Typically, when an agreement is reached on price, a purchase agreement (also known as a sales contract) is signed by the parties (buyer and seller). Before signing, you should make sure that it correctly expresses your agreement with the other party on important deals—such as the price of the house, method of payment, the time set for taking possession and what fixtures, appliances, and personal property are to be sold with the home.
It takes a lot to buy and sell real estate—energy, time, and, most importantly, money. Having a lawyer to help you look out for potential landmines and your financial well-being is greatly impactful. From legal guidance, mortgage document review and even help resolving disputes, our LegalShield lawyers can provide assistance for a wide range of real estate-related challenges.
WHAT IS A PURCHASE AGREEMENT?
WHAT IS A REAL ESTATE SELLER DISCLOSURE STATEMENT?
Sellers must make a good faith disclosure, based upon their knowledge at the time of disclosure, of all material facts of which the seller is aware that could adversely and significantly affect:
- An ordinary buyer’s use and enjoyment of the property; or
- Any intended use of the property of which the seller is aware.
The following are examples of these material facts:
- There was a water leak in the basement 10 years ago, and the seller hired a contractor at the time to fix the leak issue and the drywall.
- In the spring, the backyard sometimes gets pools of water, which go away after 2–3 weeks.
- The vinyl siding was damaged in a hailstorm 6 years ago but was replaced afterward.
- There is a sporadic “buzzing” sound in the walls when a large appliance is being used.
If you are unsure about whether an issue should be disclosed, err on the side of disclosing the issue to the buyer. The seller will generally not be liable for a defect or other condition in the residential real estate property being transferred if the seller truthfully discloses it in the seller disclosure agreement.
If a seller does not disclose material facts as required, and there is no waiver or other exception, the buyer can file an action within 2 years after the date on which the prospective buyer closed the purchase or transfer of the real estate property. Damages are calculated as the difference between the sale price and the fair market value of the home with the undisclosed defects. It is the buyer’s burden to provide evidence of the fair market value of the home with defects.
WHAT IS AN OPTION TO PURCHASE?
This is a contract where an owner of real estate property (“optioner”) agrees with a potential buyer (“optionee”) that the potential buyer shall have the opportunity to buy the property at a specified price within a specified time period.
The seller, for a fee, is guaranteeing that they will sell the property at the specified price to the potential buyer if the potential buyer “exercises” the option within the specified time period. All other buyers are usually excluded from buying during the time that the option is in place. The potential buyer pays the seller for the exclusive right to buy while the option is in place. If the potential buyer does not “exercise” the option and buy the property within the specified time, the seller usually keeps the payment for the option.
The option payment is usually a small fraction of the total purchase price, for example, the potential buyer pays $1,000 for an exclusive 30-day option to buy a $200,000 property from the seller.
The option usually consists of a written agreement to grant an irrevocable right to purchase in exchange for independent consideration, with the purchase agreement attached as a separate exhibit document.
WHAT IS A RIGHT OF FIRST REFUSAL?
A right of first refusal is a contractual right given by a seller of a specific asset (such as a house or business) to a potential buyer of that specific asset where the seller must give a potential buyer an opportunity to match a price and terms at which a third party has offered to buy a specified asset, on the same terms offered to the third party, within a specified amount of time after the third party has made the offer. These specifics are usually explained in a contract between the seller and the potential buyer and must be agreed upon by both parties.
WHAT IS EARNEST MONEY?
Earnest money is a cash deposit paid by the buyer to the seller to show that the buyer has made a sincere offer to the seller to purchase the property. Earnest money is usually held by a broker in a real estate trust account or an escrow agent and is typically deposited by the buyer by the next legal banking day after the seller accepts the buyer’s offer. If the sale closes, the earnest money is applied to the total price of the property.
The real estate contract will dictate if the earnest money is forfeited to the seller when it is the buyer’s fault that the sale is not completed. To avoid this, buyers will want to negotiate to include the contingencies that allow buyer to get their earnest money back if, for instance:
- the buyer cannot obtain financing before closing
- the buyer cannot sell their previous residence before closing
- the buyer receives homeowner’s association documents and concludes upon review that they no longer want to buy the property
WHAT IS A QUIT CLAIM DEED?
A quit claim deed is a tool used to document the transfer of property from one party to another. It differs from other deed forms (warranty deeds, limited warranty deeds) in that it excludes any kind of warranties that the seller has a good title or any title at all in the property. It is typically used when the parties are family members or have an informal and close relationship, or when one party wants to transfer ownership of property to another.
The quit claim deed must include:
- The names of the parties involved;
- A legal description of the property being transferred (legal descriptions of land are drawn to scale and record the land’s size, boundary locations, nearby streets, flood zones, and any easements or rights of way.);
- A statement that payment has been given (does not necessarily need to list the sale price, only that consideration has been given);
- The seller’s signature; and
- Notarization by a valid notary public.
Certificate of Real Estate Value
When recording a deed with consideration of more than $1,000, a certificate of real estate value (CRV) or electronic certificate of real estate value (eCRV) must be filed with the county auditor in the county in which the contract property is located. CRV/eCRV information is reviewed by the county of sale and the state department of revenue to verify sales terms and ensure fair and equitable property tax assessments statewide.
Recording a quit claim deed
A quit claim deed must be submitted to the county recorder’s office in the county where the property is located. The county recorder’s office is a public records office, which keeps deed documents, mortgage documents, etc. for all properties located within the county. You must submit the deed along with the fee associated with the filing. It is best to contact the County Recorder’s Office before your arrival to find out the exact fee amount, as it varies by county.
Your county recorder’s office will likely be called “[COUNTY NAME] County Recorder” or “[COUNTY NAME] County Recorder and Registrar of Titles”.
Warning: if you have financing on the property (a mortgage) and you transfer ownership of the property using a quit claim deed without your lender’s permission, you may trigger a “due on sale” clause in the loan documents, and the lender may accelerate your loan so the entire balance of the loan is due in full immediately. This can trigger a foreclosure proceeding by the lender. Get your lender’s express permission before transferring ownership of the property using a quit claim deed. Your lender may require you to modify or refinance your current loan.
WHAT IS A TRANSFER ON DEATH DEED?
A transfer on death deed (T.O.D.D.) is a deed that will transfer ownership of the property described therein to the named beneficiaries upon the death of the grantor-owner(s).
The main benefit of a T.O.D.D. is that it allows the property to be transferred to beneficiaries automatically upon the grantor’s death, without the need to open a probate court case and go through the probate process. A T.O.D.D. is thus a probate-avoidance device. If you die as a real estate owner and you have not used a probate avoidance device for your real estate (such as a joint tenancy, a T.O.D.D., or a trust), your family or other beneficiaries will have to open a probate court case and go through the probate process to transfer your real estate property—a process which usually takes 6–12 months or more and may require an attorney.
The grantor/owner can revoke the T.O.D.D., or sell the property at any time during the grantor-owner’s lifetime. The beneficiaries named in the T.O.D.D. have no rights to the property until the grantor-owner’s death.
Transfer on Death Deeds cannot be used to transfer ownership of vehicles.
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