Real estate purchase and sale agreements, which control the terms of real estate transactions, are often complex and difficult to understand. Many terms contained in standard forms are not beneficial. Before you sign a real estate agreement, ask an attorney to look it over to ensure that it protects your interests. A residential real estate attorney can analyze the circumstances surrounding your transaction and will help you choose the best course of action to purchase a home for your individual situation.
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Frequently Asked Questions about Home Ownership
Q: Do I have to agree to sell my home if a buyer comes forward or if my agent finds one for me?
A: A seller does not have to sell his or her home to anyone until he or she signs a valid purchase agreement. An unsigned purchase agreement is only an offer to buy on specific terms, and in most cases a seller doesn't have to accept an offer. However, if the seller signs a listing agreement and refuses to accept an offer to purchase the home for the asking price, this could be a breach of the listing agreement. In any event, a seller need not sign a purchase agreement immediately, and the seller should talk with an attorney first.
Q: What is the difference between a listing agreement and an agency agreement?
A: A listing agreement is between the seller and a real estate agent. An agency agreement is between a buyer and a real estate agent. Both the buyer's agency agreement and the seller's listing agreement have a significant impact on a party's rights and should be negotiated or reviewed by a lawyer. Many terms can be negotiated, including the amount of the agent's commission, the agreement's duration, the agent's duties, and timing of the commission payment.
Q: What is a real estate agent's role?
A: Real estate agents represent buyers and sellers in different ways. A party seeking an agent's representation must be careful in choosing the level of representation provided by the agent. An agent can provide exclusive representation, or can represent both parties, known as a "dual agency." An agent can also assist a party in the transaction without acting as an agent. A lawyer can assist a party in determining how to assess the benefits and risks of each type of representation.
Q: What is the difference between a cooperative and a condominium?
A: In a condominium arrangement, the owner legally owns a particular unit in a multiple- unit building and typically also has a share and a right to use common property within the structure. A condominium owner makes a monthly payment to an association for expenses incurred in maintaining the common property. The association is typically run like a corporation and may be managed by a professional property management company.
In a cooperative situation, the resident does not own his or her specific unit in the building. Instead, he or she owns stock in the corporation that owns the building and the apartments, and the resident leases his or her apartment from the corporation. The unit's size determines the number of shares of stock the resident must purchase. Monthly fees, based on the number of shares of stock, are assessed for the mortgage payment, taxes, and general operating expenses. As a shareholder, the owner participates in the election of the Board of Directors which manages and decides how the cooperative is to be run.
Q: What happens at a closing?
A: The closing transfers the house from the seller to the buyer. It usually occurs at the office of a third party real estate professional, such as a real estate agent or an attorney. Typically, the buyer, the buyer's broker, the seller, the seller's broker, the parties' attorneys, a party representing the lender, and a closing agent attend the closing. The closing agent will have a stack of papers for the buyer and the seller to sign. The closer will probably give the buyer a basic explanation of each document, but the buyer should take the time to read each one and consult with his or her agent or attorney to ensure that he or she fully understands each document. Before a buyer attends the closing, his or her lender must provide a booklet explaining the closing costs, a "good faith estimate" of the amount the buyer will need to pay at closing, and a list of documents the buyer will need at closing. An attorney can help a buyer understand his or her rights in the process and answer any questions regarding the closing.
Q: What is the best way to protect the buyer when making an offer to buy a house?
A: A buyer may want to include contingencies, events that must happen within a certain amount of time for the deal to become final, in any real estate offer. For example, buyers frequently make offers contingent on qualifying for financing, the house passing certain physical inspections, or the buyer's ability to sell his or her existing house. Although contingencies can protect a buyer from detrimental situations, the more contingencies the buyer places in an offer, the less likely the seller will accept it and the sale will occur. Also, in the hottest markets, a successful bidder may choose to take a calculated risk and make an offer with no or few contingencies.
Q: What is RESPA?
A: RESPA, the Real Estate Settlement Procedures Act, requires lenders to disclose information to potential borrowers during the mortgage process. The Act requires that mortgage lenders notify their borrowers of all transactional fees, including closing costs, as well as lender policies, and relationships between the businesses involved in the transaction. The lender's good faith estimate of the costs must include an estimate of all fees to be paid before closing, all closing costs, and any escrow costs. The lender must supply the estimate within three days of application for the loan.
Q: What is an escrow?
A: Lenders establish escrow accounts to set aside part of a monthly mortgage payment for payment of mortgage insurance, homeowner's insurance, or property taxes.
Q: What is earnest money?
A: Earnest money is money the buyer puts down to show that he or she is serious about an offer to buy a home. The amount must be substantial enough to demonstrate good faith and, although the amount varies, it is usually between one and five percent of the purchase price. If the seller accepts the offer, the earnest money becomes part of the down payment or closing costs. If the seller rejects the offer, the earnest money is returned to the buyer. If the buyer backs out of a deal, the buyer may forfeit the entire amount.
Q: Does a buyer need an attorney's help to purchase a house?
A: Whether a buyer absolutely must have an attorney varies depending on state law and local custom. In many states, attorneys for both the buyer and the seller have an active role in all parts of the residential transaction and handle all the details of the offer and counteroffer process and the closing. Also, some states require a lawyer to assist in several aspects of the home-buying process while other states do not, as long as a qualified real estate professional is involved. However, even if the relevant state law does not require an attorney, a buyer should consult a lawyer to help with the complex paperwork and legal contracts involved in any real estate transaction. An experienced real estate lawyer can review contracts, alert the buyer to special considerations, and assist the buyer with the closing process.
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