Closing and title services for sale by owner. If you want to buy property without a broker’s help, having title and closing services can verify there are no competing claims on the property. The same applies if you’re selling a property without an agent.
Attorney-led title companies provide insurance should an issue arise with the title or other avenues. Below are some of the basics about closing and title services in for sale by owner (FSBO) deals.
What Are Title Services?
Firstly, you may wonder if there is a difference between a deed and a title. Technically, the document you receive when purchasing a home is called a deed. A title is the concept of ownership that the deed grants. Sometimes, people use these terms interchangeably.
As you likely know, buying or selling a home is far more complicated than just having a deed signed over to the new owner. As a legal transaction, buyers and sellers both take steps to prevent mistakes. To assist with this, attorney-led title companies research and verify the information on the deed, making sure everything’s in place.
How Title Services Function in a For Sale by Owner Deal
Title services are especially helpful in cases where a property is sold by the owner rather than through a broker. In that scenario, as a buyer, you only have the owner’s word that they have the right to sell the home. Attorney-led title companies verify the information the seller provides.
This is not to say that all sales done without a broker are sketchy. This also doesn’t mean that brokers are more trustworthy or can’t make their own mistakes. Having an attorney-led title company double-check the history of a property protects everyone if an issue arises.
Furthermore, title services aren’t just for buyers’ peace of mind. For sellers, attorney-led title companies can also make sure there aren’t any surprises they don’t know about. Both parties will want to do their research to complete the sale.
You Want to Know the History of Your Property’s Title
Attorney-led title companies verify a home’s history and its ownership. Research could turn up competing claims on the property or other issues that could put you in a difficult position should you sell or purchase the house.
For example, a seller may have fallen on difficult times after a bad divorce and fallen behind on their child support payments. They could have decided to sell their home to move somewhere more affordable. However, a court may have issued a lien on their house for the unpaid child support, meaning the seller is required to repay that debt before selling the home. They are not in a position to legally sell the property.
Many Issues Can Affect Whether Someone Can Sell a Property
Liens are just one type of legal issue that could come to light by conducting research on a property.
Other issues that an attorney-led title company can uncover are:
- Inheritance claims
- Property disagreements
- Mistakes on the deed
- Illegal renovations
Sometimes, attorney-led title companies uncover illegal activity, like fraudulent documents or claims. Others simply uncover minor mistakes that nonetheless slow down or even jeopardize a deal, like a misspelled name on a document. A previously unknown mistake may even date back to a deed from a previous sale that leaves you, as the current owner, unable to legally sell the property.
Property owners may not even realize they’ve made an error that could cause a problem with the sale. For instance, you could have remodeled your home without understanding or following building codes and requirements. Some of these mistakes can also come up in the home inspection and stall negotiations, costing you more money as the seller.
Buyers also need to know if someone else has any rights to the property. As a buyer, you may not have a problem with those rights—maybe your new property has a well on it to which other people in the area have an easement, meaning they have a right to that water. However, knowing about it can prevent any surprises. Otherwise, you could find yourself in a spat with a neighbor for perceived trespassing.
Title Insurance Could Protect You From Unforeseen Issues
Insurance coverage is typically included in title and closing services for sales done by owners. Title insurance covers issues that come up during an investigation into the history of the deed and issues that may come up later, even after the sale.
Attorney-led title companies don’t always come up with every possible issue during their research. If something comes up later, whether as a buyer or a seller, you can use your title insurance coverage to pay expenses, including in court. Your title insurance can help cover the cost of going through a court case. Insurance could offer coverage for an unpaid lien. An attorney specializing in title issues can also assist you through this process.
Are There Different Types of Title Insurance?
Title insurance generally comes in two forms:
- Lender’s title insurance
- Owner’s title insurance
As you can guess from the name, lender’s title insurance applies to the lender who provides the mortgage. Moreover, as the name also suggests, lender’s title insurance protects the lender, not you, even though you must purchase it. When you have a mortgage, the lender owns the home, so title insurance protects its interest in the property.
Since lender’s title insurance only covers certain issues, owner’s title insurance provides additional coverage. As the Consumer Financial Protection Bureau (CFPB) explains, this insurance protects you from lawsuits or other claims to the property. You would use this to cover court costs and other expenses.
What if you didn’t need assistance from a lender and instead purchased a property outright? While still optional, you can benefit from having owner’s title insurance in this scenario as well, since it protects your investment.
What Are Closing Services?
Buying or selling real estate requires that the buyer pay more than just the negotiated price. Part of the process involves dealing with closing costs, which are the various expenses that are part of finalizing a real estate deal.
Closing expenses can include:
- Title research
- Title insurance
- Record filing costs
- Broker commissions
Naturally, in for-sale-by-owner transactions, broker commissions may not come into play, but other costs are still a part of the deal. For instance, as a buyer, you will need to have the home inspected to make sure there aren’t issues like mold, lead paint, poor roofing, or a cracked foundation. Even just filing the deed to make the sale official requires paying a fee. Other fees can vary by state.
Since title issues like research and insurance are part of closing costs, an attorney-led titlecompany can assist with this part of the deal as well. This is sometimes particularly helpful in real estate transactions that don’t involve brokers; attorney-led title pay attention to details that an agent might normally deal with.
Why You Should Consider Closing/Title Services in an FSBO Sale
When selling your own home without assistance, you cut out some expenses but still have the responsibility of knowing whether you have a right to sell the property. Hiring an attorney-led title company and real estate attorney to review the history of the house and settle any issues beforehand can save you headaches and financial repercussions.
How for Sale by Owner Differs From a Brokered Sale
Using a real estate agent is a trade-off. On the one hand, you essentially pay for convenience. A broker helps find properties that suit your budget and desires, saving you some of the time needed to research your options.
Additionally, experienced real estate agents can assist with:
- Explaining real estate law and the steps of a transaction
- Recognizing the signs of a bad deal
- Helping you know what is an appropriate price for a home
- Staging a home to potentially make it more appealing to buyers
- Acting as an intermediary between the buyer and seller
- Working to advertise and sell the home
Brokers take a commission for their services, typically a percentage of the cost of the home. The percentage amount varies depending on where you are and the agent you choose to represent you. Although buyers and sellers can split the cost of the commission, you’re both still giving up some money in the deal. Depending on the cost of the home and the broker’s percentage, that amount is sometimes prohibitively high.
If you sell your own property without a broker, you cut out the middleman. That said, the other steps in your sale are largely the same. You give up some benefits by not using a real estate agent, especially advertising assistance, but an attorney-led title company can help fill in some blanks should you choose an FSBO deal. For instance, using closing/title services when selling by owner can help you spot a bad deal.
Keep in mind, in some states, sellers are also often responsible for purchasing title insurance in the transaction. Make sure you’re aware of if this rule applies when selling your home without a real estate agent to advise you.
Closing/Title Services and Insurance Can Protect Everyone Involved
Paying attention to closing and title services and having proper insurance in your real estate transaction protects all parties involved.
When selling a property on your own, you need to know your responsibilities when it comes to having a clear title for the property. When buying a home directly from a property owner, you need to know what risks are involved.
Honest sellers want to know about issues that could cause a deal to fall through. Buyers want to know they are free and clear to buy a property. Yet some information can still fall through the cracks. Having insurance and representation can account for those circumstances and cover everyone involved.
Do You Need an Attorney for Closing/Title Services?
Real estate attorneys are frequently part of a property deal, with some states even requiring their involvement in filing certain paperwork. Regardless, lawyers are often intimately involved in real estate deals, especially ones that don’t involve real estate agents.
Attorneys can assist in closing and title services by:
- Conducting title searches
- Notifying you of any legal issues with a property
- Identifying potential fraud
- Helping resolve any disputes
- Checking for errors in legal documentation
- Reviewing contracts and deeds
- Explaining homeowners’ association requirements
- Being present for the closing
- Filing official paperwork
- Negotiating with the other party regarding any requests
- Representing you in lawsuits
Attorney-led title companies have lawyers on staff to assist with these areas. You can also seek out one to answer your questions and help you understand how to proceed with a real estate transaction without a real estate agent.
Know Your Rights and Responsibilities in a for Sale by Owner Transaction
Closing and title services are a complex topic on their own, let alone in real estate deals without a broker to explain some of the steps. The cost-cutting benefits of forgoing a real estate agent appeal to many, but buyers and sellers alike must then remain aware of the risks.
Whatever side of the transaction you are on, you can use an attorney-led title company to research the property’s history and any potential claims to it. Ultimately, this can put your mind at ease during a real estate transaction, allowing you to move forward. Reach out to a real estate lawyer.