THE LEGAL ASPECTS OF BUYING AND SELLING REAL ESTATE
The General Legal Aspects of a
Real Estate Transaction
A. Pre-Contract
A real estate transaction where one party (the "Seller")
sells real property to another party (the "Buyer")
will typically involve several major steps. First,
a Seller will place his or her property for sale
on the market. Often, the Seller will engage a real
estate broker to assist in finding potential Buyers
for his or her property. Once the Seller or a real
estate broker on behalf of the Seller, has found
a willing Buyer to purchase the property for an agreed
upon price, both the Seller and Buyer will each engage
separate attorneys to represent them in the transaction.Prior
to entering into a Contract, it is recommended that
the Buyer do a home/engineer's inspection and
a termite inspection, so that the Buyer can determine
the condition of the property. If the Buyer is satisfied
with the condition, then all parties may proceed
to the contract stage.
B. Contract
Upon notification by the Buyer's attorney that
the Buyer is ready to proceed to the contract stage,
a Contract of Sale will be prepared by the Seller's
attorney and sent to the Buyer's attorney. The
Contract of Sale is an important document that sets
forth the names of the Buyer and Seller, the property
for sale, the purchase price, and various terms and
conditions of the sale. The Contract of Sale will
outline the duties of both parties, the time limitations
within which they must act in good faith, and default
provisions if they fail to do so. The attorney for
both the Buyer and Seller seek in the Contract of
Sale to protect their client's rights as well
as convey their client's expectations. The Contract
of Sale should be carefully drafted and negotiated
by the attorneys for both parties because it is the
first place that the parties and a Court of Law will
look to find the intentions of the parties. When
both parties are satisfied with the terms, the Buyer
signs the Contract and encloses a check for the down
payment which is forwarded to the Seller's attorney
for deposit in an escrow account until the closing.
The Contract becomes binding when the Seller's
attorney receives the down payment check and both
parties have fully executed (signed) the contract.
Once the Contract becomes binding, both parties must
fulfill their obligations to each other within the
limitations set by the Contract. It should be noted
that all promises made in the Contract become null
and void (unless specifically preserved) after the
transfer of title to the Buyer. When the Buyer has
successfully obtained financing for the purchase
and is ready to close, the Buyer's attorney will
contact all relevant parties and schedule the closing.
C. Closing
The closing is where the Buyer, the Seller, their
respective attorneys, the title closer, the bank
attorney (if any), and the real estate agent/broker
(if any) complete the sale of the property. The title
to the property is transferred from the Seller to
the Buyer, the Buyer gives the balance of the purchase
price to the Seller, all taxes due at that time are
paid, adjustments are made for taxes, fuel, and water
and the mortgage and deed are sent for recording
to the County Clerk. The Buyer then obtains the keys
and is now the new owner of the property.
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Particular
Concerns for Sellers of Real Estate
A.
Preparation of the Contract
In order to allow a tentative agreement between the
Seller and a willing Buyer to move forward, the Seller
should immediately engage an attorney. The Seller
needs to inform the attorney what fixtures (Items
attached to the property) will be specifically excluded
from the sale so that the attorney can remove such
items from the Contract. Otherwise, the assumption
is that everything that is attached to the property,
as well as all appliances, are being sold with the
property. The Seller should be aware that in virtually
every Contract, he or she is obligated to ensure
that the plumbing, heating, and electrical systems
are in working order. Often, the Contract will also
state that any appliances remaining on the property
be in working order. These promises must remain effective
until the day the Seller gives the Buyer possession
of the property. After that day, the Seller has no
further obligations with regards to the above matters.
B.
Dealing with Potential Issues for Sellers
The standard Contract also states that at the time
of closing, the premises will be given free of all
liens, judgments and governmental violations, that
the premises will be legal as it exists and delivered
vacant and broom clean. The Buyer will order a title
report that will show any judgments, outstanding
taxes, liens, bankruptcies, building code violations,
and parking violations against the Seller and the
property. Based upon this report and the terms of
the Contract, the Seller may or may not have to take
any action to clear title to the property. An attorney
can assist in clearing the title and/ or proposing
acceptable alternatives if that is not possible.
Also another issue for Sellers is the date by which
they must vacate the premises. Often the Seller's
attorney needs to draft a fair possession agreement
which gives the Seller enough time to leave, and
which also gives fair compensation to the Buyer for
the Seller's stay after closing.
C.
Review of Seller's Closing Expenses
The Seller's expenses at the closing generally
include the following: the payment of New York State
transfer taxes and New York City transfer taxes (if
applicable), paying off a mortgage (if applicable),
as well as any recording fees to record a satisfaction
of mortgage (if applicable), real estate broker's
fees, and attorney's fees. If the property for
sale is a co-op or condominium unit, there may be
additional fees that are given to the governing bodies
for these buildings.
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Particular
Concerns for Buyers of Real Estate
A.
Applying for Financing
Buying property is often a more involved process
than selling property primarily because the Buyer
usually has to obtain financing in order to have
sufficient funds to purchase the property. The most
important legal issues that face Buyers in getting
financing is the requirement that they pursue the
obtaining of a loan in good faith and with due diligence
for the amount stated in the Contract and that they
either procure this loan by the deadline stated in
the Contract or show that they have failed to do
so after complying with the above requirements. Once
a Buyer gets a commitment letter for the loan from
a bank, they must diligently and in good faith supply
all the items required by the bank in order to get
the loan. Many Buyers find it helpful to employ a
Mortgage Broker who can expedite this process for
them.
B.
Reviewing Inspection Reports
Aside from financing issues, the Buyer should also
protect themselves by doing a home/engineer's
inspection and a termite inspection of the property.
It is best to take care of these inspections before
the Contract so that the Buyer minimizes the risk
of buying a damaged property, and maximizes his/her
ability to negotiate at the Contract stage. The standard
Contract will also allow the Buyer to do a final
inspection of the property prior to closing. The
Buyer must be aware that the law in New York puts
the burden on Buyers to inspect the property, because
other than the basic guarantees mentioned earlier
in the Seller's obligations, the Buyer takes
the property "as is," meaning in the same
condition as when they originally saw it at the time
of the Contract signing. The Seller does not have
to do any repairs unless they are specifically put
into the Contract. Thus, the importance of the home
inspection is indeed a crucial stage in the purchase
of property.
C.
Reviewing the Title Report
After the Contract has been signed by both parties,
the Buyer's attorney orders a title search on
the property for sale. Upon receiving the title report,
the Buyer's attorney has to make sure that the
Buyer will receive "marketable" title (good
title that can be insured and sold) to the property
free of all liens and that the property is in accordance
with local building department regulations.
D.
Review of Buyer's Closing Expenses
It is difficult to give an exact figure for closing
expenses that a Buyer will incur in the purchase
of a property because they will fluctuate according
to many factors. The general estimate is that a Buyer's
expenses, other than the purchase price, typically
total between 5% to 8% of the total mortgage amount.
The following is a non-exhaustive list of common
expenses: bank expenses, mortgage tax, real estate
tax escrows, homeowner's /hazard insurance, title
insurance, recording of deed and mortgage, attorney's
fees, and adjustments for fuel, taxes, and/or water.
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Why
Should I Use an Attorney in a Real Estate Transaction?
It is human nature
to assume that everything you expect and anticipate
will go according to your plans. However, reality
sometimes can take a different path. An experienced
real estate attorney can:
- Assist you in protecting your rights and expectations during every step of the buying and selling process.
- Explain the Contract of Sale and closing procedures.
- Negotiate on your behalf so that your interests are clear and protected.
- Prevent and/or resolve potential disputes that sometimes arise in real estate transactions.
For many Buyers and
Sellers, a real estate transaction is one of the
more significant financial transactions in which
they may become involved. Therefore, it is prudent
to have proper legal representation. The Law Office
of Ronald D. Weiss, P.C. has experience in the real
estate field. We strive to diligently represent our
clients and give them the information and assistance
they need throughout their real estate transactions.
Ronald D. Weiss, Esq. is a member of the Suffolk
County Bar Association, the Nassau County Bar Association,
and is admitted to practice in the State of New York,
the State of Connecticut, and the federal courts
for the Eastern and Southern Districts of New York.
Mr. Weiss graduated from the New York University
School of Law in 1988 and has published several law
journal articles. Mr. Weiss' past experience
includes having been a law clerk to the Honorable
Prudence B. Abram, a federal judge in the Southern
District of New York, and having practiced law at
several large Manhattan law firms. CALL FOR A FREE
CONSULTATION
- Conscientious, Personalized, and Caring Service
- Expertise and Experience
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This information is
a brief overview of real estate law and practice
and is intended only to give general information
and not to give legal advice.
This information was prepared by and is for the exclusive
use of the Law Office of Ronald D. Weiss, P.C.
Copyright (c) 1997-2009 by Ronald D. Weiss, P.C.
All rights reserved.
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