Costly Legal Mistakes to Avoid
When Buying or Selling a Home.
Buying or selling your home is likely to be one of the largest and most expensive transactions that you make. As such, you need to be prepared to navigate what can be a complex process that transfers a not insignificant sum of money from one party to another in exchange for real property. While this process can be complex, it need not be difficult, if approached properly.
First and foremost, you should be well informed on the process of buying and selling property, prior to undertaking the task. Be assured that many issues will arise during a real estate transaction and many of those will have legal implications. To assist you in preparing yourself for this process, this report outlines the 4 most likely legal issues that you will face during the process of buying and/or selling of a home.
Because this process is so complex, it is also important to consider hiring qualified professionals to represent you.
Make sure that the real estate agent you select is experienced and that he or she can refer you to a reputable and experienced real estate attorney for advice.
The Top 4 Costly Legal Mistakes
Don’t risk thousands of dollars because of inexperience. Make sure you are aware of these 4 common legal mistakes that could cost you thousands of dollars. The following 4 common legal clauses must be worded properly or they could work against you.
1. Financing Contingency Clauses.
Most Buyers require mortgages to purchase a home. The Financing Contingency Clause is the Buyer’s way out if he doesn’t qualify for a mortgage. This clause should provide the Buyer with a refund of her deposit, if after a good faith effort, she is unable to obtain a loan.
Any offer should clearly specify the ground rules in the Financing Contingency Clause. This clause should answer the four w’s: who, what, where and when. Who: the financing contingency can apply to the seller or the buyer or both. What: the clause should specify the type and amount of mortgage that is sought buy the party, i.e. an 80% mortgage for 30 years at 7.5% fixed rate. Where and when: the clause should include a notice requirement that is in writing within a specified period of time, i.e. if the Buyer cannot obtain this mortgage, the Buyer must notify the Seller in writing within 30 days of the date of this contract.
Problems with financing are the leading cause of contract failure and contract disputes. These types of problems can be avoided by ensuring that the Financing Contingency Clause is clear and well written.
2. Surveying Clauses
Buyers are entitled to have a Survey Clause added to their real estate contract for the home they are seeking to purchase. On the other hand, if you are the Seller, you should be aware of the potential financial implications associated with this type of clause.
Your current survey may not be up to date if you had an addition or a pool built. Older homes may not even have a current survey of the property. If either of these is the case with your home, the Buyer may request a new survey be completed prior to purchase. The cost for a survey typically runs between $1500 and $3,000, depending on where you live.
A good real estate agent should provide the Buyer with a survey of the property. It is the Buyer’s responsibility to decide if the survey is adequate. If there is no survey of the property, the Seller will be responsible for having one completed to provide to the Buyer.
3. Disclosure: “TDS” Clauses
Sellers are required to disclose any problems that they know about. To do this the seller must provide a “Transfer Disclosure Statement” or TDS. The key thing to remember is that a seller has no liability if the Seller did not know about the problem. Sellers must disclose any fact or condition which affects the value or desirability of the property according to a reasonable person. This includes information about the neighborhood and non-structural facts about the house. The important aspect of this clause is reliant on who agrees to remedy any problems that are found during an inspection or prior to the closing of the sale.
Buyers should have physical inspections of the structure and pest control condition reports done. Most buyers obtain a standard pest control report costing about $200. While all elements of a contract are negotiable, actual damage defects are usually the Sellers responsibility while defects likely to lead to pest damage are generally the Buyer’s responsibility.
The contract should put limits on responsibility. If limits are exceeded, the contract should require the parties to re-negotiate.
4. Contingent On Another Transaction Clause
Sometimes the Buyer only wants to purchase the house once their old home has been sold. Through no fault of either party, the sale of the Buyer’s home could fall through, causing the Buyer to cancel his offer. A clear and defined time limit for this type of contingency is the best singular defense. This allows the Seller to seek other offers if the Buyer is having trouble selling her property.
Remember that you have the right to consult an attorney when buying or selling a home. Don’t underestimate the value of this option. It is likely to be money well spent.
This report does not replace the advice of an attorney nor should it be construed as legal advice. Always consult an attorney regarding legal issues and before venturing into any legally binding agreements or contracts. This report is not intended to solicit property currently listed for sale.
This paper is intended for informational purposes only. Nothing contained herein constitutes legal, financial or other professional advice. Transmission of these materials is not intended to create, and receipt does not constitute, any relationship of any kind between the provider and the recipient. Some of these points may not apply in your area. Different term and conditions may vary from state to state and province to province. Download PDF