Especially if you are a first-time homebuyer, the purchase process can be daunting and anxiety provoking. The attorneys at Wilson Law Group can provide the assurance and guidance you need to make the purchase of any residential property simpler and easier. Below you will find information on the basics of a residential real estate transaction.
Most often, the following are the parties involved in a residential real estate transaction:
Listing Real Estate Agent
Buyer's Real Estate Agent
Lawyer for the Buyer/Seller
Title Insurance Company
Closers - for lender and/or seller
Below you can find information on some common issues:
1. Prospective Buyers and Offers
You are not bound to sell your home to anyone until you sign a purchase agreement. Each purchase agreement presented to you is only an offer to buy your house on specific terms. You have no obligation to accept any offer. If, however, you have signed a listing agreement with a real estate agent and you refuse to sell your home to a "ready, willing, and able" buyer on the terms that you specified in your listing agreement, you could be breaching that agreement by refusing the sale.
Whether or not you pay a commission to the real estate agent presenting you with an offer depends on the circumstances of your situation. If you have listed your house with a real estate agent for sale, your only fee obligation is to pay a commission to that person upon the sale of your home in the amount specified in your listing agreement. If you are selling your home in a "For Sale By Owner" situation, you will only have to pay a commission to the presenting real estate agent if a commission agreement is made a part of the sale transaction (typically, real estate agents expect this to occur). Despite what anyone may try to tell you, the commission percentage to any real estate agent is always negotiable and a lawyer could help you through this issue.
2. How long do I have to sign a purchase agreement?
You do not have to sign a purchase agreement immediately. Take the necessary time to talk with your lawyer and become comfortable with your decision. Remember, however, that the other party may withdraw the offer or accept a different one. The purchase agreement might also include an acceptance deadline which requires you to make a decision by a certain time. If that deadline passes, the offer expires. If you do decide to take more time, it is important that you move promptly to resolve any concerns you may have.
3. Reasons to deny prospective buyers
You may not discriminate against any person because of race, religion, gender, national origin, familiar status, mental or physical disability, public assistance, sexual orientation, color, or creed. However, on a sale by contract for deed, a seller may require evidence that the buyer is creditworthy and can make the payments. If the buyer's apparent intended usage of the property whether rental, commercial, vehicular, or residential, is a source of legitimate concern to seller, then, prior to signing the purchase agreement, an appropriate restriction must be drafted and agreed upon for inclusion in the contract for deed. You should consult a lawyer about such a provision.
4. Do I need an attorney if I have a real estate agent?
A real estate agent can prepare a purchase agreement for you but, because real estate agents are not licensed to practice law, they cannot advise you on the legal significance of the terms of your agreement. A lawyer's fees will generally be based on the complexity of the transaction, not the purchase price of the home. Some lawyers are paid by the hour, some offer a flat fee for the job, and some offer a flat fee for a certain amount of work and any additional work is billed to you by the hour. Hiring and paying a lawyer to represent you in buying or selling a house (in which you may have a substantial amount of your net worth at risk) is advisable to ensure that your interests are completely protected.
Most real estate agents are trained to fill in the blanks of standard form agreements, but they have not been trained in the law and cannot advise you on the legal significance or the effect of the terms in a purchase agreement. Remember, the sale or purchase of a home is probably the largest transaction in which you will ever be involved and you should protect your interests.
There are many pre-printed purchase agreement forms used in the real estate industry and, although frequently referred to as "standard," their terms can vary widely. The Minnesota State Bar Association has, however, created a purchase agreement designed to be well-balanced in reciting the respective obligations of buyers and sellers and to highlight issues for negotiation. Remember that when using any pre-printed form, the pre-printed language is for convenience only; all of the terms in the documents are negotiable. As with any contract, you should carefully review its terms and make sure that you understand the legal effect of each of those terms before you sign the agreement. A lawyer can help you with all of this and should be consulted before you sign any form of a purchase agreement.
5. What types of costs can I expect at a closing?
Federal law gives buyers the right to inspect the closing statement one business day before the closing. The closing statement (called a "HUD-1") itemizes all the costs that you will be charged at closing. Be sure to let the closer know well in advance that you want to inspect the HUD-1 the day before closing.
Buyers and sellers can negotiate as to who will pay which costs. Customarily a seller's costs may include:
1. Updating Evidence of Title - between $95.00 and $400.00, but possibly more;
2. State Deed Tax - $1.65 per each $500.00 of the purchase price ($1.70 in Hennepin County), with a minimum tax of $1.65 (or $1.70 in Hennepin County);
3. Recording Fees - these fees range from $19.50 to $34.50 per document;
4. Real Estate Commissions - commissions vary depending upon what you negotiated with your listing agent but they are generally between 2% and 7% of the purchase price;
5. Assessment Searches - approximately $25.00;
6. Unpaid Real Estate Taxes - customarily these are prorated as of the date of closing; the seller pays all taxes before the date of closing and the buyer pays all taxes after that date;
7. Seller-Paid Points - to be paid by seller if obligated to do so by the purchase agreement;
8. Payoff of Existing Liens - the seller will usually be responsible for paying the balance of existing liens at closing;
9. Clearing Title - if title defects exist the seller may be obligated to clear these at the seller's expense and these costs can vary widely;
10. Closing Fee - a closer will charge a fee for his or her services which can range from $175.00 to $250.00 or more;
11. Attorneys' Fees - these fees will vary based on the amount of services provided; and
12. Miscellaneous Costs - any other costs that the seller agreed to pay in the purchase agreement.
A buyer's closing costs typically include the cost of financing the purchase. If a buyer is giving a lender a mortgage on the home, the lender will be required to provide the buyer with a "Good Faith Estimate" of costs so that the buyer can anticipate the costs involved with the financing. In addition to these financing charges, a buyer will usually have to pay title insurance premiums, title examination costs, recording fees, mortgage registration tax, closing fees, attorneys' fees and any other costs that the buyer has agreed to pay in the purchase agreement.
6. I am buying a house with someone other than a spouse; what happens if we later disagree about whether to sell or keep the house?
Before buying the home, you and the other person should enter into a co-ownership agreement which addresses division of expenses, buy-out provisions, sharing of work, death of an owner, and any number of other issues which could arise as problems as time goes by. This is a complex agreement and you should consult your lawyer.
If you are looking to purchase or sell a home, contact the attorneys at Wilson Law Group to guide you through your transaction and protect your rights and interests.
***Much of the information above comes courtesy of the Minnesota State Bar Association - Residential Real Estate Committee of the Real Property Council of the Real Estate Section of the Minnesota State Bar Association from their project "The Role of the Attorney in Residential Real Estate Transactions: Answers to the Questions Most Often Asked by the Public"