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So
you Want to Buy a Home?
The purchase of a home may be the single
most important financial transaction
of your lifetime. As a result, the importance
of protecting such an investment cannot
be overstated. From the day you make
your decision to buy a home until the
time you become the legal owner, there
are a number of decisions you must make
which have legal consequences. As a
result, the proper handling of such
a transaction is extremely important.
An attorney can advise you of potential
legal problems and provide you with
suggestions on ways to solve those problems
before entering into a legally binding
obligation.
Listing Agreement
The general theory of agency in real
estate transactions is that a real estate
broker with whom property is listed
becomes the agent of the seller for
the purpose of finding a ready, willing
and able buyer. If the listing broker
is a member of a multiple listing service,
the placing of the property into the
service creates a unilateral offer of
sub-agency to all other member brokers
and their agents.
Thus, all brokers are generally agents
of the seller.
Therefore, unless you hire the agent
and agree to pay him to represent you,
he will be representing the seller.
However, the agent must still disclose
to you all material facts concerning
the property. As a purchaser, you should
not tell the agent anything you do not
want the seller to know, because it
is the agent's duty to disclose to his
principal (the seller) all that he knows.
Brokers are regulated in this state
by the California Department
of Real Estate. The Department
may be reached at (213) 620-2072. Real
Estate licensees who agree to abide
by and uphold the Code of Ethics of
the National Association of
REALTORS® and
who agree to follow the rules and regulations
of their local board are also members
of the California Association
of REALTORS®.
The C.A.R. may be reached
at (213) 739-8200.
The Offer
A legal offer must be in writing, delivered
to the seller or his agent and contain
specific financial and other terms so
that if the seller says "yes,"
the deal can proceed. The seller's acceptance
must also be in writing.
What's the best way to decide
how much to offer for a house?
Once you've found a house you like and
have the financial resources to buy
it, you must decide how much to offer.
In putting together your actual offer,
consider the following factors:
The advertised price of the
house. Treat this as only a
rough estimate of what the seller would
like to receive, and recognize that
different sellers price houses very
differently. Some sellers deliberately
overprice, others ask for pretty close
to what they hope to get, and a few
(often the cleverest) under-price their
homes in the hope that potential buyers
will compete and overbid.
What you can afford. See
"How
much house can you afford?" in
Qualifying For a Home Loan
for advice on this one.
Prices for comparable houses.
Before making an offer to purchase,
you should know the selling prices of
nearby houses similar to the ones you're
interested in buying. For reliable comparable
prices (called "comps" in
the real estate trade), keep the following
guidelines in mind:
- A comparable sale should have
occurred within six months (the
more recent, however, the better,
especially in a market where prices
fluctuate fairly fast).
- A comparable sale should be for
a house quite similar to the one
you're interested in — in
terms of age, size, and type and
number of rooms.
- A comparable sale should be within
six to ten blocks of the house you
want to buy.
- Local real estate brokers will
have good comparable sales data,
and you can also find useful information
online. See Comparing
Sales Prices Online, below.
Whether the local real estate
market is hot (prices are going up)
or cold (prices are dropping).
In competitive areas, homes sell quickly
— often for 10%, 20% or more above
the asking price — as bidding
wars erupt among frenzied buyers. If
you decide that a house is so attractively
priced that you want to try to preempt
other bidders by making the highest
offer, it's crucial that you set a limit
— for example, $25,000 over the
asking price and not a penny more. This
way, you won't exceed your budget and
might actually save money if the house
was underpriced in the first place.
To force a quick decision, you should
give the seller only a day or two to
accept, reject or counter your offer.
The seller's needs.
Remember that price alone is not the
only consideration for sellers. Your
ability to close the deal quickly —
for example, by getting loan approval
or lining up inspections in advance
of presenting your offer — is
often crucial, especially in hot markets.
Finally, your flexibility and sensitivity
to the seller's needs — whether
it's extending the closing date for
a seller who can't move for a few months
or paying for repairs — may make
or break your offer.
Whether the house is uniquely
valuable to you. A modest house
listed at a reasonable price may be
a bargain if you have three kids, the
house is in an excellent school district
and the lot is large enough to add on
a few rooms. The same house may be overpriced,
however, for a couple not planning to
have children. Don't get so carried
away with judging objective market considerations
that you forget your personal needs.
How much you're willing to pay.
While tactical considerations —
the temperature of the market, the seller's
needs — are important, nothing
should overweigh your own honest assessment
of how much you are willing to fork
over.
Comparing Sales Prices Online.
A few private companies offer detailed
comparable sales prices for many areas
of the country, based on information
from County Recorder's Offices and property
assessors, notably:
HomePriceCheck is more limited
than DataQuick or Experian.
It provides the purchase price, sales
date and address of homes searched by
address, street or price range. Details
on houses — for example, the number
of bedrooms and baths, square footage
and property tax information —
are not available from HomePriceCheck,
as they are from DataQuick and Experian.
But unlike DataQuick and Experian, which
charge a modest fee for their reports,
HomePriceCheck is free. Finally, Consumer
Reports also has a Home Price
Service; for details, call (800) 775-1212.
When making an offer to buy
a house, what's the best way to protect
yourself from a deal that might not
work out? Real estate offers
almost always contain contingencies
— events that must happen within
a certain amount of time (such as 30
days) or else the deal won't become
final. For example, you may want to
make your offer contingent on your qualifying
for financing, the house passing certain
physical inspections (See
House Inspections) or even
your ability to sell your existing house
first. Be aware, however, that the more
contingencies you place in an offer,
the less likely the seller is to accept
it.
Does a seller need to take the
first offer that comes in?
Offers, even very attractive ones, are
rarely accepted as written. More typically,
the seller will respond with a written
counter offer accepting some, even possibly
most, of the offer term, but proposing
certain changes. Most counter offers
correspond to these provisions of an
offer:
- Price — the seller wants
more money.
- Occupancy — the seller needs
more time to move out.
- Buyer's sale of current house
— the seller doesn't want
to wait for this to occur.
- Inspections — the seller
wants the buyer to schedule them
more quickly.
A contract is formed when either
the seller or the buyer accepts all
of the terms of the other's offer or
counter offer in writing within the
time allowed.
What is the house closing?
The final transfer of the house to the
buyer. It occurs after both the seller
and the buyer have met all the terms
of the contract and the deed is recorded.
(See Deeds.)
Closing also refers to he time when
the transfer will occur, such as "the
closing on my house will happen on January
27 at 10:00 a.m."
Do you need an attorney for
the house closing? This varies
depending on state law and local custom.
In some states, such as California,
attorneys are not typically involved
in residential property sales, and an
escrow or title company handles the
entire closing process. In many other
states, particularly in the eastern
part of the country, attorneys (for
both buyer and seller) have a more active
role in all parts of the house transaction,
and handle all the details of offer
contracts and house closings. Check
with your state department of real estate
or your real estate broker for advice.
Contract of
Sale
The real estate contract is the written
agreement between the seller and purchaser
as to the terms and conditions of the
sale. The typical contract used in this
state is a pre-printed form contract
which has been prepared by an attorney.
This contract is the single most important
document involved in the process of
buying a home. Not only does it specifically
fix your liability, it dictates the
steps to follow, most importantly with
regard to financing, items included
in the purchase, marketable and insurable
title, defaults, adjustments, settlement
costs, actual possession, risk of loss,
infestation by insects and certain assurances
as to plumbing, heating and electrical
systems. All of the terms and conditions
that are expected of the parties must
be included in the contract.
Since you may not be comfortable with
all of the terms of the contract or
may have questions concerning the legal
interpretation of the provisions of
the contract, you should not hesitate
to consult with an attorney before signing.
You should always remember that the
contract you sign is a legal instrument
enforceable by courts in the event of
a breach by either party. You may wish
to include additional conditions which
must be met before you are obligated
to buy; such as, the sale of your own
home or approval of the proposed financing
from a qualified lender. Once you and
the seller have signed the contract,
you will probably need to obtain the
necessary financing. The real estate
agent can be most helpful in assisting
you in this area.
Title Examination
One of the primary roles of your attorney
is to examine the public land records
in the county in which the property
lies to determine if the seller's title
to the property is clear and marketable.
Liens and encumbrances against the property
or its present owners are liens to which
the property will be subject regardless
of who owns it. An examination of the
public records by an attorney may reveal
any of the following: partial ownership
by individuals other than the seller;
federal tax liens; judgments against
the present or former owners; attachments;
pending lawsuits; delinquent property
taxes; special liens or assessments;
outstanding loans; laborers' or materialmen's
liens; options to sell the subject property;
or lease agreements. Discovery of any
one of the above items would be considered
a defect in title which would have to
be corrected or cleared of record prior
to or at the time of closing. It is
imperative that you realize that any
such lien on the public records will
remain a lien on your property unless
it is properly removed.
Title Insurance
Most financial institutions require
a title insurance policy insuring them
against title defects which may not
be apparent from the title examination.
A title insurance policy insures the
chain of title and "hidden risks"
that generally are not discoverable
from a review of the public records.
Defects of this sort include marital
status of the owner incorrectly given,
mental incompetency, forged deeds, fraud,
confusion due to similar names, missing
heirs, mistaken legal interpretation
and the like. You also have the right
to protect your equity with title insurance
by purchasing an owner's title insurance
policy.
Closing
The final settlement, or closing, is
scheduled by your attorney at a time
when you, the seller and the real estate
agent can come together to execute the
financing documents, the deed and settlement
statements. At the closing, adjustments
will be made to the sale price to apportion
and pay off debts associated with the
property and make any other adjustments
to the sale price called for in your
contract. At the settlement, you should
carefully review all of the documents
which are presented to you for your
signature. Any questions regarding the
property should be clarified at this
time.
You must bring proof of insurance on
the property, for at least the amount
of the mortgage, to the closing. You
will also need to bring a certified
check or bank check from a local bank
to the closing to pay for your purchase,
including closing costs. These are items
which need to be coordinated with the
closing attorney.
After the closing, the attorney is responsible
for recording the warranty deed and
any loan documents in the Office of
the County Recorder of the county in
which the real estate lies and for taking
the necessary steps to clear any title
matters previously discovered, such
as recording cancellations of existing
mortgages or tendering payment to the
appropriate tax collector.
Your Attorney's
Role and Fee
The attorney's role is to advise and
render legal opinions at all steps in
the purchasing of a home. You home purchase
will likely be the largest purchase
you will make in your lifetime. It would
be wise to have someone who is familiar
with the process (and the small print)
to review the transaction to make certain
you are protected. The attorney works
in cooperation with the agent and lender
to effect a smooth transaction. Attorney's
fees are dependent upon the role of
the attorney in the particular real
estate transaction. Generally the parties
agree on a fixed fee or base the fee
on the amount of attorney time required
or the size of the transaction. You
and your attorney should discuss this
at your first meeting.
Real Estate Brokers
There are two types of real estate
brokers — the seller's
broker and the buyer's
broker.
The seller's broker typically:
- Ascertains the best time for listing
the property
- Conducts market surveys
- Helps determine the appropriate
listing price
- Prepares a marketing strategy
- Catalogues what is to be included
in the purchase price
- Advises and assists the seller
in making the necessary disclosures
to the buyer
- Assists in determining what repair
work needs to be done to make the
property marketable
- Assists seller in determining
whether additional professional
assistance is necessary
- Prepares counteroffers, negotiations,
etc.
- Helps identify and resolve problems
regarding title, etc.
- Assists in opening escrow, etc.
- Coordinates efforts between various
parties and professionals
- Prepares or procures necessary
documentation and information
The buyer's broker typically:
- Assists in defining the buyer's
needs
- Selects and shows buyer suitable
property
- Advises buyer regarding financing,
etc.
- Reviews various financial information
- Assists in reviewing reports
- Directs buyer to and coordinates
various experts and professionals
- Prepares offers and counteroffers
- Assists in resolving title problems
- Helps determine property's compliance
with law, etc.
- Assists in opening, monitoring
and closing escrow
Only active members of the State Bar
are authorized to engage in the "practice
of law" in California. The practice
of law includes the "giving of
legal advice" in the preparation
of legal documents or contracts as well
as the drafting of legal instruments
and contracts. The "resolution
of legal questions for another by advice
and action is practicing law 'if difficult
or doubtful legal questions are involved
which, to safeguard the public, reasonably
demand the application of a trained
legal mind'." Any work on the buyer's
or seller's behalf involving legal judgment
must be performed by a licensed attorney.
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