Real Estate

Understanding the rights and obligations of buyers and sellers of real estate can save you time and thousands of dollars and untold headaches. With the proper legal advice, most problems can be avoided. Below are some things to think about if you are buying or selling a home. Keep in mind that every situation is different and this is not intended as legal advice.

Rule #1: Hold on a minute. Don’t sign anything yet. Not even an Offer. The most frequent mistake that we encounter is a buyer or seller signing an offer prior to consulting an attorney. The standard offer form (the Greater Boston Real Estate Board Form) creates binding obligations upon both buyer and seller. Paragraph 3 states that you agree to sign a Standard Purchase and Sale Agreement within the time-frame set by the offer. That’s it. Once you’ve signed that offer, you could be legally bound to the deal. You risk losing your deposit or worse, getting sued if you fail to go through with the deal. It happens.

So, whether you’re a buyer or seller, here are just a few things to think about before you sign that offer form.

For Buyers: The most common mistake is failing to reserve contingencies in the offer form itself. For example, you need to insert a mortgage contingency in the offer form just in case your bank loan falls through. If you don’t insert a mortgage contingency in the offer, the seller is not obligated to provide you with one in the Purchase and Sale Agreement. Also, what about inspections? These clauses are not included in the standard form, they must be written in. Remember, the broker is usually paid by the seller at closing, and therefore, the broker is unlikely to suggest contingencies that enable you to back out of the deal. If you are not careful, you could lose your deposits.

For Sellers: Have you found another place to live yet? Well, you might want to consider a contingency that enables you to find another place to live. Otherwise, you could be forced to sell your home before you have found a new place to live. Also, did you plan on taking that fancy chandelier with you? If it’s bolted to the ceiling, you had better put it in the offer form.

For everyone: Think about time. Your broker is anxious to get the deal done, and fast, that’s how broker’s get paid, but your lender needs time to process your loan (even if you are pre-approved). In fact, did you know that the P&S is part of your application? Until you have your commitment letter, your lender could refuse to lend you the money. Your lender bases its decision in part on your credit, but also on the property itself. It needs to do an appraisal to make sure the loan to value ratio is acceptable, only then will your bank issue a commitment. Therefore, the offer must be filled out with an eye toward the time requirements of both your lender and the time constraints inherent in the closing process. Your lender will need to get an appraisal done, the lender’s attorney needs to order the title and time to review it. Both the buyer’s attorney and the seller’s attorney will need time to reach an agreement on the Purchase and Sale Agreement. People go on vacation. Slow down and set realistic dates in the offer form.

Here are some answers to other frequently asked questions:

I/We just signed the Purchase and Sale. Is that it? When can the movers come?
Hopefully, you have already consulted an attorney and negotiated the Purchase and Sale in regards to various contingencies. Generally, the closing process should take eight to ten weeks (assuming there are no title problems). I would not book the movers for now, wait to see if your transaction is indeed an average deal. The movers probably will not need much lead time, and you do not want to commit to a date you cannot honor. Other factors to consider are if you are selling and need the proceeds to buy, this can get tricky.

Does the selling broker represent me, the buyer?
No. All brokers represent the seller unless they specifically are engaged as a “buyer’s broker”. You should have received a notice explaining this when you first began dealing with the broker in question.

What can I take from the house I am selling?
Some items are considered fixtures and attached to the property in such a way as to make their removal impossible without altering the property. If you wish to take them, they must be deleted from the purchase and sale agreement’s description of the premises to be sold, and any structural changes made must be remedied.

I‘m selling before I am buying and the house I’m buying is empty, why can’t we move in?
Because you do not own it yet. If coordinating moving dates is a real problem, we can try to arrange for a use and occupancy agreement, but it should be in writing and address issues such as responsibility to insure, assumption of liability, possibility of damage to the property and a contingency in the event that the owner has to evict in order to regain possession.

What will our closing costs be?
It depends on the loan program offered by your lender. You should ask in detail all fees associated with the loan that is being offered prior to the closing with the lender. At a minimum, you may be expect to pay one or two points [Points are fees charged to bank customers for the use of money. Although charged in many kinds of loan transaction, they are most commonly thought of in connection with residential lending (that is also the only loan in which the amount of the fee is regulated by state law: they are capped at one percent if the loan is not to be sold in the secondary market and at two percent if the loan is intended for sale). A point is calculated at one percent of the loan amount; thus, on a $160,000 loan to purchase a $200,000 house, one point would equal $1,600; one and a half points would equal $2,400; and two points would equal $3,200]; an application/credit report/appraisal fee ranging from $400-$600, some of which may be required to be prepaid; one year’s mortgage insurance (if applicable); and interest in advance for the balance of the month in which you close. You will also be required to purchase Hazard Insurance for your new home prior to closing.

In addition, the lender will collect the prepaid escrows for taxes (which when “netted out” against the tax adjustment will equal about three months worth), hazard insurance (usually for two months, based on the actual premium) and mortgage insurance if applicable (for two months, based on the actual premium). Depending on the lender and the program, there may also be charges for document preparation (usually $100-200), a tax service fee (usually $85), deliveries ($25-$30) and transfer of serving charges ($75-assignment; $5-15-certified copies).

The bank attorney will collect and disburse for recording fees ($365); title abstract ($150-250); municipal lien certificate ($25); plot plan ($150); title insurance; and his or her fee.

*Note: All costs listed above are approximate.

What is title insurance and do I need it?
It is a policy of insurance which protects the lender and, if purchased by the buyer, the owner of the property from claims against the title to the real estate. While attorneys must certify to buyers that the title to the property is good (if such certification is made to the lender), the owner will not be able to collect on such a certification if the attorney is gone or if the problem is one for which the attorney would not be liable, such as a forged document in the chain of title. In such an instance, the insurance policy would cover where the attorney would not.

Why do I need you as my own attorney when the bank will have one and I have to pay for him or her anyway?
The biggest job for your attorney will be to review and negotiate the Purchase and Sale based on your particular circumstances and requests. Because the bank attorney represents only the bank, you pay him or her (usually $500 to $750) for that purpose only. Accordingly, unless the closing impacts on the validity of the security interest being given to the bank, its attorney will not get involved in aspects of a closing which are strictly between buyer and seller. No matter how good a lawyer he or she is, the bank’s attorney does not care about the terms of your purchase and sale agreement, whether or not the subdivision restricts the hanging of wash in the backyard or the fact that the seller assured you that the last month’s rents were returned to the tenants and all security deposits were being held in the manner required by statute. Your own attorney will be concerned with all these matters and will also represent your interest if it should differ from the bank’s (for instance, if the loan terms change from those in the commitment letter to the loan documents at the closing).

If you are refinancing, buying or selling your home and need assistance contact Mark Gardner for more information at 781-337-3999, ext 202.