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PURCHASING A HOME - "CAVEAT EMPTOR" (BUYER BEWARE!!!) Purchase a home may be the largest investment a person will make during their lifetime. Certainly one of the most disheartening situation is for a transaction to have gone through and for the parties to be dissatisfied either with sale price, or the condition of the home. The beginning of any real estate transaction is a decision to sell. This can be done with a real estate agent or occasionally the seller will procure his or her own buyer. If a real estate agent is not involved, more than likely, the parties will need an attorney. The advantage of not having a real estate agent involved is the saving of the real estate commission of 6% or 7%. If an attorney is used, he can represent only one of the parties because of the potential adverse positions of the buyer and seller i.e. they're on separate sides of the table and one term of an agreement of sale may be advantageous to one of the parties but a disadvantage to the other. Ideally, both parties would have a review of the agreement before it is signed by their own separate legal counsel who can read the agreement and make suggestions as to any changes in the terminology of the agreement. These terms can be negotiated and is result in an offer, perhaps a counteroffer, an acceptance of a counteroffer or the rejection of a counteroffer and finally when all terms are agreed to, the signing of an agreement of sale. THE AGREEMENT OF SALE An Agreement of Sale is a legally binding contract. It contains all of the terms such as a sale price, description of the property, settlement date, and many other terms including certain contingencies such as a building home inspection contingency and a mortgage contingency. Home Building Inspection Contingency. Many buyers will purchase a home with no more than a visual inspection of the premises prior to settlement. For peace of mind, however, it is recommended that a home building inspection be performed. There are many companies that advertise themselves as "home building inspectors." They can be found in the yellow pages or sometimes the realtor or a lawyer can recommend one. It is the writer of this article's opinion that having one person or company is not a preferred method of checking the house out for its overall condition. I recommend a woodboring insect inspection. Ideally this would be done by the company that has been periodically inspecting and treating the home. There can be other insects other than termites that destroy wood and a repretable licensed inspector should be used. WARNING: There are many areas where an inspection for termites and other woodboring infestation can not be made such as inaccessible areas. This factor should be taken into consideration when deciding if the house is clear and free from any such infestation, and if there are any doubts, steps should be taken to gain access to what are normally considered inaccessible areas. Looking at previous termite reports would be helpful and from whichever company does it, a guarantee should be obtained, i.e. if there is subsequent infestation within a given period of time, usually 6 months, the company will come back at no cost to treat the premises. You will want to obtain evidence that the inspection was done and certification of the results as well as a guarantee. The report must show any resultant damage and its location. ROOF, BASEMENT, STRUCTURE, HEATING, AIR CONDITIONING, ELECTRICAL AND PLUMBING SYSTEMS. It is recommended that the company that has been treating the heating and air conditioning system be used to inspect the system and issue its report of the condition and life expectancy of the system and advise you of any problems that may occur in the short run. The same principal applies to the roof, electrical and plumbing system. Certification by a licensed and reputable roofer as to the condition of the roof and if there has been and roof or repairs made recently, evidence of it and a copy of the guarantee. Be sure that the guarantee is assignable to subsequent purchasers. The plumbing system should also be checked thoroughly as well as the electrical system and the companies that have serviced these systems in the home should be used if they are reliable and reputable or if none have been used, the company that is in the area and has good credentials. Structure. An inspection of the home will reveal to the naked eye any above ground foundation defects or cracks which can be evaluated. If there is any evidence of water penetration such as damp walls or if there is water on the floor, the company that deals with such problems should be contacted. If there has been a water problem which has been corrected, and there was a guarantee; be absolutely certain that the guarantee is assignable to a future owner and not restricted only to the seller. Other considerations in the home building inspection will be a test for the presence of radon gas, asbestos, led paint, underground storage tasks or dump sites and the certification by the municipal authority that there are no outstanding violations of any of the housing codes. This sometimes would be called a Licenses and Inspections certification or a Certificate of Occupancy. There should also be provided by the seller what is called a "seller's property disclosure statement" which is a statement by the seller as to certain conditions including roof, basement, termite/wood destroying insects, dry rot, pests, structural items, whether or not there has been any additions or structural changes, water/sewerage disclosure, plumbing, heating and air conditioning and other equipment and appliances including in sale, land, (drainage and boundaries) hazardous substances including but not limited to asbestos, PCBs, Urea Formaldehyde Foam Installation (UFFI) and any pending assessments. If you are purchasing a new home, and before you sign an agreement of sale, it may be wise to have a description of the property provided to you to see that there are no easements such as use of rear property to gain access to other properties which may diminish the value of your property. This should be done before the agreement is signed. Most agreements have standard language which states that you take the property subject to all "easements and restrictions of record" i.e. that are recorded in the county where the property is located. THE LAWYER'S ROLE The Agreement of Sale once signed is a legally binding contract. It sets forth all of the terms of the agreement and there are many terms and conditions which are not generally understood by the public at large. If a real estate agent is involved they may be familiar with some or perhaps even all of the steps in a real estate transaction but are not qualified to give legal advice unless they have a law degree and are licensed to practice law. Statements such as "you don't need a lawyer" is legal advice and if given by a non-lawyer can create serious problems when in fact a lawyer should have been consulted. The lawyer chosen should be one who has experience in real estate transactions from beginning to end. A lawyer will initially prepare the agreement or review it before it is signed if it has been prepared by a real estate company. If the lawyer sees terms that are missing that should be added or terms that should be deleted or others that should be modified in some way, he or she will make those recommendations. They do not usually involve business aspects of the transaction such as the sale price, the term of the mortgage, etc. The buyer or seller may ask their attorney questions concerning some of the business terms but business decisions are those of the client and not of the lawyer. The lawyer's function is to review the agreement from a legal point of view and advise the client of his or her rights and obligations under the terms of the agreement and explain various choices and consequences of the exercise of those choices. From the time the agreement is signed until the final settlement day, the lawyer will be available to answer questions and review other documents such as those prepared by and submitted to a buyer by a mortgage company. In addition, if there is a home building inspection and problems are detected, the lawyer can be consulted with respect to advice on how to proceed. In the state of New Jersey, there is a law that requires what is called an "Attorney Review Period." The Attorney Review Period gives either party the option to take the agreement to their attorney and have the attorney review it and for any reason or no reason at all cancel it. This three day period excludes the date it was signed, Saturdays, Sundays and holidays. If the attorney reviews the agreement and advises his clients not to proceed, the attorney will give notice to the agents and the seller in writing either by facsimile, certified mail or hand delivery. This way, the objecting party will have evidence that other party has received the notice that the agreement has been cancelled. Along with the notice of cancellation, can be a suggested modification to the terms which in essence is a counter offer. If the parties agree to the suggested changes, a new contract is formed. Click here to find Sample Legal Forms and click and then click on the Attorney Review Clause/Addendum. REAL ESTATE AGENT'S ROLE The real estate agent/broker plays an important role in meeting their primary function which is to bring a seller and a buyer together. Most homes are sold through a real estate agency who participates in a multiple listing that gives the seller the widest exposure possible. The real estate commission is usually 6%. If the listing broker also procures the buyer, that broker will earn the entire fee. If another real estate agency procures the buyer, the commission will be split. In either event, because the income that the real estate agents earn is produced from the seller's sale of the home, both real estate agents are agents of the seller. There is a growing trend in the real estate industry over the last few years which has introduced two new concepts: a) a buyer/broker i.e. one who proports to represent only the buyer and not the seller's interest. The second is the real estate person procuring the buyer to charge the buyer for certain services that are necessary in any real estate transaction i.e. the preparation of a deed, obtaining title insurance which the buyer pays for. The title insurance company usually prepares the deed because it is necessary to obtain a legal description of the property. The writer of this article recommends that if you are a buyer or seller that you do no elect dual agency. Since the real estate commission is generated from the seller's side, any sharing in the fee by a sub-agent or buyer/broker or some other title that the real estate agent who procured the buyer uses, creates a potential conflict of interest. This could happen if there is a dispute between the seller and the buyer and since both agencies earn their fee from the seller side, they owe a duty of loyalty to the seller. The second point is charging a buyer for those services mentioned above. Again, since both real estate individuals owe duty to the seller, if one of the real estate agent earns a fee from the buyer then another conflict of interest is created because that real estate agent owes its duty of loyalty to the seller and now also to the buyer. Suppose a Seller/Buyer dispute arises?. WHAT POSITION WILL THAT REAL ESTATE AGENT TAKE IN THE EVENT OF A DISPUTE BETWEEN THE SELLER AND THE BUYER? To avoid these problems, it is recommended that dual agency be avoided and that neither seller or buyer sign an agreement authorizing payment by the buyer to one of the real estate agents for services. Services which by the way, are absolutely necessary to bring the real estate transaction to a close and should be deemed part and parcel of the realtor's duties and compensated for by the real estate commission received. ATTORNEY REVIEW As mentioned above, New Jersey law provides for an attorney review period. Pennsylvania law has no such requirement however the parties can agree to a provision in the agreement. If there is a rush to sign an agreement for any reason, this is an example of a clause that can be inserted by addendum or in the miscellaneous or special clauses to terms: Within three working days of the signing of the Agreement of Sale by both parties, either may have the Agreement reviewed by an attorney who may cancel the agreement for any reason or no reason. The three working days are calculated by excluding the day the second signature is added and excluding Saturdays, Sundays and holidays. The notice of cancellation will be effective on delivery to either agent i.e. buyer's or seller's or listing agent, to the seller, and to the buyer or buyer's attorney. Notice will be effective by facsimile transmission the day sent or by certified mail return receipt requested effective the date mailed or by hand delivery the day it is delivered or by regular mail the date it is received. Nothing, however, shall prevent either party from renegotiating the contract to attempt to come to terms which will be satisfactory to both parties. MEDIATION Mediation is not required by law; however many of the new Agreement of Sale forms have a provision for mediation. It is recommended that mediation should not be agreed to in advance by the parties which would force mediation. Mediation in the context of a real estate agreement is a misnomer. Mediation usually is a person agreed to by the parties who helps them come to an agreement but does not make a decision that becomes binding unless the parties agree that it will be. There is nothing wrong with electing to attempt to resolve problems by mediation which is an alternative to litigation; You should not be bound by the recommendation of any mediator. The party should be bound only by an agreement signed by both Seller and Buyer. WHO WILL BE INVOLVED? When you buy a home, you will come in contact with a
variety of specially-trained people. In. most cases, the real estate agent will
be your first contact, then your lawyer, your banker and, in some cases, a title
insurance officer. It is important to understand the functions of these people
so you can determine whether you are being treated fairly and properly WHAT IS THE REAL ESTATE
AGENT'S ROLE? Unless you buy directly from the owner, the first
person you will come into contact with will be the real estate agent, who is
trained to help you find a home. You should remember that the agent is a
professional salesperson who is generally under contract with and receives a
commission from the seller. Therefore, the agent is representing the seller's
interests in selling the home to you. The circumstances do not change even if
there is more than one agent involved, because they still receive their share of
the commission from the seller and they will earn it only if the sale takes
place. WHY DO I NEED A LAWYER? Your lawyer should participate in all phases of the
transaction to help you in dealing with the other people involved. Your lawyer
will explain to you the different phases of the transaction. There are many
times when legal documents are prepared by the real estate agent. Remember, the
agent does not represent you. Any document requiring your signature should be
reviewed by your attorney. This is true regardless of what the document is or
how it is described to you. In some instances, your lawyer may also provide
additional services. WHAT IS THE AGREEMENT
OF SALE? The center piece for the purchase of a home is a
document called the Agreement of Sale. It is the most important document
that you will sign in purchasing your home because it sets forth all of the
terns and conditions of your purchase. Frequently a preprinted form is used as
the Agreement by the seller's realtor, and the precise terms are added by
completing blanks on the form. Agreements of sale contain detailed legal
language which is often hard to understand. Your lawyer is specially trained to
provide you with the explanation of these terms, and will be able to point out
other factors you should consider. For example, you should be aware of the kind of deed
you will receive, i.e., tenants by the entirety (husband and wife), and
for joint owners, a survivorship deed or a tenant in common deed. A deed is the evidence of your title to the property. You will
also want to be sure that your obligation to buy is conditioned upon the type
and amount of financing you want, with terms you are sure you can afford. Your
lawyer can make sure that unnecessary charges are eliminated from the
transaction and can also help you avoid the problem of having to move out of
your present residence before you are able to move into the new one. Other terms
which your lawyer will assist you in providing for in the agreement include: · The dates and amount of payment required. * The settlement date. · A list of household items to be included in the sale. A statement about what happens if the property is damaged or destroyed before settlement. ·
Damages to be paid if the agreement is broken by either
party. This list is not complete, but it does show how
important it is to be thorough before the agreement is signed. Remember, once
you sign a document, it is too late. Unfortunately, many times a buyer will sign
without fully understanding the terms of the agreement. Before signing, make
sure you understand everything! WHAT
ABOUT A MORTGAGE? A mortgage is a loan, which is usually made to you by
a Credit Union, Bank or other financial institution. Unless you are going to pay
cash for your home, a financial institution will be necessary to obtain the
money to purchase your home. Disclosures required by law will show you what you
will actually pay for your home over the term of the mortgage. Your lawyer can
also assist you in obtaining information about a mortgage that will fit
your needs. In general, the mortgage market is competitive. This
means that by shopping around for a mortgage, you may be able to save money. Your lawyer will be able to explain the procedures for
obtaining a mortgage, as well as different types and rates of interest,
"points," and the legal documents involved. You may want to ask your
lawyer or financial institution about alternative means of financing. These
include, among others, seller financing or assuming the seller's current
financing. WHY IS A TITLE EXAMINATION
NECESSARY? Before settlement, the title should be examined to
determine whether there are any liens, encumbrances or other potential clouds on
the title. Also, lending institutions providing a mortgage will require that you
purchase title insurance at the time of final settlement to protect their
interest. In some areas, the title examination or title search
is done by a lawyer. In other areas, the search is done by a title insurance
company. The buyer pays for the title search and for the title insurance. Your
lawyer will examine it to determine that you will receive proper and legal title
to the property. Only a lawyer is qualified to evaluate the legal implications
which may arise as a result of the title examination. WHAT DOES A TITLE
OFFICER DO? In many parts of Pennsylvania, the title officer, who
works for a title insurance company, is the person who will conduct the closing
or settlement on your new home. It is the practice in other areas, however, for
your attorney to conduct the settlement. WHAT DOES THE SELLER
HAVE TO DISCLOSE? The Real Estate Seller Disclosure Law took effect Aug.
30, 1996. Intended to make potential buyers aware of any material defects, this
law requires a seller to complete a detailed disclosure form regarding the
condition and structural soundness of the property which is for sale. The law
also stipulates that sellers can be held liable for related damages if they fail
to disclose defects they know about. This law applies to properties that are for
sale through the real estate agent or the owner. On the form, sellers are asked to provide detailed
information about such areas as the installation and repair of the roof, gutters
and downspouts; water leakage; termites, dry rot; shifting or movement of walls
and foundations; additions and remodeling jobs; water, sewage and plumbing;
heating and air conditioning, the electrical system; all appliances included in
the sale and many other things including condominium or association assessments
and mine subsidence, if applicable. WHEN DO I RECEIVE TITLE TO
THE PROPERTY? The final stage in the purchase of property is called
the closing or settlement. The closing may be held in the office of the title
insurance company, in your attorney's office, or at the bank or financial
institution which provided the mortgage. At closing, the terms of the agreement
of sale will be carried out, the mortgage documents will be signed, the title to the real estate, in the form of a deed, will be transferred to you, and the
seller will be paid the purchase price. There are many documents to be signed and reviewed.
Your lawyer will attend the settlement with you explain each document and change
on the settlement sheet and to do all things necessary to protect your interests insuring that you receive
everything you are entitled to under the Agreement of Sale and to render legal
advice should any problems arise prior to or at the settlement. WHAT EXPENSES ARE INVOLVED? Your lawyer can explain to you what expenses are
involved, in addition to the purchase price. Among them are: ·
Cost of title examination and title insurance. State
and local transfer taxes. ·
Adjustments for property taxes and other items already paid
or to be paid. ·
Your lawyer's fees. ·
Charges imposed by the institution providing the mortgage,
including "points" (a percentage charge, usually three points) and fire
and homeowner's insurance, . · Recording costs for the deed, mortgage and any other required filings. · Any miscellaneous charges.
SOME ADDITION TERMS YOU SHOULD BE FAMILIAR WITH BEFORE YOU ENTER INTO ANY REAL ESTATE TRANSACTION THAT IS BEING HANDLED THROUGH A REAL ESTATE AGENCY. First and foremost, any relationship you enter into with a real estate person is called an "agency relationship." This is a relationship whereby the broker or licensees in the employ of the broker act as fiduciaries for a consumer of real estate services by the expressed authority of the consumer of the real estate services. The word fiduciary is applicable and therefore places on the broker or the licensee in the employ of a broker a higher standard duty of care than ordinary care. Other terms are "broker"; "buyer/agent"; "designated agent"; "listing broker"; "sales person"; seller agent; "transaction licensee"; all are paid from the Seller's purchase price and the owe Seller a fiduciary duty. Regardless of the title, because they receive their compensation from the Seller, they are agents of the Seller. SETTLEMENT At settlement, all conditions should have been met and keys to a vacant, broom swept clean house should be delivered along with the deed to the buyer. Occasionally sellers wish to stay over several days after settlement. This situation presents potential problems.. The first and most obvious is that the seller for some reason is unable or unwilling to move. A court action may be required to gain possession of your new home. Some other potential problems: A personal injury occurs and suit is brought against you when you are not in anyway responsible but the accident occurred on your property; a fire occurs and there is damage; there is property damage to the premises after settlement caused by movers, vandals, accidents, etc.. Whenever a seller wishes to stay on the premises after settlement, an attorney should be consulted, an agreement drawn, money set aside and very specific language used in the agreement so that there is adequate protection for the buyer as well as the seller; in particular, the seller's insurance should be made primary and keep in full force and effect in addition to and secondary to the buyer's insurance. Most lenders will not approve of such arrangement and you should consult with an attorney before you proceed. There is good reason to have a full knowledge of the risks and potential liability in allowing a delay in taking possession of your new home. Ó 2000 James
W. Pearson, Jr., All Rights Reserved FOR ADDITIONAL INFORMATION CALL THE TOLL FREE HELP LINE 1-800-232-1477 E-mail: lawyer@lawwalk.com JAMES
W. PEARSON, JR. Chair of the Federal & State Credit Union Department & Coordinator of legal consultations under the Family Legal Care Plans offered to credit union members. |
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