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Buying or Selling Property
When buying or selling a single family home most Californians proceed without a lawyer. In simple, routine transactions this is not a problem, although any time a transaction is the least bit out of the ordinary an experienced real estate lawyer should be consulted to ensure that your interests are protected. Real estate transactions are the biggest investments most people make. Don't risk it!
SHOULD I LIST?
Normally the first step in any transaction is the Seller's listing agreement. After researching and interviewing several agents, the Seller chooses one to represent him. The Seller is asked to sign a listing agreement. This is a binding contract to pay a fee to the real estate agent if the agent can find a Buyer who will meet the listed terms, or acceptable alternative terms. The fee (normally a percentage of the sales price) and the time allowed for the agent to find a Buyer are negotiable.
EXCLUSIVE LISTINGS
Usually listings are "exclusive." If the Seller sells the house to his own brother without the agent's help, the Seller owes the agent a commission! If a Seller has a possible prospect, he should exclude that prospect by name in the listing contract. If the listing expires and a sale is completed with a Buyer brought in by the agent (or another agent acting through the listing agent), a commission is probably owed.
Many agents list the property with a Multiple Listing Service which disseminates information about listed properties, both online and by book. This gives wide publicity to the property. The listing agent splits his commission with the agent who finds a Buyer for the property.
THE OFFER
After looking at many homes the Buyer finally finds his dream house, or at least a house he might be able to afford. The Buyer then makes an offer. Often called "Deposit Receipt and Purchase Offer," if the Seller accepts, it becomes a binding contract with specific rights and obligations. Therefore all of the terms of an offer are vitally important.
It is critical that you to understand every "standard" clause and its consequences BEFORE signing any contract. If you do not understand a "Standard Contract" do NOT sign it. Read it entirely: the front, back, and all the fine print.
What is needed to turn an offer into a binding contract? Acceptance, without significant change. Any counteroffer cancels an existing offer; it may not thereafter be accepted.
How long is the offer valid? All offers should have an automatic expiration clause, so that the offer self-destructs if the other party does not accept it within the specified time. A couple of days may be reasonable; "expiration on presentation" is the fastest possible self-destruct if the other party does not accept immediately.
CONTINGENCIES
Normally the offer has many contingencies. Contingencies give one party the right to back out of a contract. Be sure that you understand who is to give notice under each contingency, and if and when notice is required. Don't miss any notice deadlines.
FINANCING CONTINGENCY
Usually the Buyer needs a mortgage. If he cannot qualify, the financing contingency is the buyer's escape clause. After a good faith effort to obtain the loan he is entitled to a refund of his deposit if he is rejected. The offer should clearly specify the ground rules about the financing contingency.
PROPERTY INSPECTIONS
Buyers should have physical inspections of the structure and pest control condition. If inspections reveal problems what is required? The contract terms control. Most Buyers obtain a standard pest control report costing about $175. The contract should put limits on responsibility. For example, "Seller shall pay for all defects up to $3,000. "
Buyers should be present at the inspection and should freely ask the inspector questions. They should make sure nothing is "inaccessible." The inspector will not move boxes or materials or drill holes to inspect areas he cannot readily see. Instead, he will ignore them as "inaccessible."
If the property "passes" the $175 inspection, consider more in depth inspections (roof, structural, general) which could reveal costly future problems.
If undiscovered problems surface after a purchase many Buyers want to sue. Discovery of the problem by professional inspections before the purchase is a much better solution.
DISCLOSURE: "TDS"
Sellers are required to disclose known problems. A Seller has no liability if the Seller did not know about a problem.
Sellers must provide a Transfer Disclosure Statement (TDS) (except in Probate sales). Sellers must disclose any fact or condition which affects the value or desirability of a property to a reasonable person. This includes facts about the neighborhood and non-structural facts about the house. When filling in the TDS anything material must be disclosed, even if there is no place on the form for the fact.
"AS IS"
Does "as is" protect a Seller? Even if a property is sold "as is" the Seller must provide the TDS and disclose all known defects.
LIQUIDATED DAMAGES means that the Seller may retain the deposit (up to 3%) and cannot sue for additional amounts for the Buyer's breach of the contract without cause. From the Buyer's perspective Liquidated Damages fixes his downside risk. In a breach of contract case, at worst he loses his deposit. From the Seller's perspective it limits potential recovery, but greatly simplifies smaller disputes. The Liquidated Damages Clause must be initialed by each party or it does not apply.
ARBITRATION
The Arbitration clause must also be initialed by each party or it does not apply. As a general rule arbitration is less costly and faster than litigation.
ATTORNEYS FEES
Most real estate contracts will contain an attorneys fee clause. This clause can be a two edged sword. For the victor in litigation, it provides a potential means of recovering litigation expenses. But for the loser, it can be a costly lesson.
If you have a real estate issues, either as a buyer or a seller, don't chance it. Contact an attorney at Altemus & Wagner to navigate your way through the legal hurdles that can surround these transactions.
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