Real Estate Update 2019

         The biggest change in the real estate market this year has been the dramatic decline in the interest rate on mortgage.  After enjoying several years of very low rates, the strong economy, rising federal rates and inflation caused rates to rise substantially last year, with the average 30-year fixed rate mortgage in August 2018 reaching 4.5% and climbing to a peak of nearly 5% in November, 2018.  Since then, the average has fallen 134 basis points to about 3.6%.  This means that the monthly cost of a $250,000 mortgage has decreased from $1,332 to $1,136, a savings of $196 per month. 

            Lower rates also mean improved housing affordability.  In May of 2018, national housing buying power was at $361,184.  One year later, the index increased to $391,913, or over $30,000 more in affordability.  In Florida the year-over data went from $314,574 to $341,844, or over $27,000 more in home affordability.  Nationally, this is due to a combination of falling interest rates and a decline in the real house prices of almost 4%, but in the same time period Florida home prices has actually increased nearly 9%.

            For many homebuyers, a thirty-year fixed rate mortgage is not the best choice.  Only about 1/3 of homeowners stay in the same home for more than ten years.  That means a majority of buyer/borrowers stay less than ten years.  Therefore, an adjustable rate mortgage (an ARM) with a fixed term (5-, 7- and 10-year products are available) before adjusting may be a better alternative.  Currently a 10-year ARM can be obtained at about 3.1%.  This is a half-point savings, which, on a $250,000 mortgage costs $1,067 per month, a savings of $69 per month. Over ten years that equals $8,280 in lower payments, and another $3,500 in less interest, for a total savings of $11,780.

            For sellers looking to sell their own homes (FSBOs or “for sale by owners”), there is a new alternative to craigslist.  Facebook Marketplace is a free online site where an owner can list a home for sale or rent.  Unlike craigslist, which gives total anonymity, Facebook shows you who the sellers are so that there is (hopefully) a lower risk of a scam. 

            If you are considering selling on your own, you can still place your home in the local multiple listing service (MLS) at very low cost.  Companies like flatfee.com charge $95.00 to list your home (with packages to include more photos at higher prices).  This gets you six months in the MLS and a listing on realtor.com.    If you want to attract buyers working with a local real estate agent, you will still need to offer a cooperating broker commission to incentivize these agents to show their customers your home.  This means paying 2-3% of the sales price to the buyer’s agent.

            August is the time for the Notice of Proposed Property Taxes, otherwise known as the “Truth in Millage” (TRIM) Notices from the Palm Beach County Property Appraiser. These should be examined carefully and if there are valuation or exemption issues, a Petition to the Value Adjustment Board should be filed. These are due the 25th day following the mailing of the TRIM notice, but such time period may be extended if the petitioner can establish a good faith basis for a late filing.

          Many petitions are resolved pre-hearing by the Appraiser’s office, but if not, a quasi-judicial hearing is held by in front of an attorney (for exemption issues) or an appraiser (for value issues) appointed by the County. Because the issues can be complex, and considering the cost of losing an otherwise valid claim, I recommend that an owner hire an exemption or valuation expert to review the case and, if warranted after review, to represent an owner at the hearing.

         With values continuing to rise despite the 3% homestead cap and the 10% non-homestead cap, tax revenues continue to rise, allowing the County to maintain the same tax rate. However, voters last November approved a new property tax to help fund public schools. An additional $1.00 for each $1,000 in property value will be assessed for the next four years with the goal to raise 800 million dollars for schools. With a median tax value of $261,900, a homeowner with a homestead exemption of $50,000 will pay an additional $211 in property taxes to cover this new tax.

Understanding Surveys

           If you ever purchased a home with a mortgage, or refinanced a home you acquired many years ago you may be asked to pay for a two dimensional drawing of the boundary of your property together with the location of all improvements shown thereon at a cost which can run several hundred dollars or even more for very large properties. Many people are confused by this expense, arguing that since the home has been located in its current position for years if not decades why do they need to pay someone to redraw and locate what are obviously perfectly good homes located in their proper position.

          This drawing is called a Boundary or Land Survey and is one of the primary requirements of a lender when purchasing/refinancing a home in Florida.  The primary purpose of the Survey is to ensure that all improvements located on a subject property are located within the boundaries of that property. Furthermore, the purpose of the survey is to show easements which could interfere with the improvements located on the property, and to show encroachments of improvements either over the property line onto adjoining property as well as encroachments from improvements on neighboring property which encroach into the property being surveyed.

          Virtually no lender in Florida will make a loan without a Survey of the property being completed.  One of the main reasons is the requirement that the Lender’s Title Insurance Policy must have the survey exception deleted, which exception may only be deleted under certain circumstances (including the requirement for a proper Survey.

          Under Florida law, the practice of surveying is limited to licensed professionals who have met the minimum requirements for registration as a surveyor or mapper under Florida law. These requirements are set forth in Chapter 472, Land Surveying and Mapping, Florida Statutes.

          In order to understand surveys, a person must first understand how property legal descriptions are created. Traditionally, descriptions were created based on the vast surveys of the United States created over two centuries ago. These north-south and east-west grids created the starting points for locating property and are known as metes and bounds descriptions. In order to facilitate development, the concept of platting was created which took the metes and bounds description and divided it into fixed lots which identify a specific property in each subdivision. For example, what was once the North 60 feet of the East 60 feet of the Southwest Quarter of the Northwest Quarter of Section 16, Township 23 South, Range 30 East, lying and being in Palm Beach County became the platted property known as Lot 1, Happy Acres, recorded in Plat Book 7, Page 9 of the Public Records Beach County, Florida.  Alternatively, condominiums described their legal description of both the common areas and buildings within the Declaration of Condominium itself, creating a legal description by unit and not by metes and bounds of the underlying land.

          There are several instances wherein the survey expense may be avoided. For example, a condominium does not require a new survey because the original survey is included in the recorded Declaration. This is sufficient to allow for the deletion of the survey exception in the Lender’s Title Policy. In addition, if the seller has an existing survey which is certified to that seller then that survey may also be used if the seller is willing to execute an affidavit stating that no new improvements have been installed on the subject property since the date of that survey. Finally, a person not financing the purchase of their property (a cash buyer) can waive the requirement of a survey, assuming the risk of any possible survey defects.

          In addition to providing the boundary description of a property, a licensed Surveyor can provide an Elevation Certificate which is used to determine the elevation of property pursuant to the Federal Floodplain Management Rules.  This Certificate is used to determine whether or not flood insurance is required or only optional.

          While survey defects are rare, they do occur, and can include problems such as fences located on other people’s property, improvements constructed over the property line or constructed within required setbacks, easements which grant access rights to third parties that are blocked by constructed improvements and even issues relating to boundary lines and access and ownership to land abutting water or to a public road. Therefore, the expense of a survey is worthwhile and can help avoid these potential future problems that are unknowable without a proper survey.