There are a number of issues you will face in purchasing a home: How much house can I afford? Should I buy a re-sale or a new home? What features do I need to look for? Where is the best available location? You will also encounter a number of legal issues. This article will focus on identifying and discussing legal issues to help you make informed decisions.
The agent. After you decide on a real estate agent, you will be asked to sign an agency agreement. You have a number of choices: buyer’s agent, seller’s agent or dual agent. Unless you know what you’re doing and have a really good reason otherwise, you should consider a buyer’s agency agreement. (You want them working for you, right?) As your agent, this person owes you certain fiduciary duties such as honesty and loyalty. Make sure communication lines are always open to avoid any dispute with your agent. Finally, whatever agreement you choose, read it before signing and get any questions answered.
The contract. Most all agent’s use a standard form contract titled “Offer to Purchase and Contract.” Once you have decided on a home and want to make an offer, you should sit down with your agent and fill out an offer. Be careful what you put in it! If the seller signs it, you may be legally bound to buy the property. What to look for in the contract:
1. Is everything you want in the offer specifically included? Don’t assume the seller will leave those ceiling fans or window treatments. List every fixture or appliance that you want to be part of the deal. Assume that if it’s not in the contract, it’s not part of the deal.
2. Is your offer conditional? Again, don’t assume the seller will know that your offer is conditional on the sale of your current home or on you obtaining financing. If a condition is not met, you should not lose your earnest money. It’s not enough that you talked about these conditions, they must be in your offer.
3. What about the condition of the home? Whether new or old, you should have the house inspected by a qualified and licensed inspector. Most lenders require this anyway. The condition of the home and property should always be a condition of your offer. Be sure and review the disclosure statement. It is difficult to close on a home and later come back and complain about conditions/ defects. Do a proper inspection before closing.
4. What about timing issues? If you want the offer to expire after 10 days, say it. If you need the closing to take place before 60 days, say it. Timing is always an issue in real estate transactions, so put any deadlines in your offer. Note: unless your contract sets a closing date and states “time is of the essence,” you probably cannot recover damages for a delay of the closing.
There is an Additional Provisions Addendum which allows for you to address many of these issues. Agents are pretty good about raising these issues, but you should also be aware of them so that your offer is the best it can be. Finally, read and understand each paragraph of your offer before signing it. Although the language may be “the standard legal stuff,” the standard wording is not necessarily be to your benefit.
The earnest money. When you make an offer you obviously intend on following through with it. But what happens if the deal goes south? Then you start to think about that earnest money. Here’s the law in general terms: If the offer is signed, a contract is formed and the only ways for you to get your money back are if: 1) the seller breaches the contract or 2) a condition is not met. If you just want to back out of the deal, you forfeit the earnest money. It’s best to work out earnest money disputes with the seller because real estate agents will not turn over earnest money until everyone agrees on a resolution. If things start to get nasty, consider contacting an attorney.
The closing. Everything is falling into place and you want to sign the papers so you can move in and get on with your life. Not so fast. It is not uncommon for people to be scurrying around at the last minute putting out fires and pulling out hair. Do everything possible to give yourself plenty of time in and around the closing to deal with delays and surprises. You are only adding more stress to your life if the moving truck is to arrive 1 hour after the closing is scheduled. Don’t be rushed into signing unless you understand the details of the transaction and are comfortable that the paperwork properly reflects the true deal. Review carefully the settlement statement. Ask if you are a named insured on the title policy and about exclusions on the title insurance.
You may feel pressure to close even though there are some loose ends, such as a repair that has not yet occurred. At closing, make sure any loose ends are covered by a written, signed agreement.
If you still can’t sleep at night because you feel you’re in over your head, you might consider buying an hour of an attorney’s time. You’re probably spending well over $100,000 on the house. Spending a $200 or so to obtain a level of comfort about your decision is not only reasonable, it makes sense. But remember, if you’ve already made your offer, the lawyer is basically limited to advising you of your rights and obligations.
This article is meant as general knowledge and not meant to substitute for legal advice on specific issues. If you have a question, please call Doug McClanahan at 861-0693.