Buying a home
- What Can I Afford?
- How Do I Find A House?
- What are Multiple Listing Services?
- Who Does The Real Estate Agent Represent?
- What Is The Contract Of Sale?
- Is a Seller Required to Disclose Defects About the House?
- What Kind Of Warranty Do I Get?
- When to Make Loan Applications?
- What is a Title Search?
- What is a Survey?
- Why a Presettlement Walk Through?
- Settlement or Closing
- More Questions
What Can I Afford?
Although signing a mortgage is one of the last steps in a real estate purchase, most buyers need to analyze their financial status before seriously shopping for a home. A mortgage broker, loan officer at a bank or a real estate agent can assist a buyer in determining an appropriate price range. The three key questions for a buyer are:
- What amount of principal, interest, taxes and insurance can I realistically afford to pay each month?
- How much of a mortgage loan would I qualify for?
- How much additional cash would I have to contribute for the down payment and other closing costs?
How Do I Find A House?
Most buyers will have some idea of the neighborhoods they are interested in based upon newspaper ads and driving around. If you are interested in new construction, you may find "model" homes or sales centers open for your inspection. Owners may advertise other homes directly. Most real estate agents are happy to show you available homes.
What are Multiple Listing Services?
A majority of homes for sale are listed with licensed real estate brokers. Typically, the owner authorizes a real estate brokerage firm to act as the seller's exclusive agent for the purpose of marketing the home. If that broker participates in a Multiple Listing Service, the broker offers to cooperate with other brokers of the service who locate prospective buyers. Information about the property is entered into a computer data base which can be reviewed by all members of the service. If any member of the service produces a buyer for the property, the listing broker shares the brokerage commission with the other broker.
Who Does The Real Estate Agent Represent?
When you see houses advertised by real estate brokers in the newspaper, or see yard signs on the property, those brokers are generally the Listing Brokers. They represent the seller. They are happy to show you, a potential buyer, those properties, and if you so request, can assist you in preparing an offer on one of their preprinted forms. Similarly, any other broker who is a member of the Multiple Listing Service can act as a cooperating broker, and can arrange to show you properties and draw up an offer. The forms vary from company to company and from county to county. It is a good idea to have the offer reviewed by your attorney before it is submitted to the seller. A broker or agent lists and sells the property is known as the Selling Broker or Selling Agent. In most cases, the Selling Broker or Selling Agent represents the seller.
It is possible for buyers to engage a real estate broker to find them a home. They are referred to as Buyers' Brokers. Some brokers will enter into a contract with the buyer providing for a finder's fee to be paid as a flat fee, a percentage of the purchase price, or on an hourly rate basis. Often these Buyers' Brokers will attempt to negotiate with sellers to reimburse the fee, but the seller usually has no obligation to agree to pay the buyer's agent. It is very common that a Buyers' Broker finds a buyer for a property, introduces the buyer to the Seller through the Selling Broker, and The Seller agrees to pay a total real estate commission that is shared between the two cooperating brokers.
Maryland law allows, and some brokers enter into "dual agency" agreements with sellers and buyers whereby the same broker represents both the seller and the buyer. Frequently, the broker assigns two of its agents to the sale, one working with the seller and the other working with the buyer. The buyer and seller must decide if each is comfortable with this dual agency arrangement.
What Is The Contract Of Sale?
The Contract Of Sale is the critical document in defining the obligations of the buyer and seller. Real estate contracts should be in writing and signed by the parties. Terms of the deal should be explicitly spelled out in detail. Among topics, the contract should cover the purchase price, the deposit, the settlement date, what items and furnishings are included in the purchase price; the various inspections of the property; any repairs the seller is to make to the property; and contingencies which permit the buyer to cancel the contract if the buyer cannot obtain the desired mortgage financing, if a house inspection expert of buyer's choice discovers undesirable conditions, if the title is not good and marketable, or if the property does not meet governmental requirements for buyer's intended use.
Is a Seller Required to Disclose Defects About the House?
With certain exceptions, a seller of a used residential property is obligated to either provide to a buyer of the home a "disclosure" about certain conditions of the property, or expressly refuse to do so and provide a "disclaimer." The exceptions include (1) sale of never occupied new homes for which certificates of use and occupancy have been issued within one year of the contract; (2) transfers that are exempt from the payment of transfer taxes under Section 13-207 of the Tax-Property Articles (i.e. transfers between spouse or family members); (3) sales by a lender who acquired title by foreclosure or deed in lieu of foreclosure; (4) property acquired through a sheriff’s sale, tax sale, sale by foreclosure, partition, or by a court appointed trustee; (5)transfer by a fiduciary in the course of administration of a decedent’s estate, guardianship, conservatorship, or trust; (6) a property that the buyer will not use as a residence or which will be demolished; and or (7) sale of unimproved real estate. A buyer should note that when a seller is obligated to provide either a disclosure or a disclaimer and elects to provide a disclaimer, it signifies that the buyer is being told that in spite of the knowledge that the seller has about the property, the buyer is the party solely responsible to determine the condition of the property. In such a case, the buyer should take the initiative to carefully inspect, or should hire a professional to inspect, the property. A seller who opts to provide a disclaimer is still obligated to disclose any "latent defects" related to the property. Pursuant to Maryland law, “latent defects” include material defects in the real property or an improvement made to the real property which a buyer would not reasonably be expected to ascertain or observe by a careful, visual inspection that would pose a direct threat to the health and/or safety of the buyer or occupant, including a tenant or invitee.
What Kind Of Warranty Do I Get?
Unless you are buying a home from a builder, there is no automatic guarantee of the quality of the home. In other words, the buyer must inspect the home prior to purchase to determine whether the condition is satisfactory. The contract of sale should give the buyer the right to bring in an expert inspector, with a right to withdraw from the contract if the expert discovers adverse conditions. The contract should also warrant that there are no defects in the major systems and components of the house. Builders of new homes are required to honor certain implied warranties. Additionally, many builders participate in an extended warranty program.
When to Make Loan Applications?
Most contracts will require the buyer to promptly apply for financing. A real estate agent can survey a variety of lenders and recommend several who might be able to finance your purchase. You can also call banks and mortgage brokers directly to get information about the different types of loans they are making, their interest rates, the points they are charging and their application fees. As a precautionary measure, you may wish to apply to more than one lender. The loan approval process generally takes several weeks. If all of the information on your loan application checks out, you should receive a commitment letter advising you of the specific terms of the loan the lender is willing to provide.
What is a Title Search?
Any commercial lender will insist that you have the title searched and that you purchase lender's title insurance which protects the lender to assure the lender that the seller has full authority to convey a clear ownershipinterest in the property. Because you are making such a large investment, you should also purchase "owner's coverage" from the title insurer. A one-time premium may be assessed, but the policy protects the buyer. Many lenders will insist that you use one of their approved title companies or title attorneys. You may prefer to select your own Title Company or attorney, but you might then have to pay a review fee to the lender's counsel. When the title search is complete, you should examine a copy of the title binder to review any "exceptions" picked up by the title searcher. You should ask questions about any exceptions and satisfy yourself that any easements or other restrictions would not impair your enjoyment of the property. If there are any restrictive covenants which apply to your property, you should check them to make certain you are willing to live in a community with such restrictions. You should also have a survey performed and then review it to make certain the boundaries of the property and the location of any improvements on the property are where you thought they were. Any concerns about title to the property should be reviewed with your attorney and resolved before you settle on the home.
What is a Survey?
A survey is a drawing prepared by a licensed surveyor showing the boundaries of the property you are purchasing. In order to rely on a survey, it must be a "stake survey" signed by the surveyor. A "location survey" is a similar drawing, but it states that it cannot be relied upon for boundary purposes and therefore is of questionable or little value. A stake survey costs more than a location survey, but you may rely on the details of a stake survey.
Why a Presettlement Walk Through?
Most contracts will provide for a presettlement inspection walk-through so the buyer can verify that the property is in as good condition as it was when the contract was signed. Assuming that the appliances, plumbing, electrical and mechanical systems were warranted to be in good working condition, these items should all be checked during the walk through. Any problems should be addressed with the seller prior to settlement. Bear in mind, however, that the seller is only obligated to meet the terms of the contract of sale regarding condition of the property.
Settlement or Closing
At the Settlement or Closing the buyer pays the balance of the purchase price and the seller signs the deed conveying title to the property to the buyer and gives the buyer the keys. The buyer usually must sign numerous loan documents and other forms required by the lender. The settlement officer will review a settlement sheet showing various charges and adjustments. Major expenses on the buyer's side will include transfer taxes, recordation taxes, loan discount points, title search and insurance, survey costs, reimbursement of property taxes paid by seller, homeowner's insurance premium, mortgage insurance premium and a deposit to the lender's escrow account. A real estate agent or loan officer can provide a good faith estimate as to how much these various settlement expenses will be.
It is not possible for this brochure to cover all questions that might come up in connection with buying a home. If you have legal questions that arise either before or after buying a home, please feel free to give us a call. Although our firm generally does not conduct title searches -- we have found it is usually more economical for buyers to use a title company for the closing -- we can assist with any aspect of the transaction. We draft and review contracts for buyers and sellers, negotiate terms, and advise buyers and sellers at settlement. We are also prepared to go to court in those cases in which problems cannot be amicably resolved.