REAL ESTATE

BASICS OF BUYING OR SELLING REAL ESTATE

Buying or selling real property, whether it is a home or commercial property, can be a complicated process.  Negotiating the sale is similar to buying or selling a car.  Preparation and knowledge are key elements in developing an effective strategy for making the sale or purchase.  However, there are many other factors that enter into a real estate transaction.

Real Estate Contracts
     Once the terms of the sale or purchase have been agreed upon between the buyer and seller, they should be incorporated into a written agreement. By law, real estate contracts must be in writing to be enforceable.  Written contracts prevent misunderstandings and should include all essential provisions as well as other negotiated or desirable terms.  Either party may draft the contract but the non-drafting party should study it carefully.  It is generally advisable to consult an experienced real estate attorney for unfavorable provisions and to propose revisions if necessary.

      Some of the basic terms include price, deposit amounts and payment terms, whether financing will be involved and terms for obtaining it, evidence of title, repairs, personal property, proration of taxes and insurance, and closing terms, including date, costs and fees. There are also terms that relate to disclosures, termite  or other physical damage, inspections, surveys, appraisals, escrow accounts, commissions to realtors or brokers and contingencies.

Inspections

Even though the buyer has examined the property, all defects may not be discovered.  Buyers often rely on their own eyes and on the seller to disclose defects.   However, depending the age of the property, its true condition may be concealed from the naked eye reliance on formal inspections by certified inspectors may be preferable.  If problems are found, the buyer may have grounds to cancel the contract or to demand a price reduction.

Appraisals

Before finalizing the transaction, an appraisal should be performed to determine the value of the property.  The asking price should fall in line with the appraisal which is generally based on comparable properties recently sold nearby.  Lenders require appraisals as assurance that if the buyer defaults on the loan, the property can be sold for enough to pay off the loan.  It also protects the buyer from overpaying for the property.

Title Insurance

It is important to confirm that the seller in fact owns the property and it is not subject to current or potential liens, debts or claims.  Title searches are routinely performed to determine if the seller has clear ownership of the property. Title insurance is then issued to guarantee the findings of the search.  Lenders require title searches and lenders title insurance to protect them against loss due to unknown title defects such as a lien on the property.  Owners title insurance policies are also generally issued to insure that the new owner takes the property clear of any defects.  If the search reveals defects, the buyer may demand that the defect be removed by the seller or may cancel the contract and demand a refund of any deposits.

Homeowners/Hazard Insurance

Lenders require homeowners or hazard insurance to protect their interest in the loan on the property in the event of damage or loss to the property. These policies may cover the property for theft, vandalism, and fire.  Or it may be more comprehensive and cover other natural causes, such as ice, snow or falling objects. Other policies cover natural disasters, except earthquakes and floods. 

Private Mortgage Insurance (PMI)

Many buyers do not make a cash down payment equal to at least 20% of the purchase price of the property.  Lenders require private mortgage insurance to insure if the buyer defaults on the loan the lender will be repaid for the loan.

Escrow Accounts

An escrow account is a special savings account that is set up when a buyer takes out a mortgage.  Payments are made to the escrow account by the buyer in advance to cover estimated taxes and homeowners or hazard insurance, and private mortgage insurance as they become due.

Closing

Each party is responsible for certain closing costs to finalize the transaction.  Such costs include appraisals, surveys, loan fees, property taxes, escrows, private mortgage insurance, homeowners or hazard insurance, title insurance, credit reports, credit reports, title transfer and recording fees, attorneys fees.

Legal Advice

Think of any attorney as insurance.  A real estate attorney can be your watchdog to guide you through a real estate transaction.  Real estate attorneys are engaged to negotiate purchases and sales, draft the contracts, review title information, resolve issues or disputes between the parties, draft and/or review the closing documents, attend closings and even issue title insurance policies.