How Much Do I Offer?
Hopefully in searching for property, you’ve become familiar with value. But when it comes time to make an offer on a property, Barbara will provide you with “comps.” She will show you what similar properties have recently sold for, as well as what similar properties are currently listing for. She can also do a formal CMA (Comparable Market Analysis) for you which puts all the criteria into a single report for you to review before deciding what price to offer. And, depending on the nature of the market, Barbara can advise you on how urgent it is to get your offer in vs. taking your time to really understand the lay of the land. It’s the difference between a Buyer’s vs. a Seller’s market. Sometimes the first place you visit is home-sweet-home, but you hesitate, and it’s gone. Other times, it can take months, or longer, before you find the property that truly speaks to you, and you’re still able to make an offer on a property you saw a good while ago since the market is moving slowly and favors Buyers.
Keep in mind when calculating how much to spend on a property….
- Cost of Living: We are an island. Virtually everything you see in the grocery store is imported. There is no farming industry on St. Thomas, although some local farmers are represented in a few stores. Our higher prices reflect the cost of getting the goods to this island.
- Electricity: The electric rates charged by WAPA (the Water and Power Authority) are high. Many Stateside communities enjoy a single digit cost per kilowatt hour. Our cost is in the double digits. If you must have air conditioning, be prepared for the expense; pool pumps are also electric vampires. The good news is, more and more homes on St Thomas have solar panels. Get familiar with VI utility rates as you work on finding your home.
- Insurance: We are in hurricane territory (in case you haven’t heard!). While our property taxes are quite low compared to many Stateside communities, our insurance costs are high. You can easily expect to pay in the 5-figure range to insure a home. And if you’re surprised by the high HOA fees on condominiums, it’s probably because the wind insurance is included in the fee. If the fee is relatively low (a couple hundred dollars vs. $700 & above) then chances are, that complex does not insure its structures against wind, which will make securing a mortgage very difficult, or at least more costly.
Closing the Deal – The Process & Costs
Offers are not verbal, they are contractual. Here’s the step by step and the costs involved…
- Sign a Contract: You will be asked to sign a contract, which gets presented to the Seller, who typically has two days to decide: yes, no, or not enough. If the Seller says “no” the hope is the Seller will present a counter-offer, at a higher price, or with different terms. If the Seller says “yes” s/he will sign the contract and return it, and it is now officially “executed” and the timeline to complete the sale begins.
- Hire an Attorney: We use attorneys to close real estate transactions in St. Thomas. Be prepared to spend in the neighborhood of $2,000 for an attorney. It can be as little as $1,500 depending on the nature of the deal, or significantly more if a deal is sizable or complicated. Barbara can suggest names of attorneys with the experience to make sure your transaction goes smoothly. (firstname.lastname@example.org)
- Apply for a Loan: Unless you’re a cash buyer, a typical sales contract requires that you submit a mortgage application to a lending institution within seven days of executing a contract. The bank will charge you an application fee, probably in the neighborhood of $150, as well as several other fees including a credit report fee, loan origination fees, underwriting fees, amortization schedule fees. Ask your lender for a full breakdown of the costs you face as the mortgage process gets underway, and determine if it is worthwhile to swap out some fees in exchange for a slightly higher interest rate.
- Secure Insurance: If you’re financing the purchase of a residence, begin getting quotes on the cost of insuring the home as soon as you execute the sales contract, so that you will have a policy ready to go when the transaction closes. If you’re purchasing a home, as opposed to a condo, you need to make sure you insure for not less than 80% of the cost of rebuilding the home in order to not be deemed underinsured.Depending on the home you’re purchasing that amount can certainly be north of $10,000. If you are purchasing a condominium, you will be required to purchase a HO-6 policy which covers the interior of the unit and personal property inside–commonly known as “studs in” or “walls in” coverage. Your HOA fee should cover insurance costs for common areas. The bank will ask for one-year’s worth of insurance premiums, up front, which the bank will hold in escrow. Contact Barbara for suggested insurance agencies who can help. (barbara(at)seaglassproperties(dotted)com)
- Escrow Money: Any money that goes into escrow is money used solely towards the purchase of the property. Upon submitting an offer, you are usually asked to write a check for $1,000, payable to the real estate agency to show the Seller your good faith, and it goes into the agency’s escrow account if the Seller accepts the offer. Several days after acceptance, the balance of 10% of the purchase price is required from the Buyer and is placed in escrow. That percentage can differ depending on your personal preference as well as your financing arrangements.
- Home Inspection Period: The typical agreement calls for 10-12 days to inspect the property. If something about the inspection prompts you to withdraw from the agreement, you may do so with the guarantee that all escrow money will be returned to you, as long as you withdraw before the inspection deadline. You are strongly advised to do a home inspection, and Barbara can suggest names of certified home inspectors. Be prepared to pay between $350 and $1,000-ish for an inspection, depending on the size of the home. You pay this directly to the inspector, and it’s money you need to be willing to part within the event you decide not to purchase the home. The inspector generally provides you with a multi-page document replete with photos, detailing any and all concerns that arise after examining the home and its systems.
- Bound Post Inspection Period: If you are buying a residential property as opposed to a condo, you have a period of time in which to inspect the property’s boundaries. The owner of the property is responsible for exposing the bound posts.
- Bank Appraisal: The bank will send an appraiser to evaluate the home and make sure the agreed sale price fits the bank’s assessment of the property’s worth. If the bank says it’s worth more than the agreed sale price, well – hallelujah! You’ve got equity already! If the agreed sale price is too much, according to the bank, you have options. You can withdraw from the deal, and all escrow money will be returned to you. Or, you can ask the Seller to lower the price to the amount the appraiser says it’s worth. Finally – you can pay the difference in cash, between the amount the appraiser claims the property is worth and the agreed sales price, and the deal will move forward. The appraisal can easily cost in the neighborhood of $1,000 – and more if you’re purchasing a large property.
- As-Built Survey: This does not pertain to condos, just to residential properties. It’s the cost for a surveyor to go to the property and ascertain where any existing structures and improvements exist within the boundaries of the property. Lenders require an as-built. Expect to pay around $1,000 for an As-Built Survey. And ask your attorney when the right time is to order the As-Built.
- Title Search: “Title” refers to your right as an owner to own and use your property. A Title Search verifies the validity of the title you are inheriting to make sure that there are no issues of ownership or liens on the property as well as to make sure that there are no rights of user-ship on the property that you are not aware of, and also to make you aware of any deed restrictions that might apply to your property. For instance, there may be an agreement that permits utility lines to cross the property. A title search reveals issues not otherwise apparent about the property you wish to purchase. It costs in the area of $150-$200. It’s something your attorney will automatically order as the process moves forward.
- Title Insurance: This fee protects you, and if you’re financing the purchase, it also protects your lender in the event of loss due to a mistake on the title. This fee is in the range of $1,000 – $1,200. Again – your attorney will make sure you have a title insurance policy in place in order to close the deal.
- Financing Contingency: Here’s why we ask every buyer to get “pre-qualified” before shopping for a home – because no one wants to learn mid-way through the purchase process that a Buyer is not able to secure financing. However, if for some reason, the bank decides not to grant the loan, the deal is off, and whatever money is in escrow is returned to the Buyer.
- Stamp Tax: It’s the Virgin Islands equivalent of what is known as a “transfer tax” in other areas. The standard VI Contract of Sale places the burden of paying the Stamp Tax on the Seller. However, it is almost always a negotiating point. If you submit a lowball offer on a property, chances are the Seller will not be willing to pay the full cost of the Stamp Tax. And if you submit a strong offer, chances are you can expect the Seller to cover most or all of the Stamp Tax. The Stamp Tax is as follows: two percent for properties valued up to $350,000; two-and-a-half percent for properties valued from $350,001 to $1-million; three percent for properties valued from $1,000,001 to $5-million. If the assessed value of the property you are purchasing exceeds the purchase cost, Stamp Tax is based on the higher amount.
- Closing: When it’s time to actually transact the purchase, you will go to an attorney’s office, possibly a bank, and sign a stack of papers. If it’s a cash purchase, you’ll be required to show up with a bank certified check in the amount your attorney advises. If it’s a financed deal, the financing will be spelled out in a HUD statement, the details of which your attorney can explain to you in advance of the closing. Keys will be handed over at closing.