discounts and rates.
- Special Assessments – “What are they and do they apply to my transaction?” Occasionally, a property may have had a special assessment levied against it by its HOA (Homeowner’s Association). This would typically occur to fund a major capital expenditure such as the addition of a new amenity like a pool or clubhouse that the ownership of the community approved, but did not have adequate capital reserve funds to fully pay for the project. Buyer’s should make sure that adequate due diligence has been performed so as to avoid any unexpected expense and unpleasant surprises. Special assessments are the responsibility of the owner of the property at the time the assessment was levied; however, if the assessment is a multi-year assessment, the buyer may be affected for the year(s) after the year of purchase.
- Adverse Material Facts – On occasion, a property may have an issue that a buyer needs to be made aware of that could potentially have significant financial impact. One such example of this is whether or not the home has a synthetic exterior stucco finish, also known as EFIS (Exterior Insulation and Finish Systems). If applied over a wooden frame constructed home, this product can promote moisture retention and if not remedied could cost multiple thousands of dollars in damage. Some other examples of potential issues are polybutylene plumbing and whether or not the home is built to existing building codes.
- Income Generation – If rental income is an important factor in the buyer’s decision, which properties will produce the highest gross rental income and why? (Realty Plus is uniquely qualified to provide this information due to its affiliate relationship with Resort Rentals of Hilton Head Island, a locally owned and managed home and villa vacation rental company with over 500 carefully selected vacation properties in its portfolio).
1031 Tax Deferred Exchange – “What is a 1031 Tax Deferred Exchange…do I qualify for it…will it be to my benefit?” A “1031 Tax Deferred Exchange” is a simple strategy and method for selling one’s property, that's qualified, and then proceeding with an acquisition of another property (also qualified) within a specific time frame. The logistics and process of selling a property and then buying another property are practically identical to any standardized sale and buying situation, a "1031 exchange" is unique because the entire transaction is treated as an exchange and not just as a simple sale. It is this difference between "exchanging" and not simply buying and selling which, in the end, allows the taxpayer(s) to qualify for a deferred gain treatment. Stated in simple terms, sales are taxable with the IRS and “1031 exchanges” are not. - US CODE: Title 26, §1031. Exchange of Property Held for Productive Use or Investment - Dependent upon your circumstances, the utilization of a “1031 Tax Deferred Exchange” could potentially be a huge benefit to you, or it may not apply and/or be worth the effort.
- Negotiations – “How much should I offer….what terms will promote my best interests….is this the best deal that I can make….how do I know that I am not overpaying?”
- Contract Documents - The Sales Contract or Purchase Agreement is typically prepared by the broker/agent and is a written document that commits the buyer to purchase the property and commits the property owner to sell you the property, provided that all terms and conditions of the contract are met. The language of the contract should be clear and unambiguous and set forth all the terms and conditions of the transaction such as the purchase price, earnest money deposit(s), whether or not there is a financing contingency, closing date, inspections, who pays for what (pro-rations, closing costs, inspections, etc.) other contingencies or due diligence periods, etc. This is a legal and binding document and one that is best left to a professional to prepare so as to make sure that your best interest is promoted and that there are adequate safeguards for your protection.
- Earnest Money Deposit(s) - This is an advance cash payment by the buyer as evidence of good faith to complete the transaction and is applied towards the payment of the property at the closing of the transaction. The amount of the earnest money deposit is negotiable, but generally is in the 3-5% range on most transactions.
- Inspections – “Do I need to have any inspections performed...how do they benefit me…who pays for the inspections? “
o Home Inspection - In most cases, it’s just good business practice to have a property inspection performed by a professional home inspector to confirm the overall condition of the property and alert you to any significant problems that might possibly be present. This inspection is at the buyer’s option and expense and will typically cost $350.00 to $550.00 depending on the size of the property. If a significant issue concerning the structure, major mechanical systems, roof, fireplace, pool or spa were revealed by the inspection, the cost of the repair/remediation of the issue is typically at the seller’s expense. The guiding question to ask yourself regarding having an inspection performed or not is “How am I to know if a problem exists or not if I do not have an inspection performed?”
o Wood Infestation Report (CL-100 Report) – This inspection is for the purpose of determining whether or not there is any damage caused by termites or other wood destroying organisms as well as wood destroying fungi below the level of the first main floor of the structure. In most cases the expense of this inspection is customarily a seller’s responsibility. If a mortgage is to be obtained on the property, most lenders require that this inspection be performed within 30 days of the closing date.
o Survey - A survey is typically not required, and if performed is at the buyer’s option and expense. The survey documents the boundaries and corners as well as any easements encroachments, setbacks, etc. A buyer should strongly consider obtaining a survey for informational purposes particularly if any building additions, fencing, pools or driveways are being contemplated.
o Other Inspections – In some cases a buyer may wish to have additional inspections performed such as a mold and mildew inspection and will typically be at the buyer’s expense.
- Mortgage - “What financial institutions provide mortgages in the area…what are the interest rates…how much money do I have to put down…what fees are associated with obtaining a mortgage…do all mortgage companies provide the same mortgage products as the next company?” Hilton Head Island and the surrounding area is blessed to have an abundance of many fine mortgage companies and financial institutions offering a huge array of mortgage products. Interest rates, fees and product offerings may vary from one company to the next and from day to day; consequently, buyers should shop more than one company to ensure that they are obtaining the very best rates, product and terms. Additionally, a buyer would be wise to obtain a pre-qualification letter from a lender before they begin their property search. In doing so, they know exactly up to what price point they are qualified to buy and further strengthen their negotiating position by being able to accompany their contract offer with a pre-qualification letter that provides the seller with peace of mind that if he enters into a contract agreement with you that he does not have to worry about the contract falling apart because of an unqualified buyer.
- Attorneys – “ Do I have to use an attorney…do all real estate attorneys charge the same fees…do all real estate attorneys handle any and all real estate transactions?” The state of South Carolina is an attorney only closing state; consequently, an attorney is required to handle the closing of a real estate transaction. Fees will vary from firm to firm, but typically run between $550.00 to in excess of $1,000.00 dependent upon the firm’s fees and complexity of the transaction. Some firms are equipped and staffed to handle certain types of transactions better than the next.
As you can see from the above list, there is much to consider and be vigilant of when purchasing real estate. The wrong decision on any one of the above elements can be troublesome at best and financially disastrous at worst. A question that you may have earlier asked yourself is “Do I really need a realtor to assist me in the purchase of real estate?”
A good place to begin this discussion is to understand “Agency” relationships in the state of South Carolina. A buyer may elect not to establish an agency relationship with a Company (real estate brokerage) in which case the South Carolina license law would define the buyer as a “Customer”. The law requires that all licensees (agents/brokers) provide basic duties to Customers that would consist of:
- Presenting all offers in a timely manner
- Account for money or other consideration
- Provide an explanation of the scope of services to be provided
- Be fair and honest and provide accurate information
- Disclose “adverse material facts” about the property or the transaction which are within the agent’s knowledge
As a buyer and at the “Customer” level of service, the Company and its agents will not act as your agent and you should not expect the company or its agents to promote your best interests or to keep your bargaining information confidential. The company will not be acting as your advocate and cannot advise you on price or terms and cannot keep your confidence.
As a buyer, you will become a “Client” of the company and you will receive more services than Customers from the company and its licensees (agents) by entering into a formal written buyer agency agreement. At the Client level of representation you can expect the real estate company to provide the following client-level services:
- Reasonable care and skill
- Advice, counsel and assistance in negotiations
Very Important to Remember: As a buyer, you are best served at the “Client” level of representation whereby the company and its licensees are your advocate and it is your best interests that the company and its licensees promote.
Realty Plus and its licenses/agents are highly trained, skilled and experienced in the practice of real estate and can carefully guide you through the maze of do’s, don’ts and myriad of other items partially described above. Staffed with associates with over 100 years of collective real estate experience and hundreds of successfully closed transactions, Realty Plus and its associates are well positioned to act as your advocate in the purchase of real estate and do hereby respectfully apply for the job.