Buyer's Guide

Buying real estate is, at best, a legally complex process, and a lot of things have the potential of going wrong. Consider what's at stake - your money, your property, and your peace of mind. Consulting a real estate attorney early in the process is one of the smartest things you can do for yourself and your family. This report is intended to highlight some problem prevention tips. It is not designed to provide legal advice or to replace the advice of a real estate attorney. Only your attorney can give you legal advice and protect your interests. Your lawyer’s advice and assistance at every stage of the home buying process will enable you to survive this difficult process and enjoy the benefits of home ownership. With that, I offer you some problem prevention tips, and should you decide to proceed with a transaction, I’d be happy to talk to you about representing you and protecting your best interests as your attorney:

1. TIME IS OF THE ESSENCE.

This phrase is a part of each and every real estate contract, and must be taken very seriously. Essentially, it means that the deadlines that are reflected in the contract are just that – deadlines. They are not mere suggestions. Accordingly each and every step or requirement must be addressed immediately. If the contract states that the buyer must apply for a mortgage within 5 days, then you must do so. You must be vigilant in securing all necessary documentation and conveying it to the lender as soon as possible. You should periodically review the lending process so as to monitor the loan progress and be able to reasonably predict when the loan might be approved. Today’s real estate market requires a sense of urgency. As your attorney I can help to monitor important transaction milestones, so that you don’t get “caught in the switches.”

2. KNOW WHAT KIND OF REAL ESTATE YOU WANT.

What kind of property do you want? Real estate is an important investment, and the search for an appropriate property that suits your goals begins with knowing what you want to achieve as a property owner. Once you have a clear picture in mind, talk to several real estate professionals that specialize in the type of property you are looking for. All agents are not equal in terms of their knowledge and expertise, so choose wisely before you decide with whom you want to work.

3. KNOW YOUR AGENT.

A good agent listens well, has time for you and guides you without making decisions for you. There are buyer's agents, seller's agents and agents who work for both. Some primarily sell houses and condos. Others specialize in investment properties. If you choose to call on a listed property directly, be aware that the real estate agent works for the seller, so anything that you tell him or her is potentially going to be relayed to the seller. Make sure you know up-front whose interests the agent is representing. Tip: It is probably best to retain your own Buyer Agent to represent your best interests in the transaction. As your attorney I will work in conjunction with your personal buyer agent to ensure that your best interests are being addressed.

4. KNOW WHAT YOU CAN AFFORD.

Consultation with a bank, lender or mortgage broker is probably the most important initial step you can take in terms of your real estate search. This should be done even before you begin looking at specific properties. Why waste your time looking at properties that are listed at prices above what you can potentially borrow? If you are working with a good buyer agent they should be able to recommend several good loan officers. That said, the ultimate decision as to whom to use is always up to you, but whomever you choose, it is wise to get pre-approved before starting your search.

Tip: Pre-approval is proof of your buying power, which can give you an advantage when you're among several buyers pursuing a property, especially crucial in today’s frenetic market. Sellers look more favorably upon offers from pre-approved buyers.

5. HIRE AN ATTORNEY, AND EARLY.

If it all seems overwhelming, fear not. Consulting a real estate attorney like myself early in the buying process, even before you sign a contract, helps ensure a smooth closing day. Because the contract defines what happens at closing, an attorney is very limited in how much he or she can help if you simply ask him or her to "show up at closing." At that point, the game is basically over.

There are countless latent problems that can arise in a real estate transaction, and many may not even be evident until after the closing has occurred. Some examples:

• Unnecessary taxes or expenses because contract terms weren't negotiated in your favor;
• Title to the realty taken in a way that is inconsistent with your needs or your future plans for the property;
• Discovery that improvements that were planned by you, such as building a garage or erecting a fence, will not be allowed for one reason or another.
• A purchase contract that is not enforceable, complete or consistent with what you originally intended;
• A discovery “post-closing” that there is a lien on the property which will interfere with your subsequent sale of the property.

Tip: When you hire an attorney like myself for a real estate transaction, be sure that he or she is someone who is experienced in this area of the law. You might be tempted to hire your brother-in-law or your nephew who just graduated from law school. In the long run, however, this is one of the biggest purchases that you will probably make in your life, and the least you should expect is that the attorney you hire is accustomed to handling real estate transactions. Also, do not hesitate to inquire as to the potential attorney fees. Some attorneys may charge you a “flat fee” for the entire transaction while others will charge you an hourly fee. Also, be aware that you often “get what you pay for” and the least expensive attorney is not necessarily the best selection.

One way or the other you are the client and have a right to know. If the attorney will not discuss fees – find another attorney.

6. KNOW SOME MORTGAGE TERMS.

There are all manner of loan plans available to the buyer today. Very basically, there are:

Fixed-rate mortgages. With a fixed-rate mortgage, your interest rate stays the same, or "fixed," throughout the term of the loan, usually 15 to 30 years.

Adjustable-rate mortgages. Also called ARMs or adjustables, these mortgages typically start off with a lower interest rate that stays fixed for a specified time and then "adjusts" periodically, rising or falling depending on changes in the market interest rate. Your monthly payments, too, will fluctuate.

VA, FHA and FmHA mortgages. If you have less than 20% for a down payment, ask your lender about Veterans' Administration (VA), Federal Housing Administration (FHA) or Farmers Home Administration (FmHA) mortgages, offering competitive interest rates and requiring little to no money down. Note that not everyone will be eligible to apply for these types of loans.

7. KNOW WHAT ITEMS OF PERSONAL PROPERTY ARE PART OF THE TRANSACTION.

Be careful to understand exactly what items of “personal property” are being sold along with the real estate. Each and every item being conveyed, such as appliances, window treatments, chandeliers, alarm systems, must be specifically noted on the contract. Do not assume that the refrigerator or window air-conditioners are part of the deal unless they are listed on the contract.

8. POSSESSION DATE.

This is the date that the seller will be vacating the property. Will they convey possession to you on closing or do they intend to “holdover” for a certain period of time? If a multi-unit building, are there leases to which the property is subject? You do not want to be faced with any unpleasant surprises at closing, like having a remodeling crew standing by only to discover that possession will not be tendered at closing or that there are several long term leases in place.

9. CONTRACT CONTINGENCIES.

Certain clauses provide a sort of “escape clause” which can favor one party or the other. The "standard" contract will not automatically include every provision specific to your needs and requirements--they must be added. In addition to making sure you're protected, your real estate attorney can spell out all your legal rights and monetary obligations and insert any contingency clauses. Some examples:

Financing. Also referred to as the “mortgage contingency”, this particular clause makes the contract dependent on buyer receiving a mortgage commitment by a certain date, specifying cancellation rights and requiring the return of any earnest money deposit if you can't arrange adequate or acceptable financing. This is a very important clause.

Property inspection. This clause allows you to have a professional inspector perform an inspection of the property, at your own expense, so as to reveal any hidden structural or mechanical problems. If you are not satisfied with the property’s inspection report, this clause may allow you to negotiate for repairs, or if the defects are major, to opt out of the contract altogether.

Tip: the contract usually calls for the inspection to be performed within a set time frame (10 days perhaps). In order to take advantage of this provision you must act quickly. Also, some inspection clauses specify exactly what kind of defects will be actionable or may place a monetary limit on any repairs.

Prior real estate sale. If you are “moving up”, this clause allows a specific timeframe for you to sell your current property, but it also usually permits the seller to continue to show the subject property in the interim. Accordingly, you could be “shut out” by a subsequent bidder.

Clear title. You want a clear and marketable title to the property. If there are title defects, you can withdraw from the deal.

Attorney approval. This allows me, as your attorney, to review the contract even after you and the seller have signed it, so as to negotiate any revisions with the seller’s attorney. There are usually limitations to what an attorney can do, however. The attorney cannot change the price, for example, and often the closing date is not subject to revision either.

10. CLOSING DAY.

Also known as "settlement". The closing, basically, is when the seller gets paid and you get the keys. As you're wading through all the paperwork, it's impossible to read every word of everything you're signing. If you tried, your closing would take a week!

That's why you need the peace of mind a real estate attorney like me brings to closing day. I know what all the paperwork means and, more importantly, what it all means to you.

Tip: Be on time for the closing. Besides you and the seller, other participants on hand may include the attorneys, real estate agents, a mortgage broker or loan officer and the closing agent from the title company. They have all set aside their time for this particular closing and it is only common courtesy and good business to appear at the appointed time. Additionally, the title company only allots a certain amount of time to close each deal, and if last minute problems arise with some aspect of the transaction there will be time enough to work them out to everyone’s satisfaction.

FINAL NOTE

Again, this report was intended to highlight some problem prevention tips. It is not designed to provide answers to all questions or to provide legal advice or to replace the advice of a real estate attorney.

Rely upon your attorney to give you legal advice and guide you through the process.

Please feel free to call or e-mail with any specific questions.

ARTHUR J. MURPHY
312-427-3650

arthurmurphy@murphyandsmith.net