7.4 Closing the Transaction

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Once you make a purchase off er, sign it and submit it to the seller along with your earnest money, the seller has the right to either sign your off er as is, make a counteroff er or reject your off er outright. If the seller accepts your purchase off er, the off er becomes a contract, and you are on your way to owning the VRP. If the seller counters your off er, you may choose to reject it or walk away.

7.4 Closing the Transaction

There are unlimited methods to making an off er. In my 25 years of real estate experience across 11 countries, each and every transaction is diff erent and many of the variables are diff erent. Let’s begin with the asking price. As you have already gathered statistics of the marketplace, looked at comparable data, and created your projections within your business plan, you should have a good “feel” as where to start. Fortunately, there are sellers who will price the VRP in a logical range. If this is the case, then this process will be quite painless. It may well be that the seller has priced the property close to or lower than similar properties that have recently sold in or close to the property location. This is not a bad seller strategy as it generates substantial immediate interest. In many cases, this approach may lead to off ers higher than asking price and perhaps more importantly a quick sale. When you identify such properties, you have to move quickly, after careful analysis, with your off er.

The amount of time the property has been on the market is also an important variable. If the VRP has been on the market for less than 60 days, the seller may not be willing to accept a lower off er. In some cases, the seller may not even make a counter off er. The seller’s strategy most likely will be to off er the property slightly higher than they expect, hoping they fi nd buyers willing to pay a premium for their property. Therefore, sellers may be unwilling to accept a lower off er until they have given the sale a reasonable time to develop. If you make what the seller considers a “low ball” off er, and the VRP has not been on the market long, you have a very low chance of success.

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Because a seller has listed a property for sale does not necessarily mean they are anxious to sell, especially at a lower price than they believe their property is worth. Property owners may have the attitude that if they get the number that they are looking for they will sell, but if not, they are quite willing to hold out until they do. This is especially pertinent to property that is in an established rental program in a VRP community and is generating revenue for the owner on a monthly basis. If you were generating a good return each month from your property and you had no immediate need to have to sell, would you sell it for less? Probably not.

Your off er strategy may well depend on how important securing a particular property is to you. You may well spend months researching locations and property and all aspects of owning and renting a property and fi nally the exact property that fi ts your criteria comes on the market.

A large part in brokering a deal can be consolidated when you have two good agents working together to create a framework for a successful off er. Many times, agents can work together to reach a mutually agreeable off er price that works for both parties prior to an off er being offi cially delivered. This should be one of the most important aspects in your decision to work with a seasoned professional who has an excellent reputation within the industry and who can lobby your interest in a property and your ability to complete the sale.

One of the biggest questions a seller has is whether you, the buyer, will be able to close. You must be able to show that you are a solid buyer—a better alternative to complete the sale than perhaps a higher off er. There is little a seller fears more than a buyer who cannot complete a deal after they have taken the property off the market and turned down other off ers. This can be a vital component to securing you the VRP. There is a lot more to the off er strategy than taking some money off the listing price and making an off er. This is another area where a Realtor can make all the diff erence.

Once you have successfully found a property and negotiated terms, you need to begin the process of getting the property to close. Your

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off er will include an Earnest Money Deposit (EMD) that, most likely, will need to be made within the next couple of days. Your Realtor, or possibly the title company, will send you the wiring instructions to give to your fi nancial institution or FX account so they can transfer this sum. When you have a receipt from the transfer, send the confi rmation to your Realtor so they can follow up with the title company to make sure it has been received.

Home Inspection From there, one of your fi rst priorities should be to have your home professionally inspected. You will also need an inspection prior to closing if you are purchasing a home from a foreign national. Ask your realtor for a referral. A qualifi ed home inspector will look at the condition of a VRP’s:

• Roof • Foundation • Heating and cooling systems • Plumbing • Electrical work • Water and sewage components • Fire and safety elements • Evidence of insect, water or fi re damage, or any other issue that may aff ect the value of the property

Potential home buyers generally hire home inspectors to comb over the property and provide them with a written report that details its condition. This report will include an assessment of necessary or recommended repairs, maintenance concerns, and any other potentially costly issues.

A home inspection is diff erent than a home appraisal, which determines the value of the property.

This inspection should be conducted as soon as possible after a

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contract has been agreed to allow time for the inspector to conduct the inspection and make and deliver a detailed report to the buyer.

Hopefully the inspection report will show no major issues. Resold properties will generally have a range of odds and ends that could use some work. You should expect to spend about 1% of the sale price and hire a good handyman to cover these issues. If an item is discovered above the 1%, then it becomes something that will have to be addressed with the seller. In most cases, the item can be addressed by negotiating the sale price. Or, the seller may off er to resolve or contribute to the repair.

If the issue cannot be resolved through negotiation, then the buyer has the option to withdraw from the sale at no penalty, providing the inspection is not offi cially completed and acknowledged. Generally, the inspection period is 10–14 days which provides plenty of time to conduct the inspection and negotiate any items that require addressing.

The language used in an inspection report does tend to off er little in the way of comfort. The most common term is impression of excellence. It is the standard verbiage used and should only be taken as such and not considered a negative. When you build a house in Central Florida, for example, you are building mainly on a sand base. In the fi rst couple of years, the house will settle, causing hairline settlement cracks on the walls of the house. These are easily repaired with some calk and paint; however, if they come up during the inspection, they may become an issue with property insurance. Insurance companies like to have these cracks cleaned up prior to issuing home insurance. Try to have the seller repair them prior to close. If they are not, have them addressed as soon as possible. This is relatively inexpensive.

Air conditioning is one of the main items that should be examined in a VRP inspection. The AC unit is responsible for keeping the house cool and will very likely require a service to keep it in prime condition. Having an HVAC expert inspect, clean, and service your system is a very good idea and something that will most likely be recommended to you by your home inspector.

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The inspection report is one of your most important tools and checks on the condition of the property. It can be used to get an inside look at the current condition of the VRP and has the additional benefi t of letting you know what odd jobs will need to attend to after you purchase. The majority of the homes you look at will be relatively new homes. Very rarely should you see any major issues. But your home inspector—and their expert eye review of your investment on your behalf—is your best friend. You’re spending a lot of money. Look under the hood.

Remember: new homes defi nitely need be inspected, also. When delivered, the builder is obligated to address any items that need to be resolved at no charge. In many cases, you may not visit the home for many weeks after it is completed, so an expert eye to make sure all items are picked up and resolved is a small price to pay for your investment.

The Seller’s Disclosure The Seller’s Disclosure puts the responsibility on the seller to note all known defects that aff ect the value of a property and it is an important step to help protect the buyer. It is, however, a slightly diff erent situation with vacation homes.

Take a buyer, for example, who purchased a property in 2017. They decided to sell their property in 2018 and had never visited the property they purchased . . . yet they had to sell. Therein lies the problem with vacation homes. Many owners might have not been in the property they are selling in months or years—or never at all. You may fi nd either incomplete or unanswered parts of the disclosure.

I mention this not to take away from the importance of the disclosure, but to allow you to understand that the seller might not know the answers to many of the questions and to see the document from that perspective. Your main protection in the discovery is, therefore, that home inspection. Any additional information you can gain from the disclosure is simply a bonus.

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Next Steps Depending on your property type, you will need to get property, content, and liability insurance. This is something you should do prior to closing. Talk to an insurance agent and get the process started.

If you have decided to rent your property, you will need to look at your property management options next. Your realtor can help with giving you some recommendations. VRP management is a complex part of the process, so take some time to address it as soon as possible during your VRP purchase process. If the property is in an existing Vacation Management Company, your realtor should gather the necessary information regarding the current program and assess if it is a viable option moving forward.

If you are a cash buyer, you should begin the process of making arrangements to transfer your funds for closing to the title company several days before scheduled closing. If you are an international buyer, you should set up a foreign exchange account to maximize your funds for foreign exchange. If you are fi nancing, you should begin the process of getting your loan package fi nalized. You have a date on the signifi es your fi nancing contingency period. If you are unable to show you will be able to fi nance by this period, the seller has the right to withdraw from the sale. You have to be cognizant of this time frame from the beginning of the purchase process.

Be aware of the closing date on the contract, the date the seller can retain the property and claim your deposit should your funds not come through. It is very important that your means to fund are available prior to this date. Take into consideration transfer times for wiring. You do not want to be late to fund for closing. It would be very wise to have the money there at least one or preferably two days prior. If you think for any reason you will not be able to make the closing date, let your Realtor know as soon as possible so they can fi le for an extension. Although very rare, a seller has the right to cancel a sale and keep your deposit if you break the date. You do not want to put yourself in that position. Write the date in your calendar!

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As you reach the closing phase of the buying process, let’s go through what you can expect and what needs to be prepared so you can ensure a smooth and effi cient closing.

You should check to make sure the water, phone, electric, alarm system and any other items have been prepared to transfer to your name. If you have not received information on this, you should contact the transaction coordinator to ensure this process has been started. As the new VRP owner, you are responsible for the utilities being transferred, but the transaction coordinator can help by supplying the information and contacts.

Normally, a buyer will instruct the property management company to do this for them, but if you have not chosen or are planning on changing the Vacation Rental Management company, then you may want to make the connection yourself. They may ask for a copy of your closing statement to be provided as proof of purchase if available. A copy of this statement should also be sent to your management company if they are making the transfer for you.

If all has gone well with the title company, you should expect to receive a settlement statement. This is the document that gives you an estimate of the closing costs for the sale of the property. This is not the fi nal document, but in some cases, it may be if the title company has been able to satisfy all of the requirements to deliver a clear title. In some cases, they may still be waiting for a return of some information and they will let you know what is missing from the document. When you receive the settlement statement, you should check that your name and address is correct. They will use this information to register the deed.

You will most likely have already received the escrow account information for the title company when you sent it in. If not, ask the transaction coordinator for it. You can pre-fund the escrow account any time after you receive the settlement statement. It is advisable to do this as soon as you know the fi nal settlement amount.

In many cases, the title company may not even be in your area, as mail away is generally international or out of state buyers so there

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is no need for local offi ce. All the documents and the funds are correlated, the fi nal paperwork is processed, and the deed registered with the county. At this point, the sale will be offi cially completed and you will be the owner of the property. If there are any keys or items to be delivered, your Vacation Home Specialist will make sure they are sent to you directly or to your Vacation Rental Management Company.

As much as the buyer, seller, the realtors involved and the title company want to sale to go through on time, a closing can be delayed. This can occur for many reasons but you should realize that this is a possibility and that any arrangements you make regarding the property should be made with this in mind. You should not arrange to stay in the property until after closing, for example, nor should you make any arrangements to have work carried out or clients scheduled to visit on or around the closing date.

If prepared well, the closing can be surprisingly uneventful. Most buyers are surprised (and relieved) that the day passes and that they receive only a phone call to let them know they are now the new owners. There can, of course, be last minute issues so make yourself available should any fi nal items need to be addressed. But if you have prepared properly, expect a call or email from your realtor informing you VRP purchase is now complete.

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If you are working with a property management company, they will be responsible to help you run your new VRP business and will become your point of contact for your new home. Finally, make sure you have your property manager change the locks. Congrats on your VRP purchase!