By Richard J. Olson, Partner at McCabe and Mack LLP
If you have crunched the numbers and feel that you are ready to invest in a vacation home, there are many considerations…. from contract to closing. Partner at McCabe and Mack LLP Richard J. Olson recently shared some answers to frequently asked questions on the topic which might be helpful as you explore the possibilities:
I am in a financially strong position and feel ready to invest in a vacation home. What should I know as I prepare to make this long-time dream a reality?
First and foremost, be sure to clarify your budget and your vision. What can you realistically afford – not just now, but long term? In addition to a comfortable purchase price, have you considered the costs of maintaining a property, from insurance to HOA dues? If rental income is a factor in your decision making, be confident you can maintain payments if the rentals do not materialize. And are you confident that the geographic area and lifestyle will be a fit?
Once you have given some thought to all of that, be sure to secure a mortgage pre-approval letter, which you will need on hand in order to make an offer. If you plan to make a cash offer, obtain bank documentation to prove that you have available funds.
The properties I am exploring are not in my home state. What do I need to know?
States have their own ways of doing things and you will need to know what the process looks like for the state in which you are making a purchase offer. In New York, there is typically an attorney for each party – the buyer, seller, and lender – but in some states, a title company will manage everything. Reach out if you have questions and we can explore the situation in the geographic area you are considering.
The answers to the following questions relate to New York vacation properties.
At what point will I need an attorney?
This could depend on what state the property is in. In New York, once the offer has been accepted and inspections are scheduled, your attorney should be engaged. A realtor will furnish your attorney with the full MLS listing and Memorandum of Agreement or Purchase Offer; those documents provide the basis for the contract which your attorney will prepare.
How do I protect my offer from a ‘bidding war’?
A fully executed contract secures your transaction; both the Seller and Purchaser are obligated at that point. For this reason, it is critical to get to this contract stage as soon as possible, and having proper legal representation can help you achieve that goal.
A family member might be selling a vacation property; what should I know if I choose to make an offer on it?
Attorney representation on both sides will help protect the interests of both parties; sometimes when family members get along quite well, they will opt for one attorney to work with both sides. No matter what, be sure to get an inspection and have a formal contract in place, along with obtaining a title report. Taking these steps now will help mitigate the risk of problems later.
Why is a Certificate of Occupancy so important?
The Buyer’s attorney typically orders a title report, which will include a municipal report. Although most contracts provide that the property is being sold in “AS IS” condition, the standard contract provides that the Seller is responsible for curing any municipal violations on the property. In other words, if the Seller has made any improvements to the property that would require a Certificate of Occupancy or a Certificate of Compliance from the municipal building department, the certificates must be in place by the time of closing.
For instance, if the municipality notes a Certificate of Occupancy for a 3 bedroom home, but you know the house now has 4 bedrooms, the seller will then have to apply for a Certificate of Occupancy. This may require an application for a permit and inspection of the improvement and can threaten the transaction.
Any other advice?
It is always helpful to spend some time in an area before investing in a property there. Perhaps take a vacation in a rental home, and experience what day-to-day life will look like before you decide to buy. It is also key to consider who will watch your vacation home when you are not enjoying it yourself, and also whether you want to rent it out as a potential source of revenue.
Other than that, my hope is that once you close on your new home, you carve out the time to fully enjoy it!
If you’re buying a vacation home, reach out to Richard J. Olson, Partner at McCabe and Mack LLP, by calling 845-486-6896.