United States: Buying And Selling Real Estate

Nearly everyone, at some time in life, faces the challenge of buying and selling real estate. The purchase of a home is often the largest single investment a person will ever undertake and, therefore, careful consideration should be given to the issues involved in the transfer of real estate before any action is taken.

Once you've found the house you'd like to buy and have agreed on the price, you will probably be asked to sign a paper and to pay a deposit. This paper may be called a binder, receipt, purchase offer or agreement, or contract of sale, and is usually prepared by the seller's agent (that is, the seller's real estate broker or attorney). On Long Island and in New York City, the contract of sale is customarily prepared by the seller's attorney.

Any one of these papers may constitute a binding contract requiring you to purchase the house. Before signing it, you should seek legal advice. Remember that once a contract has been executed, your rights and obligations are fixed concerning the transaction and your attorney may not have the opportunity to structure the contract to meet your objectives.

Whether you are seller or buyer, you should understand the contract terms and how they affect you. The other parties to the contract may not be under any obligation to tell you what the contract means and you may not understand the legal meaning of much of the terminology.

So, if you are going to have an attorney represent you in the transaction, the time to consult one is before you sign any papers.

The contract of sale should state the parties, the purchase price and how it is to be paid, an adequate description of the property being sold, the kind of deed to be delivered, the quality of the seller's title to the property, a description of personal property included in the sale, the date you are to take possession, and other clauses relating to the property and the parties' respective responsibilities to each other. The purchaser is usually required to make a down payment upon signing the contract, often in the amount of 10% of the purchase price.

If the purchaser will be seeking financing, the contract should also permit the purchaser to cancel the contract if financing can't be obtained and provide for the return of the down payment. The contract may also be subject to the right of the purchaser to inspect the home for termites, structural damages or other latent defects, and to perform a water test. If so, appropriate clauses can be included in the contract defining and protecting such rights.

These are only a few matters usually covered in the contract. However, they illustrate the variety of terms and conditions to be considered when you enter into such a transaction.

Title

The "title" to real estate is the right of the owner to its peaceful possession and use, free from the claims of others. Sometimes, however, the exercise of that right is limited by the existence of other rights such as rights of way or easements. To obtain electricity, sewers, telephone, etc., an owner gives the municipality or public utility the right to run its lines or pipes across his or her property to the house. Other encountered rights of way or easements provide for drainage of surface water, or access rights of way such as for a jointly used driveway. These easements must be recognized by the owner in the use of the property and considered by the buyer who is purchasing the property since they can affect the value of the property.

There are other ways in which the use of the owner's property may be limited. One is by restrictions in the deed; another is by local zoning law. Also, almost all land is subject to real property taxes, which, if not paid, may result in the loss of title. Other debts owned on the property (for example, special assessments or levies) can also cause problems later on.

When you buy a home, you should be certain that you have the right to occupy it without interference and that you later will be able to sell or mortgage it without problems.

Title Searches

After the contract has been signed, you should satisfy yourself that the seller can convey "marketable" title to the property as agreed upon in the contract of sale. On Long Island and in New York City, the preferred procedure is for purchaser's attorney to obtain a title report from an abstract or title company.

A word about title insurance -- while it may give you protection against financial loss and the possible expense of defending your title in court, it does not lessen the importance of your lawyer's advice. Your lawyer can advise you whether and how to obtain title insurance and also on the terms, exceptions, and conditions of a title insurance policy.

Form of Deed

In residential transactions there are two generally used forms of deeds. The first is called a "Warranty Deed", which assures the buyer that the title is good against anyone who may claim a superior title. The second commonly used form of deed is the "Bargain and Sale Deed with Covenant against Grantor's Acts." This deed assures the buyer that the seller has done nothing to affect the title to the property through his or her own acts. In both instances, if a title insurance company insures the title, the buyer will look to the title insurer for protection against claims, even though the buyer may be able to assert a claim against the seller.

Representation

Remember one important point -- the seller and bank will usually have an attorney representing each of their interests. An attorney representing any of these parties (even though you may be charged with a fee, as in the case of a bank), is not your attorney. It is your own responsibility, as the buyer, to seek the professional advice of an attorney to protect yourself and to be sure that you get precisely what you are legally entitled to receive.

Closing

The "closing" of the purchase of your home is the transaction in which you receive all the documents required to convey the title of your home.

At the closing, these documents are reviewed to be sure that the conditions and promises of the contract of sale are fulfilled. Also at this time, the balance of the purchase price is paid to the seller.

Arrangements are made at the closing for the time when you will occupy the home. Normally, when the full purchase price is paid, the keys to the house are delivered to the buyer, who then has the right to move in immediately. However, your contract of sale may specify that you move in at an earlier or later date.

The important thing to remember is that buying a home is a major investment. It usually involves making payments over a period of years. In the long run, it's likely to be more economical to have competent professional advice -- your attorney's advice -- in making the purchase than to risk the trouble and expense that could result from not having that advice in the first place.