Purchasing a Luxury Residence: Considerations for a Successful Closing
Discerning buyers should seek the counsel of experienced advisors when purchasing a luxury residence.
Estate Planning Needs. The manner and method for taking title to a luxury residence are critical decisions that can affect your estate plan. Prior to executing a purchase contract, you need to understand the best way to take title to the residence. Estate planning techniques can vary significantly, depending on your particular circumstances and whether you intend to make the residence your primary residence. In addition, if you are a foreign person under the US tax laws, there will be additional estate planning aspects to consider.
Asset Protection Strategies. If you want to isolate a luxury residence from higher risk assets, consider implementing an asset protection strategy. The use of certain asset protection strategies will depend greatly on your overall estate plan, so asset protection strategies should be reviewed concurrently with your estate plan objectives. Typically, asset protection strategies will involve a full review of all your substantial assets to ensure your asset protection strategy does not unreasonably increase the risk of liability to your other assets.
Anonymity Concerns. Address your anonymity concerns at the outset of any contemplated purchase, because once your true name has been divulged in a particular transaction, it is unlikely you will be able to regain anonymity. Anonymity in a particular purchase transaction relies heavily on the trust and confidence of those closest to you, the buyer, in the transaction, so be careful to limit disclosure of any confidential name in a transaction. Just as the reasons for creating and retaining anonymity vary greatly among buyers, the methods for creating and retaining anonymity can vary. In situations where the residence will be your primary residence, the methods for creating and retaining anonymity become more limited. Also, you must address anonymity concerns in a manner consistent with your overall estate plan and asset protection strategy.
Purchase Contract Review. As with the purchase of any significant asset, you need to review the terms and conditions of the luxury residence purchase contract to understand your rights and obligations under the contract. A licensed Realtor can help you understand some of the key concepts reflected in the Florida standard form residential contract. A Realtor who specializes in luxury residences will also be especially attuned to the more practical issues that arise when purchasing a luxury residence. You should engage a real estate attorney to review the contract and to incorporate your specific contingencies or requirements into the contract. Ultimately, the Realtor and the real estate attorney should work closely to be sure you understand your rights and obligations under the purchase contract.
Financing Requirements. If you intend to finance your purchase, have an initial discussion with your banking professional before you enter into a purchase contract. Understanding any important or non-standard financing requirements prior to executing a purchase contract will minimize your stress, as the financing contingency clock will start ticking once you execute the contract.
Property Insurance Requirements. The rates and requirements for property insurance can differ greatly from residence to residence, depending on the residence’s age, construction features or design elements, proximity to water, or elevation. You need to establish a clear picture of the insurance needs and requirements for your residence as soon as practical right before or at the time you enter into a purchase contract. This will help you avoid any surprises associated with the cost of obtaining the insurance required for your residence. If you are financing the purchase, your lender may have additional insurance requirements you must address.
Remodeling Work. You may want to remodel your residence within a short period following the closing. If so, it is a best practice to discuss the contemplated work with a properly licensed, insured, and highly recommended architect and contractor just prior to executing a purchase contract rather than wait until after the closing to determine whether your contemplated remodel can be completed. Once the purchase contract is executed, your architect and contractor can gain access to the residence to finalize any details or approvals they need to begin the remodeling work following the closing. There may be building codes and zoning requirements that impact the costs and timing of your contemplated remodeling work on the residence, so your architect and contractor should review the work against applicable building codes and zoning requirements to confirm anticipated costs and timing.
Construction and Service Warranties. It is not unusual for a luxury residence to have an existing construction or service warranty, especially when that luxury residence has recently been remodeled or constructed. Request, as part of a seller’s disclosure, that the seller provide proof of any existing construction or service warranties applicable to the residence prior to your execution of the contract. The purchase contract should include supplemental language that obligates the seller to assign and convey to you all construction and service warranties associated with the residence at the closing. An assignment and conveyance of the construction and service-related warranties will afford you an opportunity to expedite the process of enforcing any rights under the warranties.
Physical Inspection. Initiate the physical inspection process of your luxury residence immediately upon the full execution of a purchase contract. Be sure the inspector is properly licensed and insured. A high-quality physical inspection will uncover any problems with the residence’s physical condition and give you a chance to either have the problems resolved prior to closing or adjust the purchase price to cover the cost to fix the problems. Physical inspections of a luxury residence may include things like air quality tests, mold tests, termite inspections, dock and seawall inspections, roof inspections, and inspections for unpermitted work. It is also typical for all major systems to be inspected, including electrical, plumbing, and air conditioning systems. All physical inspections should be completed prior to the expiration of any inspection period to preserve your legal rights.
Water-Related Rights. Many luxury residences are located on property that is adjacent to a body of water or that has rights to use a dock connected to a body of water. These bodies of water may include natural and artificially created waterways, inlets, canals, lakes, or bays, among others. Given the value of these water-related rights, a significant portion of the value of a luxury residence may be tied to their validity and use rights. Water-related rights can be some of the more complicated aspects of a luxury residence transaction, so it is important for you to rely on the advice and knowledge of a real estate attorney to analyze and confirm the water-related rights for a luxury residence. Understanding the water-related rights for a particular luxury residence will allow you to better evaluate the risks and benefits associated with those rights.
Title Review. It is hard to suggest that any one aspect deserves more consideration than another in acquiring a luxury residence, but the title review process is vital to a successful closing. A title matter not properly discovered and resolved prior to closing on the residence can be detrimental and costly to you. Given the severity of potential title issues, the title review process should be handled by a real estate attorney. Your attorney can discover and resolve title matters in an effective and efficient manner. Title matters reviewed as part of the title review process may include an examination of the history of the chain of ownership, deed restrictions, water-related rights, open permits for work on the residence, municipal liens for unpaid utility bills, and homeowner’s and condominium association-related restrictions, including restrictions that may affect the leasing of the residence or the number and size of pets permitted in the residence.
Survey Review. Just as with the title review process, the survey review process is critical when purchasing a luxury residence, as survey issues that go undiscovered or unresolved prior to closing can also be detrimental and costly to you. A properly licensed and insured surveyor should prepare a property survey of the residence, and a real estate attorney should review the survey prior to the closing to ensure the survey adequately complies with applicable legal requirements. Survey matters reviewed as part of the survey review process may include an examination of the property’s boundary lines, easements affecting the property, vehicular access to the property (whether by public or private roadway), access to bodies of water adjacent to the property, the location of any environmentally protected or sensitive areas adjacent to the property, and zoning-related matters affecting the property, specifically the set-back requirements, coastal control lines, and other property-specific requirements.