Starting the Process:
Before signing any document or paying any money, you should carefully
examine your requirements, resources and needs for professional help.
An experienced, reputable real-estate broker may be indispensable. Although
the seller ordinarily hires the real- estate broker and agrees to pay the
fee, it is possible for a buyer to make such arrangements.
The Florida Code requires agents to disclose whether they represent the
buyer or seller (or both). Verbal and/or written disclosure is required
before showing homes for sale. In addition, the disclosure must be confirmed
in a separate paragraph in a written purchase and sale agreement.
When you buy or sell real estate you may also come into contact with bankers
or other lenders, title and mortgage officers, inspectors, or other
authorities whose function you should understand. Of all your advisers, your
lawyer is probably in the best position to assist you with each phase of the
transaction.
Types of Documents Used
Various documents are used to specify rights and obligations in real-estate
transactions. Preprinted forms, individually drafted forms, or a combination
may be used; your lawyer can assist you in determining which are best for
your situation. Typical documents include listing agreements, purchase and
sale agreements, and financing agreements.
Listing Agreements
The usual form of contract between a seller and broker is a listing
agreement. It is usually a printed form, but the amount of commission, the
duration of the agreement and duties of the broker are all items that may be
negotiated. There are several forms of listing agreements, with great
variation in terms, liability, duties and services rendered.
Most brokers request an exclusive listing (or "exclusive right to sell"), a
written agreement entitling the listing agent to a commission regardless of
who sells the property. The agreement may also provide for a commission even
after the listing agreement has expired, if the property is sold to a
prospect produced by the broker during the term of the contract.
An exclusive agency listing designates one broker as the "exclusive agent"
with entitlement to a commission unless the owner effects a sale without
assistance from any broker.
An open listing contract may be given to any number of agents, and often
allows the property owner to sell the property directly. In the event of a
sale, only the broker who has found a buyer receives a commission.
A multiple listing association enables participating brokers to pool
listings and share commissions in order to give maximum exposure to the
property.
A broker who produces a purchaser who is ready, willing and able to buy the
property on the terms specified in the listing agreement (or otherwise
acceptable to the seller) is normally entitled to a commission. The fee
(typically a negotiated percentage of the selling price) should be
stipulated in the agreement.
Although contracts may sometimes provide for payment of a commission only if
a sale is completed (or "closes"), the seller usually must pay a broker who
performs according to an agreement, regardless of whether the sale was ever
consummated. In other words, if a sale fails to close because a seller
reneges, the seller generally must pay the commission.
A broker's role may be negotiated by the parties to the agreement, but the
broker is usually the seller's agent. In representing the seller's
interests, a broker must report all offers and proposals. The broker or
agent sometimes acts as an intermediary, delivering offers and counteroffers
between the buyer and seller. Rates, terms and services vary with the type
of listing, geographical area and other factors.
Purchase and Sale Agreements
Often called the "earnest money agreement," a purchase and sale agreement is
prepared to specify all the terms and conditions of the transaction. This
document states the price and terms under which the buyer is obligated to
buy and the seller is obligated to sell. It is a legally binding contract
which establishes the respective rights and responsibilities of the
purchaser and seller. An agreement for the sale of real estate is void and
unenforceable unless it is in writing and signed by the buyer and seller.
The buyer often makes a deposit, known as an earnest money deposit. This
"evidence of good faith" is usually in the form of a cash deposit, but it
may also be a promissory note (or signed acknowledgment to repay a debt at a
later date). The amount can vary and the deposit is usually applied to the
down-payment obligation or to the buyer's share of the closing costs.
The importance of the purchase and sale agreement cannot be overstated, and
it is advisable to have a lawyer review the document before signing. If this
is not possible, a condition can be included to provide that the transaction
is subject to the approval of the buyer's (and/or seller's) lawyer within a
specified number of days.
A buyer may lose the deposit and be liable for damages if an agreement is
signed and he or she fails to abide by its terms. A seller who fails to
perform after signing the agreement may also be liable for damages.
A preprinted form is frequently used for purchase and sale agreements, with
specific terms added by completing blanks on the form. A specially prepared
agreement or addendum may also be used in place of, or to supplement, a
preprinted contract.
In addition to naming the parties, price and terms of the purchase, a
purchase and sale agreement should also include the following items:
* legal description of the property;
* condition of the title (or legal right to ownership) and assumed debt;
* warranties of title (restrictions, rights or limitations)
* condition of property and of zoning or use rights (if applicable);
* prorations of taxes, special assessments, obligations and prorations
regarding insurance premiums
* stipulation of who bears costs for such items as transfer fees, state
revenue stamps, etc.;
* financing, if it is a contingency of the purchase
* complete terms and documents to be used if the seller is supplying
financing and receiving security for such financing (with copies of any such
documents attached);
* items of furnishings, fixtures or appliances to be included or
excluded;
* right of inspection (if any) given the buyer;
* date of possession; and
* conditions under which an offer may be canceled, as well as provisions
for return or forfeiture of the deposit.
In the purchase and sale of an existing home, the sellers must complete a
disclosure statement regarding the home. Disclosures cover a variety of
topics, including the condition of legal title, the availability of
essential services to the home such as sewer and water, and a listing of the
history of significant repairs or changes in the condition of the house.
Unless the buyer waives review of this statement, the seller must deliver a
completed statement to the buyer for review within a certain time after the
purchase and sale agreement has been signed by both parties. The buyer then
may elect to terminate the transaction by giving timely and appropriate
notice to the seller. If the buyer does not object, then the disclosures are
deemed to be acceptable to the buyer.
Financing Agreements
Banks, savings and loan associations, mortgage or insurance companies, some
credit unions and other institutions are in the business of lending money to
finance the purchase of real estate. Some financing, such as FHA-insured and
VA-guaranteed loans, is insured by the federal government and may offer
lower financing charges or extended terms of repayment.
As an alternative to a conventional lending institution, a buyer may find a
seller who is willing to finance the transaction. Under these arrangements,
a seller receives a promissory note from the buyer and uses a mortgage, deed
of trust, or similar instrument to secure payment and guarantee performance.
Other financing options, such as the use of a land sales contract,
assumption of the seller's mortgage, graduated payment plans, and
adjustable-rate loans may also be worth investigation.
Specific terms and requirements for loans vary widely and are influenced by
money market conditions, the quality of the borrower's credit, income
sources or assets, and other factors. Loan costs can also vary, and may
include service charges, appraisal fees, survey costs, title insurance,
escrow and legal fees.
If financing is required to complete a transaction, a buyer should be sure
the purchase and sale agreement specifies that requirement as a condition of
the purchase. Furthermore, the buyer usually has the responsibility for
finding a financing commitment by a certain date.
The agreements used to secure a debt with real property are usually lengthy
and complex. Such agreements affect the payment of money to a seller, a
lender, or both, and establish a security interest in your real property or
home. Even with a "standardized" form, legal advice may be necessary to
fully understand the details, obligations and legal consequences of the
documents. It may also be necessary for your lawyer to tailor certain items
to meet your requirements.
Use of Security Instruments
Several methods and various security instruments may be used for real-estate
loans, each with different obligations and consequences.
A mortgage and a deed of trust are security instruments that pledge to the
lender an interest in your real estate to secure payment of a promissory
note. A mortgage is the instrument, usually held by the lender, by which the
property is pledged to secure the payment of a debt or obligation. A deed of
trust has similar functions, but is usually held "in trust" by a trustee.
The promissory note acknowledges a borrower's formal obligation to repay the
loan. Under some types of security instruments, a buyer who fails to pay on
time can lose the pledged property or may be required to pay additional
amounts on the loan.
A real estate installment sales contract or a land sales contract is an
agreement between the seller and buyer that states the purchase price and
method of payment, as well as other rights and duties.
The buyer usually does not receive a deed (or legal title) to the property
until all required payments are made. In the event of default, payments may
be forfeited, and the buyer's interest in the property may be lost.
Expenses
In addition to the loan, there may be other costs involved in buying
property. These costs will usually be itemized at the time of closing. In
general, estimates can be provided at the outset of a transaction or before
service is rendered. Along with understanding what fees and expenses are
owed, you should also be aware of when the amounts are payable and who
(buyer or seller) is responsible for specific charges. Typical items
include: lender's fees, appraisal fees, inspection fees, title search,
insurance, taxes, escrow and lawyer fees.
Taxes
Every real estate transaction has certain tax effects upon the parties
involved. Steps may be taken when negotiating the initial purchase and sale
agreement to reduce or adjust tax obligations or postpone payments. Federal
income tax, estate taxes, excise taxes and other consequences are
complicated and the laws frequently change. Whether buying or selling real
estate, advice from your lawyer or accountant is essential in understanding
and dealing with tax considerations.
Real Estate Title
Real-estate title is evidence of legal ownership. When buying real estate,
it is important to assure your right to occupy, use or eventually resell it
without interference. Previous ownership and a title's "marketability" can
be verified by a title search. Multi-unit ownership (such as condominiums,
cooperatives and time-sharing arrangements) may involve special
considerations.
Title insurance offers protection against financial loss and expense of
defending your title in court. Issued by a title insurance company following
a search through records of previous ownership, such policies have various
terms, provisions and types of coverage. Some risks, such as unrecorded
easements or zoning and use restrictions, may not be covered by title
insurance. A lawyer can explain policy exceptions and conditions and may
help a buyer determine whether additional protection is desirable.
Closing the Sale
The final stage in the purchase of real estate is called closing or
"settlement." This sometimes complex procedure occurs when the parties
submit the final documents required to complete the sale according to terms
of the purchase and sale agreement. Money and documents are usually
exchanged at the time of closing, and the function may be attended by the
parties and their lawyers.
Mortgage brokers, private escrow or title insurance companies, and lawyers
usually provide escrow services.
Escrow services by a neutral third party are essential to the proper closing
and recording of instruments and delivery of monies. It should be
remembered, however, that escrow agents obtain information and take their
instruction from the parties; they do not guarantee or protect the rights of
either party in assuring that documents are consistent with purchase and
sale agreements or either party's understanding of the transaction.
The escrow agent must prepare and obtain approval by the parties of "truth
in lending" and "closing" statements as required by the federal Real Estate
Settlement Procedures Act (RESPA). These forms and disclosures are required
to advise borrowers of the cost and interest rates in the transaction. You
may wish to have your lawyer review the documents and explain the content
and consequences.
One of the most important instruments for closing is a deed, which transfers
ownership of property from the seller to the buyer. There are several types
of deeds, such as "warranty deed," "special warranty deed," "bargain and
sale deed" and "quit claim deed." The type of deed affects the buyer's
rights against the seller. The manner in which the buyer's name appears on
the document is also important, since it may affect the form of ownership
and the tax liability of the owner.
Filing Documents
All documents of ownership of real property and those reflecting a security
interest in real property should be recorded (officially filed) in the
county where the property is located. This procedure is necessary to protect
one's ownership of property. To be eligible for recording, the documents
must meet certain statutory requirements. For example, the document must
contain a legible and correctly stated legal description and an official
acknowledgment (notarization) of the signatures. All documents pertaining to
your transaction should be kept in a secure yet accessible location, such as
a safe-deposit box. These important papers may be useful when preparing tax
returns or if planning to sell that property.
This pamphlet was prepared as a public service by Anton Seiss. It contains general information and is not intended to apply to any specific situation. If you need legal advice or have questions about the application of the law in a particular matter, you should consult a lawyer.
ANTON SEISS
305.331.3065
| Home | Featured Listings | Property Search | My Properties for Sale | Contact me |