Real estate transactions are document-intensive. The necessary documentation permeates the agreement to purchase, the transfer of land, and an itemization of the price and costs involved. Below are important papers in a real estate transaction that protect your rights and interests as a buyer and ultimately property owner.
The Purchase Agreement
The real estate contract establishes your rights and obligations with regard to your purchase. The price provisions specify the amount you will pay, when you must pay it, and how you will pay it. For the payment method, your agreement may have a condition that you can obtain financing. Other typical conditions on your obligation to buy include proof of the seller’s good or clear title, that certain defects are remedied, and that you are able sell your current home.
Your agreement will have a closing date, at which you will deliver the purchase price and the seller will convey the deed to you.
The Condition Disclosures
When you buy a pre-owned home, the possibility exists for problems with plumbing, electrical, foundation or other components of the home. With a disclosure statement, the seller informs you if they have knowledge of any such defects or of other pitfalls.
Various states have different requirements for what needs to be disclosed. For example, Utah’s statutes require sellers to disclose only whether the property was used for the manufacture, sale, or storage of methamphetamines. Meanwhile, California requires that homeowners disclose any significant defects in the house (such as structural damage or water damage), environmental issues that affect the house, issues in the neighborhood (such as noise complaints or sex offenders), and whether anyone has died on the property in the last three years.
Check the requirements for your area, and court precedents. Sometimes, courts will look further than the stated requirements when deciding whether a defect affects the property value and should have been disclosed. Knowing what is or could be required to be disclosed can aid both the buyer and the seller.
The Deed
A real estate law firm often prepares or records the deed. This instrument formally conveys the property from the seller to you. The lawyer responsible for conducting the real estate closing will record it, thereby putting the public on notice that you own the land.
Before recording, your lawyer—or a lawyer selected by the lender if you have a mortgage—will examine the title to determine if your seller owns the property free and clear of others who might claim an interest in the land. These include mortgage lenders; judgment creditors; those who provided labor, materials, or improvements to the land; and federal, state, and local taxing authorities who are owed taxes by the seller. The title search will note the presence of rights of way, easement, or restrictive covenants that control use of the land.
The lawyer drafting the deed must adequately describe and identify the property, either from a survey or by reference to a recorded plat map.
The Settlement Statement
At closing, you receive a statement that shows the purchase price, what money was received, and how it was disbursed. In addition to the sales price, you will see fees for the lawyer’s services, appraisals, brokers’ commissions, and inspections. The settlement statement also indicates money spent to satisfy existing mortgages, judgments, taxes, or other liens that have to be cleared.
If you’re borrowing money for the purchase, you have the right under federal law to a Good Faith Estimate of the loan fees. These costs include origination fees, any appraisals required by the lender, insurance and document preparation fees. If the settlement statement at closing differs significantly or appreciably from the Good Faith Estimate, you might want an explanation or consider not going forward with closing or the transaction.
The purchase agreement, disclosures of the property’s condition, the deed, and settlement statement have the common and key goal of defining and protecting your rights as a buyer. These include the title you’re to receive and your expectations as to the structure, functionality, and condition of the home.
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