The purchase of a home or business property is one of the most significant investments many people will ever make in their future. These investments offer a place to settle and remain one of the most common ways individuals and families build wealth. Unfortunately, property buyers make a mistake during the confusing process that can cost them thousands of dollars.
An experienced real estate lawyer representing property buyers has a crucial role in helping the buyer navigate the process successfully. Here is a look at six common mistakes property buyers make and how a real estate lawyer can help you avoid them.
1. Not Requesting an Inspection
The mortgage is not the only cost associated with purchasing property. There are many others, not the least of which are costs related to repairing the property and bringing it up to current building codes.
While sellers should disclose all known issues with the property, they often not only do not disclose every problem they know, and there also can be problems that the seller is unaware of.
Buyers often try to cut costs as much as possible while purchasing their property, but skipping a home inspection is not a good place to cut costs.
A certified home inspector provides essential information about the property and its systems, including:
- Dangerous issues, such as carbon monoxide, radon, and mold, can cause harm to those living or working at the property. These issues do not just produce safety concerns; they also can be costly to mitigate. For example, This Old House reports that professional mold remediation can cost up to $9,000.
- Illegal installations and additions, including alterations to basements or garages for which the previous owner failed to get a permit. Illegal installations and additions can cause issues with insurance, taxes, usability, and the overall value of the property, and a buyer, without an inspection, is usually on the hook for repairing these items.
- Certain conditions that can make an insurance company refuse to insure the property, such as old plumbing and electrical wiring.
An experienced real estate lawyer can help property buyers arrange an inspection with a certified inspector, understand the information in the inspection report, and create a plan of action for addressing these concerns before closing on the deal.
What Does a Home Inspection Cover?
A home inspection covered by a certified home inspector generally takes two to three hours.
During this time, the inspector will look at:
- The exterior of the structure, in search of cracks or damage to the home's siding and the roof. These issues can result in water or pest infiltration. If the home's foundation is visible, it will also likely be inspected.
- The structure's interior, to detect damage to walls, cabinets, or windows. The inspector will also look for smoke and carbon monoxide detectors to ensure they are present and working.
- Plumbing, to discover leaks and ensure that faucets, shower heads, and toilets are in proper working order.
- Electrical, including testing all wall outlets and examining the electrical panel for potential issues.
- HVAC systems, if present, to ensure that both the air conditioner and the furnace are working properly.
2. Not Getting Inspection Concerns (and Agreements) in Writing
Home inspections can provide an out for buyers when the property they are planning to purchase is found to contain potentially costly and dangerous issues.
A home inspection issues can be addressed:
- The seller repairing the conditions before closing
- Entering an agreement with the buyer to split the costs of the repairs
- The buyer can negotiate a lower purchase price for the property to account for the costs they will likely incur when handling the needed repairs independently.
An attorney can help the buyer understand their legal options to either go forward or bow out of the sale. However, the "handshake" method of entering business deals often leaves buyers responsible for repairing known issues. An attorney can also help negotiate and create written, legally binding contracts to ensure that the seller upholds their end of the bargain when repairing issues discovered during the home inspection.
3. Not Understanding What the Sales Contract Means
As explained by The Mortgage Reports, a real estate sales contract is the key document needed to complete the purchase of a property. This contract includes protections for both the buyer and the seller.
This contract often includes information such as:
- The sale or closing date
- The deadline on which the buyer's offer expires
- The amount of earnest money (deposit) that the buyer has paid
- Details about who pays for certain services, including the inspection, survey, or title insurance
- Information about handling the adjustment in utilities, property taxes, and other fees associated with the sale
Either the buyer or seller is permitted to add contingencies and other provisions to the document. These contingencies can include the requirement of a home inspection before closing, a specific date that the seller must be out of the property before closing, and the return of a buyer's deposit if they back out of the deal before closing.
A real estate lawyer understands the issues that can arise during the property purchase and can review a sales contract to protect the buyer's best interests. They can also negotiate with the seller's representation to add additional protections and clauses to the agreement to reduce the buyer's risk.
4. Paying Too Much for the Property
Bankrate explains that the asking price for a property is the price that the seller wants a buyer to pay to purchase the property. This price is generally determined by the real estate agent that the seller is working with and is also known as the marketing price. Properties often sell for a higher or lower amount than the asking price.
Some of the factors that are used to determine the asking price include:
- The prices of comparable homes (comps) on the market in the same region and the prices that similar homes have recently sold for. Comparable homes should have similar square footage, bedrooms, and bathrooms as the property for sale and be in the same geographic location.
- Improvements that have been made to the property, such as an upgraded kitchen, a recently repaired roof, or even the addition of solar panels, which make the home more desirable than the comps and can result in a higher asking price.
- A home appraisal, which is an unbiased professional opinion of the home's value based on information that includes sales of similar homes in the area and market trends, the amenities offered with the property, the floor plan's functionality, and conditions that impact the property's value, such as a location in an area known for crime or numerous and expensive repairs that are needed on the property. Buyers often require appraisals as part of the mortgage process but can also be used by sellers to determine their asking price.
Of course, a seller wants the highest price possible for their property, so they may inflate their asking price. A real estate lawyer can protect a buyer's wallet by helping them understand the asking price, arrange an inspection, and negotiate with the seller's agent to ensure that the price the buyer ultimately purchases the property for is fair.
Unfortunately, many issues buyers run into when purchasing a property are more than just a matter of a seller asking too much. For instance, a buyer fails to understand how much they can afford.
While buyers are not generally required to have a 20 percent down payment to buy a home, they are not always aware of the additional costs involved in the purchase, such as closing costs, loan origination fees, title insurance costs, the costs of appraisals and property inspections, and other issues.
Making matters worse, lenders will often pre-approve buyers for far more money than they need or can afford to pay back. While it is exciting to think of the type of property one could buy with the amount of money offered, the loan the buyer ultimately gets for their property purchase should align with the budget they have created.
A real estate lawyer can review the buyer's finances with them and help them determine how much they can reasonably afford to pay for their investment month after month, year after year, to avoid the sticker shock of these unanticipated costs.
5. Falling in Love with the Property Before Getting Mortgage Pre-Approval
Once people decide to purchase property, one of the first things they often do is start looking at properties. Finding the home of your dreams is often the most exciting part of the process. However, suppose a buyer finds the home of their dreams without first garnering pre-approval from a mortgage lender. In that case, they will likely be unable to purchase the home, as most sellers will only take an offer seriously once the buyer has been pre-approved for a loan.
The Consumer Financial Protection Bureau (CFPB) explains that a pre-approval letter is a document from a lender stating that they are tentatively willing to lend the buyer money to purchase a property. While it is not a guaranteed loan offer, it does provide the seller with the peace of mind that an interested buyer will likely be able to finance the purchase.
One of the standard requirements for mortgage pre-approval is a credit check to determine whether the buyer has been responsible for their finances in the past.
A common mistake made by buyers during the pre-approval and loan process is that they will pass the credit check for the pre-approval and then make other financial decisions, such as getting loans or credit cards that drop their score and can jeopardize their ability to get financed.
A real estate lawyer can help a buyer understand the information they will need for the pre-approval process and when they apply for a loan. They understand how the process works and even which banks are more likely to work with a buyer who has some issues with credit that will make it difficult for them to get a loan.
The lawyer can also help their client discover how to get the lowest interest rate possible and how to work on fixing the factors that have resulted in a denied pre-approval or approval for a mortgage in the past.
6. Failing to Require Title Insurance from the Seller (or Purchasing a Policy)
Title insurance protects buyers and mortgage lenders from financial losses due to issues with the property's title that arise after the closing of the sale.
Some of the types of title issues that can leave a buyer (and their lender) in a financial lurch include:
- Conflicting ownership claims that arise in certain situations, such as will disputes that make the property unable to be purchased.
- Outstanding real estate lawsuits or liens placed against the property due to delinquent taxes and other issues.
- Flaws with the public records concerning the property.
- Undisclosed easements that limit the buyer's use of the property.
The seller often purchases title insurance to help buyers be more confident about the real estate transaction. When this happens, a real estate lawyer acting on behalf of the buyer can review the insurance policy to ensure enough coverage to adequately compensate them if title issues arise.
If the seller does not provide this insurance, a top-rated law firm in Vero Beach can also help their client obtain title insurance for their protection.