Real Estate Services: Buying and Selling

Why you need an attorney when buying or selling your home

Seller’s Attorney.

A typical sale involves a real estate broker who advertises the sale of the house by conventional means, for example, in newspapers, or by “listing” it with the Multiple Listing Services (MLS). Before a broker agrees to undertake the advertising of your property, they usually ask you to sign a written contract, a Brokerage Contract, which provides for their payment.

When a broker and/or agent of the broker, finds a potential buyer, they facilitate the negotiations of the price between you and the potential buyers. If all parties agree, an informal agreement is signed, sometimes called a binder. It is at this stage that most sellers and buyers contact their attorneys to either create or review a formal contract of sale. It is recommended that you always consult an attorney before signing the brokerage agreement. 

Usually, when a broker finds a potential buyer ready willing and able to buy your property, he or she negotiates with them as your intermediary.  When the sale is completed at closing, the broker is entitled to a commission. The brokerage agreement can create a legal responsibility to pay the broker without a completed sale.  In other words, you might have to pay the commission if they find a buyer who is ready, willing and able, regardless of whether the property closes title or not. Therefore, the wording of this agreement can be very important to you as a seller.

In addition to the brokerage agreement, the seller must also be aware of the many pitfalls encountered before signing the contract of sale. First and foremost, is the newly enacted Property Condition Disclosure Statement requirement. This law took effect in 2002, and when it did, it changed the landscape of residential real estate closings forever. The days of caveat emptor (buyer beware) were changed to seller must disclose or pay a credit of $500.00.

The decision to pay or disclose is an important one, which requires a frank discussion with your attorney. In addition, a Seller must pay attention to the property survey, and existing zoning laws, especially if any upgrades or repairs were done to the home. Lastly, a Seller must be weary of the tax consequences concerning a sale of real property. While normally the attorney does not provide tax advice, a subject which is best answered by an accountant, an attorney can assist with efforts to minimize or negate any taxes.

For example, if the property is an investment property, a possible §1031 tax exchange might be more favorable than paying the capital gains taxes. If the property is for residential purposes, an attorney will be able to shed some light on the possible exclusions available to limit taxable capital gain income. The culmination of these issues results in the signing of the formal agreement, the contract of sale.

The contract of sale is a formal written agreement, whose importance can not be overstated. A Seller’s attorney will draft a contract of sale depending on the individual factual circumstances surrounding that sale, i.e., those issues discussed previously. This agreement will address, among many other things, the closing date, the date for an inspection of the property, the method of payment, the physical condition of the property at closing, a provision for retaining possession after closing, the type of marketable title to be tendered to buyer at closing, and how the buyer will take title, whether individually, or with a spouse, or in another form.

Buyer’s Attorney.

The decision to buy your first home is a difficult one. In fact, for most people it may be the most significant financial decision they make in their lives. The buying and selling of Real Estate raises equally significant legal issues and problems, some of which are obvious, but many others that are not as obvious. An attorney who knows how to deal with these issues and problems can answer your questions, while avoiding those pitfalls. For example, a Buyer will necessarily want to focus on the termite inspection, and an engineer’s inspection, before execution of the contract of sale.

A Buyer’s attorney must keep a close eye on the contract of sale as well as the issue surrounding marketable title, the Property Condition Disclosure Statement credit, the financing, marketable title and the title report, and most important, the mortgage contingency clause. After execution of the contract of sale, the Buyer will then apply, if he or she has not already done so, for a mortgage. The Buyer’s attorney will at this time apply for title insurance, which is a necessary part of any real estate transaction. After complying with the requirements of their chosen bank or mortgage company, the Buyer should receive a mortgage commitment. This document is very important to the Buyer for two reasons.

First, it provides the basis upon which the mortgage company or bank will lend you money to purchase the home. It is important to review the conditions to commitment. Secondly, it satisfies the mortgage contingency clause in the contract.  In other words, the Buyer can no longer back out of the contract based upon their inability to obtain a mortgage.

The Buyer’s attorney’s next duty is to obtain and review the title report. This report will provide material information concerning the property, as well as the Buyer and Seller. Upon Buyer’s attorney’s review of the title report, and Seller’s removal of objections to title, the parties are ready to close. The closing is the end of this long process. It is at this point that the Buyer’s and Seller’s attorney’s services are invaluable. The closing is a very confusing and seemingly complex process. However, to the attorneys involved in the transaction, there is order in the confusion. Both attorneys explain their respective issues to their clients at the closing.

For seller, they are concerned with the payment of their loans, if any, with payment of the purchase price, and payment of various taxes. For Buyers, they are usually very involved in the signing of what seems to be a never ending parade of documents for their bank. Buyers are also very concerned with when they can move into their new home.

For additional information, contact DeHaanBusse LLP.