With Terry Story, 27-year veteran Real Estate Agent with Coldwell Banker in Boca Raton, FL
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The past few years have brought about major changes in almost every sector of our lives. We now have VRBO, UBER, Airbnb, not to mention Twitter, and who knows what’s coming next?
Throughout her 28 years in the real estate business, Terry Story has had to adjust to many innovations in her industry. VRBO and Airbnb are the most recent disrupters to come along and have already had a profound effect on the market.
Airbnb could be coming to a house near you.
An online service that allows people to host or rent their homes for free, Airbnb allows people to host or rent their homes for free. However, says Terry, “people don’t realize that in posting their homes on Airbnb there are regulations. There’s liability, there’s taxation involved.” It’s required to check in your area for any regulations or required permits or licenses.
In addition, you should check with your insurance agent to determine if you’re properly insured for damages or injuries incurred during your rental period. It may be your home that you’re renting out, but to the government you’re on the same playing field as commercial rental apartments or hotels, so make sure you know and adhere to the rules.
Terry says that in the state of Florida, you now have to collect a 6% bed tax in order to rent out your property in this manner. On another note, be aware that once you turn your home over to commercial use, you lose your homestead exemption.
Deposit not required!
Contrary to what most people believe, it’s not mandatory to put down a deposit before purchasing a home. Terry says that “for a contract to be binding in real estate, it only requires consideration. Consideration is defined as something of value offered for something else of value. States vary, but in Florida the formation of a contract is accomplished when there is an offer and an acceptance between the contracting parties of the exchange of consideration, that is something of value, sometimes referred to as the meeting of the minds.”
A deposit is the way to go in almost every case because “the seller is looking for liquidated damages in the event that you don’t go through with the deal. The deposit goes into another section of the contract called liquidated damages.”
Terry says she’s never done a transaction without there being a deposit, it’s the accepted way of doing business; legally it’s not required; realistically it is.
Showing the money
The other requirement for a buyer is proof of funds. You have to show you’re financially sound enough to go through with the sale and to afford the responsibilities of the home.
Terry says that whatever changes or innovations are in store for 2017, your qualified real estate agent will be your best advocate if you plan to buy or to sell a home.
Disclosure: The opinions expressed are those of the interviewee and not necessarily United Capital. Interviewee is not a representative of United Capital. Investing involves risk and investors should carefully consider their own investment objectives and never rely on any single chart, graph or marketing piece to make decisions. Content provided is intended for informational purposes only, is not a recommendation to buy or sell any securities, and should not be considered tax, legal, investment advice. Please contact your tax, legal, financial professional with questions about your specific needs and circumstances. The information contained herein was obtained from sources believed to be reliable, however their accuracy and completeness cannot be guaranteed. All data are driven from publicly available information and has not been independently verified by United Capital.
Steve Pomeranz: It’s time for Real Estate Roundup. This is the time every single week we get together with noted real estate agent Terry Story. Terry is a 28-year veteran with Coldwell Banker located in sunny Boca Raton, Florida. Hey, Terry, welcome back.
Terry Story: Thanks for having me, Steve.
Steve Pomeranz: The world is changing. We’ve got Uber, we’ve got SnapChat. We’ve got …
Terry Story: Twitter.
Steve Pomeranz: … VRBO if you want to rent a property, and now we’ve got Airbnb. All of these changes have ramifications. Take us through some of these ramifications with regards to posting your property on Airbnb.
Terry Story: Well, first of all for those who don’t know, Airbnb is an online service that allows people to host or rent their homes for free. Having said all of that, this is an exploding area in the real estate market. With that people don’t realize that are posting their homes on Airbnb that there are regulations. There’s liability, there’s taxation involved.
For example, many parts of Florida, while it’s not illegal to post your home on AirBNB, you really need to check within your own communities or cities to see if there’s any regulations or permits that are required or licenses to do so. A lot of people try to just ignore that, but you should first check with your local city to see if there’s something involved.
More importantly, it’s the liability. I don’t think people realize when they put their homes on Airbnb you’re actually using your property for commercial purposes, so the policy that you have on it should be accordingly. For example, if you’ve got a tenant in there and they’re injured or there’s property damage, is your insurance going to cover those items? I don’t know that it’s a regular rental policy that you need. This is being used for commercial purposes so you really need to check with your insurance agent.
Steve Pomeranz: Yeah, so you’re in a different world right now. You think it’s your home and because it’s your home and really nobody really bugs you when you own your own home, now you go and you make it a commercial property, you’re now on a level playing field with hotels and other commercial rental apartments and things like that. The government knows this and the government expects you to adhere to those rules and regulations and you need to contact your insurance company for your home insurance because commercial insurance is different than personal residential insurance.
Terry Story: That’s right. For example, in the state of Florida December 1st of last year, 2015, Airbnb has been required to follow the same rules as, like you said, the commercial hotels and that is to collect a statewide 6% bed tax. I know there are a lot of folks out there that probably are not collecting that 6% bed tax, may not even be aware that there’s a tax involved. That may come back to bite you. You do need to inquire with your state if there’s any taxes involved.
Steve Pomeranz: If you do collect it, make sure you pay it. Don’t pocket it.
Terry Story: Yeah. It will get discovered eventually. Then if you are a buyer looking to buy a home and turn it into one of these properties, just be aware of all of these things. Know that there’s liability involved, there’s taxation involved and there are some regulations behind it all.
Steve Pomeranz: Well, in the state of Florida you have something called a homesteading. As a resident owning a home you’re entitled to certain protections and certain tax benefits. When you turn that property into a commercial property you basically lose that.
Terry Story: That’s right, and that’s a big loss, especially if you’re only doing it for short period of time and then you’re expecting to re-homestead it, your taxes are going to go up substantially. You have to keep that all in mind. Consult a tax attorney or your accountant.
Steve Pomeranz: Disclaimer recognized.
Terry Story: Absolutely, because I’m not an accountant or a lawyer.
Steve Pomeranz: All right, let’s change gears here. You know every time someone goes to buy a house they put a deposit down. Kind of it’s a natural thing, it’s an expected thing to put whatever, 5 or 10% down. Is that something that is required by law?
Terry Story: You know it’s not. Everyone thinks it is because we always tell everyone well, it’s required. We need a down payment deposit. For a contract to be binding in real estate it only requires consideration. Consideration is defined as something of value offered for something else of value. Now every state might be different, but according to the Florida Bar, the formation of a contract is accomplished when there is an offer and an acceptance between the contracting parties of the exchange of consideration, that is something of value.
This offer and acceptance are sometimes referred to as the meeting of the minds. If the parties have not reached a meeting of the minds, then there is no agreement. Then in this case of the real estate purchase contract, the consideration the buyer is offering is the purchase price in exchange for the deed for that property.
Steve Pomeranz: All right, let me stop you right there. Hang on. Hang on. Okay. Bottom line is you’re buying a property, someone sells it. You agree to a price, all the conditions notwithstanding. You’ve got a meeting of the minds. You sign the contract and are you required to put down a deposit or not?
Terry Story: Nope. No, you’re not. Now the seller is going to ask for it and here’s the reason why. The seller is looking for liquidated damages in the event that you don’t go through with the deal. That’s really what’s behind the deposit money. It goes into another section of the contract called liquidated damages. That’s if the buyer defaults on the contract.
You can’t get money out of a contract if somebody breaches it if there’s no money on the table. If you have money on the table and it’s held in an escrow account, then you can go after liquidated damages and get some of the escrow deposit. Legally you don’t need it. Realistically you need it. A seller is going to demand that there’s deposit money and I’ve never done a transaction without any money down.
Steve Pomeranz: You’ve been doing this for like 28 years.
Terry Story: Yup. You’re not going to get away with it, but know that this is Florida law, I guess it could be different in different states, it is not required. What’s required is what’s considered consideration and consideration are met when you have a meeting of the minds from buyers and sellers agree to a purchase price and you’re exchanging the purchase price for the deed to the property.
Steve Pomeranz: Actually putting a deposit down is the accepted way of doing business. It’s not necessarily by law, so I think we’ve figured that out.
Terry Story: Then the other thing that’s going to be required of you is proof of funds. If it’s a cash deal they’re going to want to see that you actually have the funds …
Steve Pomeranz: Oh yeah, yeah. Good point.
Terry Story: …To purchase it or a pre-approval letter showing that you’re able to obtain finance.
Steve Pomeranz: Right.
Terry Story: Those are the things that they’re going to ask for.
Steve Pomeranz: My guest as always is Terry Story. Terry is a 28-year veteran with Coldwell Banker located in Boca Raton, Florida and she can be found at TerryStory.com. Don’t forget, to hear more about Terry Story, to hear more about all the subjects that we cover, go to StevePomeranz.com. That’s P-O-M-E-R-A-N-Z. StevePomeranz.com. Thanks Terry, appreciate it.
Terry Story: Thanks for having me, Steve.