Do Your Homework Before Buying a Home

The real estate market is really hot right now. I know a number of people who have sold their home the day it was listed. In certain price ranges, it is not uncommon for sellers to get multiple offers above the asking price. You have found your dream home. You are afraid you might lose it, so you sign the purchase agreement. In any event, you are told it’s ok to sign because it’s just an offer or its an standard agreement that your attorney can review after you sign it.

A common mistake many people make after finding a home they like, is to sign a purchase agreement, also called an offer to purchase, and then bring the signed agreement to their attorney for review. If anyone tells you it’s just an offer or its an standard agreement or that your attorney can review after you sign it, don’t believe them. Question everything they tell you. They are not looking out for your best interest, only their own. They just want to make the sale so they can get paid.

Once you sign the purchase agreement or offer to purchase and it is accepted and signed by the seller, it is a contract that is binding upon both you and the seller. There is little that an attorney can do to change or fix the terms and conditions of the signed agreement to protect you, other than make sure that the purchase goes in accordance with the agreement that you already made. And there is no such thing as a standard real estate purchase agreement. Different real estate offices use different agreement forms. Real estate salespersons in the same office oftentimes use different forms.

The real estate purchase agreement is the single most important document for your purchase of real estate. All of the terms and conditions that govern the purchase are in that agreement. The time to have a real estate purchase agreement reviewed by your attorney is before you sign it. If you are worried about losing a purchase, have your attorney review the blank purchase agreement form when you first start looking for the perfect home. When you find your dream home, it will only take your attorney a few minutes to review the filled out form.

Here are some key questions to ask and have answered before purchasing your new home:

What am I buying?

Make sure you know exactly what you are buying. The address and/or legal description should be clearly marked in the purchase agreement. If it is not a condominium or a lot in a recorded plat, list the acreage on the agreement. It may be helpful to list the tax identification number of the parcel to help identify it. I have seen more than one purchase agreement say “See attached legal description” and no legal description was attached.

All movable property such as appliances, window treatments, light fixtures, furnishings, sheds, etc. that are being sold with the house should be specifically listed. You want to make sure that everything you expect to come with the house to actually comes with the house.

Can I get out of the sale if something goes wrong?

You should have adequate contingencies in your real estate purchase agreement. With properly drafted contingencies, you do not have to go through the purchase of the property if any of the conditions are not met. You can walk away from the deal and get your deposit back, or you could have the seller fix or remedy the failed condition before you buy your new home. You could also use the failed condition to renegotiate the terms of the deal to cover the cost of the fix or remedy of the failed condition.

If you are going to have to finance the property, make the purchase agreement subject to a satisfactory mortgage loan on the property. You do not want to be stuck buying a property that you cannot afford. If financing falls through for any reason, you could cancel the sale and get the return of your deposit.

For your protection, the purchase agreement should be subject to a favorable review of the title to the property, including deed restrictions, by an attorney experienced in real estate matters. If the seller cannot give you clear title to the property, you don’t have to buy it.

The purchase also should be subject to a satisfactory review of a stake survey of the property. A mortgage survey is usually not enough to determine exact property lines. Make sure that you know where the four corners of the property are. I have seen discrepancies between fence lines and the surveyed property lines from nine feet on a forty foot lot to over one hundred and fifty feet on an 18 acre parcel that was supposed to be 27 acres. Look for encroachments of the neighbors’ buildings or improvements onto the property. All buildings and improvements of the home you are buying should be within the boundaries of the surveyed lot. If there are problems with lot lines, encroachments or the property is not where you thought it was, you can walk away from the deal and get your deposit back or attempt to negotiate a reduction in the purchase price.

With most real estate purchase agreements, you are buying the property “as is”. An inspection of the home by a qualified inspector may uncover any problems, defects or other issues there may be with the home. A thorough review of the Seller’s Disclosure Statement would also be helpful in this matter. By having the purchase subject to an inspection, if there are problems with the home, you could avoid buying a money pit. Or you could have the seller make appropriate repairs. You could also negotiate a reduction in the purchase price and arrange for the repairs yourself. If the problems are bad enough, you could revoke the agreement and get your deposit back.

You may also want to do environmental testing, especially if you have concerns or a suspicion about any contamination. There are many farms that had above-ground fuel tanks for many years which were used to fuel farm machinery. There were a number of city homes which used underground metal tanks to hold furnace fuel oil. Occasionally, the tanks rusted and released fuel into the ground or there were spills during fuel transfers. In these situations, without the proper protections, you could end up with expensive environmental clean-up costs. However, with an appropriate contingency in place, when you discover environmental contamination, you would not be stuck with the clean-up costs. You could terminate the agreement and walk away from the real estate.

It is also a good idea to have the purchase contingent upon testing the home for the presence of radon, a naturally occurring cancer-causing radioactive gas that seeps into homes through basement or slab cracks or from crawl spaces. The Surgeon General has warned that radon is the second leading cause of lung cancer in the United States. If the home tests positive for radon, you could either have the seller install a radon reduction system, reduce the purchase price for you to have installed or get a return of your deposit and cancel the agreement.

If you are purchasing vacant land not serviced by sewer and/or water and plan on building a home on the parcel, the purchase agreement should be contingent upon a successful perk test for a septic field and the successful flow of water with a well. If you cannot put in a septic tank or cannot get water, you would not be stuck with a hunk of land which is not buildable.

How much is it going to cost me?

The purchase price is not the only cost in the purchase of a home. There are costs for the survey, inspections and testing. There are also many closing costs. Most closing costs can be paid either by the buyer or seller. If you are the buyer, you want most of these costs to be paid for by the seller. Title insurance and real estate transfer taxes are usually paid by the seller. You may want to put in the purchase agreement that the seller pay the title company and realtor closing fees and deed recording fees.

If you are the buyer, you may want the seller to pay all real estate taxes that are due and have no proration of taxes. If there is going to be a proration of taxes, make sure that the taxes are going to be prorated appropriately for the county in which the property is located. In some counties the taxes are deemed paid in advance and in others they are deemed paid in arrears. Also put in your agreement that all special assessments are to be paid in full by the seller at or before closing. You do not want to be stuck paying a huge sewer or water assessment after you buy your home.

When you finance a home, there can be many costs associated with the loan and mortgage. These oftentimes may include fess for points, application, document preparation, broker/originator/lender, processing, tax service, underwriting, wire transfer, appraisal, attorney/closing/ settlement, credit report, flood certification, employment verification, inspections, postage/courier, mortgage survey, title search and title insurance. According to www., a home purchased at the national median value of $198,000 requires an average of $7,227 in mortgage closing costs. Get an estimate of these costs before you commit to a mortgage.

Another common mistake is to buy the biggest home you can afford. You may be lured into special programs for lower income home purchasers with small down payments and monthly mortgage payments that are a higher percentage of your income than average. There will always be extra costs and expenses that come with home ownership. Do not use up all your spare cash on the purchase. I regularly hear first-time home buyers comment about they do not have enough money for all the things they need for their new home. Don’t be lured away from renting and into home ownership by the low estimated monthly payment on your new mortgage and think you will be saving money. I rarely see new homeowners actually spend less money on their new home than when they were renting. Home ownership invariably costs more. There are utilities, furnaces break and roofs leak. There will always be maintenance and upkeep that you are now paying, not the landlord.

If you do your homework, properly budget your home purchase and make sure that you have appropriate advisers assisting you with the purchase, you will have a happy and affordable home buying experience.

Published edited September 16, 2018 in The Times Herald newspaper Port Huron, Michigan as: Do homework before buying a home

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