Real Estate Law: The Legal Aspects of Buying a Home
Friday, September 23, 2016
Barring unusual circumstances, one of the first steps in selling a home is when the seller enters into a brokerage contract with the real estate agent. When a buyer is found for the property, the real estate agent acts as an intermediary. When the buyer and seller reach a tentative agreement, the real estate agent will then draw up a formal written contract for sale, as known as the purchase agreement. In almost every case, at this point the buyer obtains a commitment for financing from a lending institution. A title search is performed and finally, the property is transferred from the seller to the buyer and the seller receives the amount of the purchase price agreed upon by both parties.
Maybe. But there are plenty of ways that a simple transaction like this one can turn into a huge mess.
Some common problems that can arise during or after a real estate transaction include:
Unless the contract specifically states the opposite, a seller may be liable for the brokerage commission even if a sale never occurs, or may be liable to pay more than one brokerage commission. A lawyer can explain the effect of multiple listings and negotiate the realtor's rights if the seller withdraws the property from the market, or can't deliver a good marketable title.
At the very least, a seller should have the advice and guidance of an attorney regarding the brokerage agreement. Even if the agreement is a standard form, a lawyer can explain key terms to the seller and make any necessary revisions.
Even if negotiations proceed without a hitch, the buyer and seller can often both benefit, independently, by consulting a lawyer. Legal counsel can assist with important questions such as tax consequences of a real estate purchase or sale. For the seller, the income tax consequences of a sale, particularly if the seller makes a large profit, may be considerable. An attorney can advise whether the seller can take advantage of tax provisions allowing for exclusion of capital gains in certain circumstances.
Legal advice is particularly useful when it comes to explaining and altering a purchase agreement. Among the many issues that may need to be addressed in the purchase agreement a few common examples include:
- Were additions or remodeling projects that potentially affected the integrity of the structure done lawfully?
- Will there be any legal issues for changes the buyer has planned for the property?
- Who is responsible if the buyer has an engineer or architect inspect the property and termites, asbestos, radon, or lead-based paint are found?
- What if the property is found to contain hazardous waste?
- What are the legal consequences if the closing does not take place?
- If the closing does not take place, will the down payment be held in escrow by a lawyer in accordance with appropriately worded escrow instructions? How is payment to be made? Is the closing appropriately conditioned upon the buyer obtaining financing?
The majority of buyers finance at least a portion of the purchase price for a home with a mortgage loan from a lending institution. The purchase agreement should include a provision that it is subject to the buyer's obtaining a commitment for financing.
After the purchase agreement is signed, it is necessary to establish the state of the seller's title to the property to the buyer's - and the finance institution's - satisfaction. Generally, a title search is ordered from an abstract or title insurance company. In some states, and in outlying areas of others, title insurance is not typical. In such cases an attorney is essential to review the status of title and render an opinion of title in lieu of a title policy.
If you are in an area where title insurance is standard, an attorney can help review the title search and explain what is not insured, alert you if the legal description is incorrect, and uncover problems with adjoining owners or prior owners if any exist. A lawyer can also explain the effect of easements and agreements or restrictions imposed by a prior owner, and whether there are any legal restrictions that could impact your ability to sell the property.
At closing, the title passes from seller to buyer, who pays the balance of the purchase price. Often, this balance is paid in part from the proceeds of a mortgage loan. An attorney can be very helpful in explaining the nature, amount, and fairness of closing costs. The closing process can be confusing and complex, particularly to a first-time buyer or seller. Often the buyer and seller will ask their respective attorneys to be at a closing in addition to the customary title closer (representative of the title company), an attorney for any lending institution, and the real estate broker. Be wary if you are the only person there without a lawyer, your rights may be at risk.
Contact our office with questions about real estate law or for an initial consultation. We’ll help you decide if it’s in your best interest to consult an attorney when purchasing or selling a home.
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