Florida Real Estate Contracts: Everything You Need to Know as a Buyer or Seller

What’s the point of Real Estate Contracts?

Most Real Estate law issues involve Real Estate sales Contracts. The purpose of a Real Estate Contract is to clearly express the economic agreements between the Buyer and Seller. Poor Contracts invite legal disputes over financial terms which were not addressed in the Contract.

 

Types of Contracts

There are two basic types of Contracts in the state of Florida: Florida Association of Realtors (FAR) forms and Florida Association of Realtors/Florida Bar Association (FAR/Bar) forms.

• The FAR/Bar have TWO Contracts, an “As Is” Contract and a Standard Contract.
• The FAR has one Standard Contract.

“AS-IS” means the property is sold in its current state without any repairs; Buyer agrees to purchase the property in the current condition after an agreed upon inspection period;

Standard contract (not an AS-IS) means the Buyer conducts an inspection, provides the inspection report to the Seller, and the Seller is obligated to repair or replace “general repair items” stated within the Contract.

 

Most Common Contract

In the State of Florida, the most commonly used Contract is the “As Is” FAR/Bar contract. When engaging in this type of contract, the Buyer is responsible for Due Diligence during the Inspection process and fully ascertaining the condition of the property prior to the end of the inspection period stated within the Contract, which begins on the Effective Date (which is when all parties have agreed, signed and initialed all changes on the Contract). 

 

FAR/Bar Calculated Time Periods

FAR/Bar Contracts are calculated using calendar days (which includes weekends and holidays) and follow a 24-hour day (time ends at 11:59pm). However, if any specified time period ends on Saturday, Sunday, or a National Legal Holiday, then the timeline extends to the next business day and ends at 5:00pm (as per Paragraph 18, Standard F).

 

The Offer: Explained

After viewing properties, a Buyer decides to make an offer.  The Buyer’s Realtor writes the offer which the Buyer signs and initials, and the Buyer’s Realtor sends the offer to the Listing Realtor.

The Listing Realtor presents the Buyer’s offer to the Seller who can: 

A) accept the offer in its entirety, meaning word for word;

B) reject the offer (which the Seller does NOT have to do in writing);

C) counter the offer (the Seller can change the sales price, closing date, inspection period, etc.) which the Buyer can agree to, counter the counter-offer, or withdraw. 

Please note: Counter-offers by a Seller do NOT need to be written (meaning they do not need to sign and/or initial the offer paperwork).  This tactic alleviates the Seller from being locked into the offer and can accept additional offers.  However, if the Seller signs and/or initials the offer paperwork, makes changes to the offer paperwork, then the Seller is obligated to ONLY negotiate with the current Buyer’s offer. A written counter-offer when there is ANY (even the slightest) change to the original offer, and once there is a counter-offer, the original offer is off the table.  *The time for acceptance of any written counter-offer shall be within 2 days after the day the counter-offer is delivered. 

After the Contract has been delivered and the Seller counters, which is called the ‘Negotiation Process’, both the Buyer and the Seller need to accept all changes to be officially “In Contract”.  

 

Legally Binding Contract – Offer Acceptance

For an Acceptance to be legally binding, the following elements are required to be in writing:

1. The parties to the contract – Buyer and Seller identification;
2. Identification of the Real Property – a legal description and physical address must be written on the Contract.
3. Purchase Price of the Property – agreed upon by both Buyer and Seller 
4. Identification of Personal Property – the Seller must provide a written description of Personal Property included in the sale and that is not included in the sale. *As of Nov. 2021, the Property Description outlined in Paragraph 1(d) states that unless excluded in writing, the following items are now included in the sale: thermostats, doorbells (such as Ring), television wall mounts, mailbox keys, storm protection items, and hardware.
5. Escrow Deposit(s) – Monetary Value agreed upon by both Buyer and Seller.
6. Effective Date – Date in which ALL Parties have signed and initiated ALL terms, conditions and changes of the Contract.
7. Inspection Period – agreed upon by both Buyer and Seller. This ranges from 0-15 days.  If no time is given, then the Contract defaults to 15 days from the effective date.  
8. Closing Date – agreed upon by both Buyer and Seller. This is when all closing documents are signed by the Seller and Buyer, the full agreed upon purchase price money has been sent to the Seller, and title of the property will be transferred to the Buyer.
9. The Signatures of the parties involved in the Real Estate transaction.

Florida is a WET FUNDING State.  This means that lenders and/or cash are required to provide funds without delay, either before or on the day of closing (date of sale), and dispersed at the close of sale.  This ensures the Seller receives payment on the closing day, once all the paperwork has been signed.

Once both the Buyer and Seller have a legally binding Contract, both parties must carry out their obligations to make for a successful transaction. 

 

Buyer’s Rights and Obligations

• The Buyer has entered into a FAR/Bar ‘As Is’ Contract that makes him responsible for Due Diligence of the property and fully ascertaining the condition of the property. 
• Buyer has an Inspection Period (agreed upon by both Buyer and Seller) to fulfil the Inspection Process.
• An Inspection Report should ascertain the condition of the Real Property, and disclose any defects or repairs that need to be carried out prior to and/or after the closing.
• Buyers who use an AS IS Residential Contract can cancel the Contract in writing FOR ANY REASON during the inspection period. The option to terminate resides in the Buyer’s “sole discretion” and the Buyer’s deposit is to be returned

NOTE: IF the offer/Contract is for a CONDO or CO-OP, then the Buyer has a three (3) day right to cancel after the receipt of ALL condominium or Co-Op documents and financial information. 

Purchase and/or Financing

There are multiple different ways to purchase a property:

• “Cash Transaction”, which means the Buyer purchases the property without a financing contingency. 
• Conventional Financing – applying for a loan or mortgage through third party lenders such as banks.  Please note: PMI (private mortgage insurance) is usually required when you have a conventional loan and make a down payment of less than 20% of the home’s purchase price.
• VA (Veterans Association) Loans – for members of the military, veterans, and widowed spouses.  This is usually 0% down and 100% mortgage.
• FHA (Federal House Administration) Loans – general mortgage requirements are easier to qualify for compared to conventional loans. The FHA lending options are great for Buyers because it is more forgiving of a borrower’s bruised credit history, has less money upfront, and may allow for a little as a 3.5% down payment.

 

Loan Approval (and conditions of moving forward) vs. Clear to Close

There are a couple new rules as of Nov. 2021 for Contracts with Loan Approval Contingencies: 

• In Paragraph 8(b), for a Contract to move from the ‘Loan Approval’ stage to ‘Closing’, the Buyer has to obtain two things; an acceptable Appraisal Report and a written Loan Approval by the Lender (which is when financing is approved and a satisfactory appraisal was received by the lender).  This change is intended to avoid Appraisal issues close to the Closing date.
• In Paragraph 8(b)(ii), Buyer shall, upon written request, keep Seller and Broker fully informed about the status of Buyer’s mortgage loan application, loan processing, and appraisal and loan approval, including any property related conditions of Loan Approval.  Buyer authorizes Buyer’s mortgage broker, lender, and Closing Agent to disclose such status and progress, and release preliminary and finally executed closing disclosures and settlement statements, as appropriate and allowed, to Seller and Broker.
• Paragraph 8(b)(iii), If within the Loan Approval Period, Buyer obtains Loan Approval, Buyer shall notify Seller of same in writing prior to expiration of the Loan Approval Period, or, if Buyer is unable to obtain Loan Approval within Loan Approval Period but Buyer is satisfied with Buyer’s ability to obtain Loan Approval and proceed to Closing, Buyer shall deliver written notice to Seller confirming same, prior to the expiration of the Loan Approval Period.
• Paragraph 8(b)(iv), If Buyer is unable to obtain Loan Approval within the Loan Approval Period, or cannot timely meet the terms of the Loan Approval, all after the exercise of good faith and diligent effort, Buyer may terminate this Contract by delivering written notice of termination to Seller prior to the expiration of the Loan Approval Period; whereupon, provided Buyer is not in default under the terms of this Contract, Buyer shall be refunded the Deposit thereby releasing Buyer and Seller from all further obligations under this Contract.  
• In Paragraph 8(b)(v), If Buyer fails to timely deliver any written notice provided in Paragraph 8(b)(iii) or (iv), above, to Seller prior the expiration date of the Loan Approval Period, then Buyer shall proceed forward with this Contract as though Paragraph 8(a), had been checked as of the Effective Date; provided, however, Seller may elect to terminate this Contract by delivering written notice of termination to Buyer within 3 days after the Loan Approval Period, and, provided Buyer is not in default under the terms of this Contract, Buyer shall be refunded the Deposit thereby releasing Buyer and Seller from all further obligations under this Contract. (Buyer’s silence of Loan Approval = Cash Transaction)
• In Paragraph 8(b)(vi), If Buyer has timely provided written notice provided in Paragraph 8(b)(iii), above, and Buyer fails to close this Contract, the Deposit shall be paid to Seller unless failure to close is due to: (1) Seller’s default or inability to satisfy other contingencies of this Contract; or (2) Property related conditions of the Loan Approval (specifically excluding the Appraisal valuation) have been met unless such conditions are waived by other provisions of the Contract; in which event(s) the Buyer shall be refunded the Deposit, thereby releasing Buyer and Seller from all further obligations under this Contract.
• Clear to Close – After the Loan Approval is given, the Buyer must clear any financing contingencies, required by the lender and underwriter, must be satisfied by Buyer, and then the Lender will give a “clear to close”, and move forward with the closing and funding of the property.

 

The Seller’s Obligations

Prior to Closing, the Seller is responsible for providing a Marketable Title, which is evidence that the property is clear of any liens or title defects.  The Seller must correct any of the following issues that may arise:

• Inaccurate recording of ownership
• Undiscovered encumbrances
• Unsatisfied judgements
• Boundary, Easements, or Survey Disputes.

After the Buyer and Seller have satisfied their obligations, they Contract can finally move to closing.

Closing – Happy Day!

This is when the Buyer pays for the property and Seller is paid for the property, and Title is transferred to Buyer.

NOTE: There are times when the parties don’t close on the closing date, the Contract still exists. The issue becomes: why did the Contract fail to close and whether either (or both) parties breached the agreement. Closing can still occur after the closing date as long as Buyer and Seller agree.

If you have any questions, or need further explanation, please contact The Collection Realty at 954.300.1124 or info@thecollectionre.com.