FAQs
	Real Estate FAQs

What is a real estate contract?

The “contract” or “sale contract” is a written agreement that a buyer will buy a certain residence for a certain price at a stated time and that the seller will at that time give the buyer clear title.  These contracts are usually form contracts prepared by the real estate bar associations and supplied to you by your real estate agent or broker.  Once the contract is signed by both buyer and seller, it becomes binding. The usual contract will set the stage for the events to follow. For example, a contract signed on April 1 may provide that the buyer is to pay for the property on June 1 and receive possession and title at the same time. In that case, the parties become obligated on April 1, although the purchase price will not be paid and possession and title will not be transferred until June 1 at the “clos­ing.” Since under the contract, the seller normally bears the risk of loss of the premises until the closing, it is essential that the seller’s casualty or homeowners’ insurance remain in effect until the closing has occurred.

What is earnest money?

Most contracts provide that the buyer will put up earnest money of some amount to assure that the buyer will complete the transaction.  The earnest money is usually held by a real estate broker or an attorney.  Many contracts provide that the buyer has a certain number of days after the contract is signed to deposit all of his earnest money. The earnest money may be forfeited in the event of the buyer’s default. 

What is a mortgage contingency clause?

Many buyers will have in their contracts a contingency clause which releases them from the transaction and provides for the return of their earnest money if they give notice of their inability to obtain mortgage financing on satisfactory terms within a certain period of time. The seller should determine if the financing did in fact become available, within the required time period.

If I have already signed a sales contract is it too late to have an attorney review it?

It's not if the contract has an adequate attorney approval provision. Such a provision allows your attorney the opportunity to review your contract within a few days after it has been signed and to propose changes to benefit you. If the changes are accepted by the other side they become part of your contract. If not, and if the proposed changes cannot be resolved through negotiation, you may cancel the contract.

Ideally, you should bring your real estate attorney on board before you make a purchase, and should consult with him or her before you sign any document. At the very least, if you feel you must submit an offer to purchase before your attorney has the opportunity to draft or review the offer, be sure the offer provides an attorney approval/modification contingency provision granting your attorney a reasonable period of time (several business days) to review and possibly revise the terms of the offer. Because any changes proposed during the attorney approval period may be deemed counter-offers having possible adverse legal consequences, it is best to consult your attorney before you submit an offer. The attorney approval contingency may also be limited by the offer to matters other than dates, purchase price, or other specified matters, thus limiting your attorney’s ability to assist you.

What is a Homeowner’s Association?

Many subdivisions have a mandatory homeowner's association (HOA). The HOA is responsible for maintaining common area, such as private streets, playgrounds and sidewalks, There may also be restrictions that limit what you can do with your property. There may be restrictions prohibiting you from erecting an antenna or storing a boat that can be seen from a neighbor’s yard. Color schemes, fences and improvements may require HOA approval. These restrictions are a normal part of HOAs.

The Seller should be asked to furnish current documents explaining the association, its dues and regulations and noting any architectural control or maintenance violations on the property.   Generally, an offer is contingent on the acceptance of these HOA documents.  If there is work the seller needs to do, the buyer must object and amend the contract to require the corrective action, or the buyer will have bought the property and assumed that obligation.

Should I obtain a home inspection?

Yes.  Buying a home is the single most expensive purchase most of us will ever make. For a few hundred dollars you can use the services of a home inspector to get a much better idea of the homes physical condition than you would otherwise have known. The typical sales contract the buyer and seller sign is usually contingent on the home inspection. A buyer will generally have the option, based upon the inspection, to; opt out of the purchase, ask for repairs or credit towards repairs or a purchase price reduction. Keep in mind that in most contracts the time frame to complete the home inspection usually lasts for a short and limited period of time. The terms of the contract will dictate this time. Once the periods expire, no additional changes may be made. It is important for a buyer to get a copy of the signed offer or accepted contract to his or her attorney as soon as possible.

Do I need to obtain title insurance?

Most contracts require the seller to furnish title insurance to the buyer before the closing showing the condition of title to the property. This title evidence is usually a commitment for title insurance provided by a title insurance company.  The process of ordering a title commitment and title insurance is most often initiated by the seller’s attorney. 

What is a title commitment and how does it relate to title insurance?

Title Insurance provides a conditional guarantee that the buyer is the exclusive, legal title holder to the property.  Before a title company will offer title insurance, though, it will first issue a title commitment.  A title commitment is a preliminary report by the title company that shows the type of title insurance it will commit to offer based on information it researches and gathers from a variety of sources.  A title company will provide a title commitment as a preview of what the title insurance policy will look like once it is issued after closing.  After the title company issues this preliminary report both the buyer and seller have an opportunity to submit documents or other evidence to the title company to prove that the exceptions raised in the report should be waived. An exception is an item which may "cloud" the title and prevent the seller from passing "clear" title on to a buyer. Such items may be building lines and easements, mortgages, mechanic's liens, municipal requirements or any number of covenants or restrictions contained in past deeds.

After each party submits all of its evidence and after closing, the title company will issue a title insurance policy based on the title commitment it issued earlier.  A qualified real property attorney can assist in helping a buyer understand the limits of a title policy and can take care of issues not covered by the policy.

Do I need to obtain a survey?

In transactions involving a house, lenders typically require a survey prepared by a licensed professional land surveyor. The survey will verify the legal description of the property and discover encroachments. Encroachments would include a carport or shed built over the property line. The seller’s attorney typically orders the survey.  Surveys are not generally need for town-homes or condominiums.

What is a deed?

This document actually delivers title to the real estate from the seller to the buyer. Deeds may be either a quit claim deed, which conveys the property "as is", or a warranty deed, which provides certain warranties concerning ownership, possession and use of the property. Special forms of warranty deeds, frequently used with governmental transactions, are special warranty deeds and trust deeds.

What are an Affidavit of Title and ALTA Statement?

Title insurance can only provide a guarantee of title to within 10-21 days prior to closing. These documents supplement the title insurance to further guarantee the property is free from any outstanding or potential liens, there are no unrecorded easements, and no leases exist on the property. The Affidavit of Title is signed by the seller to verify that the seller has not performed any act that would impair his/her title or impose a lien on the property. The ALTA Statement is signed by both the buyer and seller.

What is a HUD 1 (RESPA)?

If there is a loan the HUD 1 (RESPA) is a document that summarizes all of the financial details of a real estate transaction, including disbursements to third-parties, so that the federal government can monitor the tax liabilities arising from the conveyance for the buyer and the seller.

What is Real Estate Transfer Tax Declaration (State/County/Local)?

Most conveyances of property are taxed by the state and county government. The Real Estate Transfer Tax Declaration summarizes the amount of tax owed to the county and state and serves as a worksheet to determine the total transfer tax liability. Certain municipalities also assess a local tax on the transfer of property. A local government may also require the seller to pay a final water bill and/or submit to a building inspection before it will issue a transfer tax stamp evidencing compliance with its rules. Real estate transfer taxes may only be assessed by home rule municipalities, which must gain referendum approval to establish or increase the amount of such a tax. Property conveyed to or from a governmental entity is exempt from any real estate transfer tax.

What are the various types of ownership?

Most married couples chose "tenants by the entirety." If one of the parties dies, the other automatically inherits the property without regard to wills or probate. This may not be a good idea it the couple had children by a previous marriage. The surviving spouse would inherit all and the children could get nothing. Also, in cases where the Federal Estate tax may be an issue, it could be advantageous to hold title as tenants in common. Unmarried persons may choose "tenants in common" or “joint tenants.” In tenants in common each owns a portion of the property and may convey that portion independently while alive or in their will.  In joint tenancy, each may only convey together and the survivor inherits.  An attorney should be consulted for further details on the types of ownership.

What happens at the closing?

The “closing” is the event when the purchase price is paid and the seller gives title to the property to the buyer by delivering a deed and certain other documents. The closing usually takes place at the title company. This seller’s mortgage usually will be paid at the “closing” and deducted from the seller’s proceeds. Any other liens against the premises (such as second mortgages, delinquent taxes, mechanics’ liens, assessments which the buyer will not assume, and the like) must also be paid off at or before closing. All financial settlements or adjustments between the buyer and seller (for the seller’s unpaid mortgage balance and taxes and the like) are set forth in a written statement, called a “closing statement.”

What the seller does before the closing?

Shortly before the closing the seller should be advised of the exact dollar amount which he will receive after payment of any existing mortgage balance, taxes, brokerage commission, and other expenses of sale. This net amount is normally paid to the seller at the closing.  At that time or shortly before the seller will execute the deed and other title documents.

When does possession take place?

Contracts usually provide that the seller will give up possession of the premises either at the closing or shortly after.  Keys are delivered and all utility meters are as of the possession date.  Many contracts will also provide that certain appliances, fixtures, and other personal property are to be delivered to the buyer, and that the residence is to be delivered free of debris and in “broom clean” condition.  Often the seller will also be obligated to maintain and repair the property, fixtures, and appliances until possession is given.  Possession arrangements should be reviewed prior to the closing. 

What are the usual costs in selling a residence?

The seller may expect to incur expenses for the following, many of which maybe deducted from the sales proceeds at the closing (and are estimated in advance):

• Title insurance (owner’s policy).

• Any mortgage loan balances, plus recording fees for any mortgage release, as well as any other amounts needed to pay off any liens or encumbrances.

• Unpaid real estate taxes through date of possession (because a given year’s real estate taxes are payable the following year, a substantial credit for this items will normally be given to the buyer.

• State, county and municipal revenue (in some municipalities) stamps/taxes;

• Current survey (not always required).

• Attorney’s expenses and fees.

• Brokerage commissions.

• Miscellaneous condominium charges (if applicable).

What are the usual costs in buying a residence?

The buyer may expect to incur expenses (which are usually estimated in advance) for the following:

• Purchase price.

• Lender fees. Early in the process, your lender will provide you with a good faith estimate of fees, including “points” (also called a loan origination fee or loan discount), and various other fees such as appraisal, application, credit report, document preparation, courier and tax service fees. Some of these fees may be paid before closing.

• Prepaid mortgage interest. The monthly interest on mortgages is paid in arrears. Therefore, your first full payment of principal and interest will not be due until the first day of the month following the first full month after the closing. However, the lender will charge a per diem mortgage interest charge at closing. This comprises the period from the day of closing through the end of the month. For example, if you close on December 27, five days of mortgage interest will be paid at closing. However, your first regular principal and interest payment will not be due until the first of February.

• Private Mortgage Insurance (PMI).  Anytime a Purchaser borrows in excess of 80% of the purchase price from a lender, that lender will require that the Purchaser obtain private mortgage insurance from a third party provider. The Lender will arrange for this coverage and pass the cost through to the Purchaser. This coverage must remain in place until the principal balance of the mortgage falls below 80% of the value of the property. The first year’s premium must be paid at closing, and varies according to the amount of the mortgage.

• A title insurance lender’s policy, a title company escrow fee and any title policy endorsements which your lender requires. Title insurance guarantees that the Purchaser is obtaining good and marketable title from the Seller. This is a one- time expense and varies according to the purchase price of the home and the amount of the mortgage.

• Some municipalities require the Buyer to pay a municipal real estate transfer tax.

• Lender’s escrows (if required): real estate taxes, homeowner’s insurance and “PMI” (private mortgage insurance).

• Recording fee for deed and any mortgages.

• Prepaid condominium assessments. Newly constructed condominiums may require you to pay this assessment to the association reserve along with a prorated balance of the monthly assessment.

• Homeowner’s insurance.  A lender will also require that a Purchaser maintain homeowners insurance in an amount necessary to replace the dwelling house. In addition, most lenders require that the first year’s premium be paid in advance of the closing.

• Home inspections and other specialized tests you may perform at the property  such as radon tests and pest inspections.

• Home warranties.  Sometimes a buyer may purchase a home warranty which is a service contract, usually covering one year, which helps protect homeowners against the cost of unexpected covered repairs or replacement on their major systems and appliances that break down due to normal wear and tear.

• Attorney’s expenses and fees.

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