A New Era of Personal Property
While technology is not quite as advanced as those featured in some of our favorite sci-fi movies such as Star Trek or even Back To the Future’s vision of 2015 (I’m still waiting on my hoverboard), there is no question that we have come a long way in the last few years. We as humans love our gadgets and many of these shiny new toys are finding their ways into our homes, making life easier than ever before. It is now commonplace to walk through a house and see a fancy new thermostat, or a doorbell with a microphone and camera, and maybe if you’re lucky, a refrigerator that alerts you to items you are running low on. With these fancy new devices becoming more commonplace, prospective buyers all have the same question; “Does this come with the house?”
The answer to that question ultimately is answered through the negotiations of the parties. However, in some instances Sellers may request the Buyers compensate them in order to leave behind any fancy décor or expensive technology. When instances such as this occur, there are a few things to keep in mind.
How Personal Property is Classified in the Contract
In Florida, sales tax does always apply to the transfer of personal property. However, when an itemized list of Personal Property is created and assigned a specific value in addition to the purchase price for real estate, alarm bells should be going off. In situations when a Seller is looking for additional compensation for Personal Property, it will be sold as a separate line item and the sale will be subject to sales tax. If the parties are agreeable to transactions such as this, then no harm no foul. However, there are some exemptions to this very general rule.
- First, if the Seller has no issues leaving fixtures and Personal Property mentioned in Section 1(d), and no value is assigned to the items conveying, the FAR/BAR Contract states that “Personal Property is included in the Purchase Price, has no contributory value, and shall be left for the Buyer.” When this occurs, the transfer of Personal Property is considered to be incidental to the sale of the home and no tax is due.
- The second exemption occurs when the sale of the Personal Property is considered “occasional or isolated” often referred to as the “garage sale” rule. This exemption limited in scope and only applies when a broker is not involved in the transaction.
Lenders Don’t Like Financing Personal Property
The sale and purchase of Personal Property through the course of a financed transaction causes lenders hair to stand on end. A Lenders goal is to finance the purchase of Real Property and therefore they want absolutely nothing to do with the buyer’s potential purchase of any Personal Property. Lenders want to see that Personal Property has no contributory value to the purchase of the Real Property and will not accept the financing of Personal Property. In order to avoid any issues with lenders, the best option is to prepare a separate contract for the purchase of any Personal Property the parties wish to transfer.
Avoid Issues with a Discussion
As you can see, while the transfer of any creature comforts in the home may not seem like an issue, there is a multitude of issues that can arise depending on how the transfer is effectuated. It is imperative that these issues be discussed throughout the negotiation process to alert the parties of any potential outcomes that are involved with assigning value to Personal Property purchased. As always, should you have any questions on this or any other real estate topic, we encourage you to reach out to your trusted local real estate attorney.