Purchasing real estate is a big step. The real estate market remains hot given the low interest rates this past year. If you are considering purchasing a residential or commercial property, it is crucial to understand the process and consider the complexities that may arise from the transaction before signing the purchase agreement. There are many considerations to take into account before entering into a deal and during the transaction. Here are some things to consider once you’ve identified the property you would like to purchase and are ready to take the plunge.
1. Initial Considerations
Purchasing real estate might not be the right option for everyone. Consulting an attorney, real estate broker/agent or financial advisor about your goals, needs and means will help form a more complete picture of what the right decision is for you. There are considerations which might not be so obvious to the ordinary person. For example, spouses might need to carefully consider whether they use separate or community property to purchase a property, how they take title or whether to come to an agreement on how the property’s ownership will be divided upon death or divorce. While this particular example might not be of concern to most buyers, there are many similar matters to be considered in depth before putting such a large amount of money into an asset.
2. Make the Offer to Purchase
After finding the property you’ve been looking for, the next step is to make an offer to the seller. The purchase offer includes key terms including the purchase price and protections for you as a buyer. The first offer is the foundation of future negotiations and should be strategically designed to provide the buyer with an advantage. This will help avoid speed bumps along the way and ensure you are not taken advantage of by the seller. Consider your budget and how much you have ready for a down payment. Will you need to secure financing? If so, do you have a pre-qualification letter from a lender? Be aware of your financial limitations and set your limits before getting caught up in a bidding war. Based on your ceiling, determine the dollar amount you want to strategically start the negotiations at. Determine the contingencies you want to include to protect your interest.
3. Negotiate the Terms. The Deal Is In the Details.
The negotiation process will begin if the seller is interested in your initial offer to purchase and responds with a counteroffer. Negotiation is crucial as it will solidify the terms and price the buyer will be bound by should a deal be made. Some of the key terms to consider in a real estate purchase agreement, other than the purchase price, are the contingencies, deadlines for any contingencies, date of closing, date of possession, inspection rights, etc. Pay close attention to these details both in your offer and any pursuing counters to ensure that the terms are fair and reasonable and be aware of any fraudulent or malicious behavior by the seller, including inadequate disclosures, as discussed below.
4. Contingencies in the Contract. Understand the Seller’s Disclosures.
Contingencies are conditions that must be satisfied and removed, within certain time frames after the final offer/counter has been accepted, prior to the close of the purchase transaction. Contingencies protect both the buyer’s and seller’s interests. Therefore, as a buyer, it is important to make sure that there are sufficient contingencies in place to protect you. At the same time, it is crucial not to allow the seller to place unreasonable or burdensome contingencies which can make the closing of the deal difficult and stressful for the buyer. Some of the most common contingencies used are the buyer’s ability to obtain financing, the buyer’s right not to make the purchase until his/her prior home is sold, third-party appraisal, and home inspections. Depending on the transaction, buyers may decide to waive certain contingencies to make their offer more attractive. However, it is important to fully understand what contingency is being waived, how it can impact the purchase and what the consequences are for doing so.
For example, property inspections can be critical to ensure the buyer is fully aware of the physical condition of the property. If a buyer foregoes inspections, common surprises after taking possession include, termites, unstable foundations, plumbing and electrical issues, etc. Reserving the right to thoroughly inspect the property before being bound by the purchase agreement is a crucial contingency. If the physical inspection contingency is waived, a buyer may incur a large amount of expenses to repair problems that he/she was unaware of when purchasing the property, resulting in major bills within a short amount of time. A buyer should also consider how certain contingencies, such as making the new purchase contingent upon the sale of the buyer’s current property, although beneficial from the buyer’s perspective, can deter the seller from entering into the transaction. Decisions like these are just a few things for buyers to consider and be aware of when purchasing a property.
5. Close the Deal.
Once you have done your due diligence as the buyer, consulted an appraiser, received guidance from your realtor and/or attorney, and are satisfied with the terms of the transaction, it is time to close. This is when you will execute any remaining final documents, such as loan documents, to satisfy the conditions prior to the close of the transaction. Having an attorney or agent review the purchase agreement, escrow instructions, any amendments and closing documents is important to protecting your interests before entering a binding agreement and during the transaction through the close. In order to make a fully informed decision, consult with someone who has experience in real estate transactions and can identify potential issues that may arise in different situations. At Bezdik Kassab, we specialize in real estate transactions and our attorneys can assist you throughout the process. Please contact one of our attorneys for a no-cost consultation.
“5 Things Considered” is Bezdik Kassab Law Group’s regular publication of legal material and analysis to assist the reader in considering various legal issue and topics. For additional information, please contact Bezdik Kassab Law Group for a no-cost consultation.
Bezdik Kassab Law Group is a boutique law firm specializing in Consumer & Mortgage Litigation as well as Business Litigation & Transactions (BLT). To learn more about the Bezdik Kassab difference, visit the firm’s website www.BezdikKassab.com and social media pages on Bezdik Kassab’s LinkedIn; Facebook; and Instagram.
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