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By David deForrest
General Manager
I signed a contract to purchase a new condo. At closing I was surprised to find various developer fees adding up to over $5,000. Is this normal or am I getting cheated?
On the purchase of resale property, Buy the Beach Realty, like most brokerage firms, use approved "standard" sales contract forms as a basis for contract negotiation. Although there is some general variation in the provisions and terms of this sort of sales contract, depending on the form the broker chooses to use, they are generally designed to reflect typical local practice (believe it or not, this varies from county to county within Florida). Anyway, there is no "legal" standard for sales contracts; they are strictly a matter for negotiation between the parties.
But there is little real "negotiation" possible when you are purchasing from a condo developer, especially as regards the technical provisions of the sales contract. Almost without exception condo developers will have proprietary sales contract, designed and prepared by their attorneys, which they will insist upon using and which will govern the terms of your purchase.
As a matter of practice rather than of law, these developer contracts typically call for the Buyer to pay two fees that would generally not apply on the purchase of a resale unit.
- A "Developer" or "Closing" fee which usually runs 1.75%-2.0%. This is
stated to cover a variety of things but, in effect, it covers the cost to
Developer of providing the Buyer with a Title Insurance Policy (this would
typically have to be be purchased by the Buyer in a resale transaction but
usually costs about 0.6% rather than 2.0%. The remainder is, after you read
all the fancy language, added profit for the developer. There is no
point in getting too "worked up" about it, it's simply a means of padding
the price upwards a bit like those charges in an auto repair shop for
"towels" or "waste disposal." But it helps to know that you will probably
encounter this sort of fee and make your arrangements accordingly.
- A "Capital Contribution", usually equal to two months' maintenance payments. This is not paid to the Developer, rather it is turned over to the Condo Association at closing and serves to put some funds in the bank for the Association to use as "working capital". Often a good deal of confusion arises because many title company employees, when preparing closing statements, mislabel this charge so a Buyer believes he has prepaid the next two months' worth of maintenance payments. The Buyer then gets a rude surprise when he gets a delinquency notice and penalties for not having made his payments on time after purchase.
It is very important to read and review any developer sales contract thoroughly. We always recommend that Buyers use a Florida attorney to represent them and close purchases; one of the important functions an attorney can provide is a competent, unbiased review of the provisions of the contract.
Florida law recognizes that Developer contracts and documents can contain little tricky items like these fees: that is why in Florida law you have a 15-day period to review the Developers' documents on the purchase of a "new" condo property to cancel the transaction if you are not satisfied. This is not just a "weasel out" period to get cold feet about the deal; it is intended to be used so Buyers can take the time and effort to read and understand what they are signing up for. At Buy the Beach Realty, we urge you to read and review all legal documents in connection with any purchase transaction.
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