Real Estate: Crash Course For Buyers

Knowing what to expect brings peace of mind especially for what is often the largest transaction a person will undertake in a lifetime. Buyers should take all measures possible to make sure that the deal goes smoothly and to avoid any disastrous bombshells down the road.

After weeks, if not months of searching for the perfect home, negotiating the purchase price with your agent, getting the Seller to accept your offer, you now have a binding contract, right? Not quite. Even with a signed contract, both the buyer and seller have an opportunity to have their attorneys review the contract carefully. Virtually all standard real estate contracts contain “attorney approval” or “attorney review” provisions. The buyer’s attorney’s job is to review the terms of a contract to make sure the contract does not take advantage of the buyer. The attorney typically focuses on the purchase price and personal property included in the sale, the mortgage contingency clause, the inspection clause, and the clause that governs penalties for default. In addition, the attorney makes sure the various prorations (taxes, rents, association dues, etc.) are fair to the buyer. Also, the attorney insures the seller provided the required disclosures relating to the condition of the property (including the radon hazards, mold and lead, if required), home warranties, and previous home insurance claims.

Normally, a contract will also contain an inspection provision providing the buyer with the right to obtain a professional inspector (or to inspect the property themselves) to check the property for defects. Inspection clause provisions vary from contract to contract. Some allow the buyer to request repairs be made to the property, some require that repairs exceed a certain dollar amount and others merely allow the buyer to cancel the deal because the condition of the property is found to be inadequate. The buyer’s attorney will assist the buyer in negotiating with the seller’s attorney regarding repairs.

If the inspection reveals some defects or recommended repairs, the buyer should consider requesting from the seller a closing credit to cover the costs of those repairs, or request that the repairs be made before the closing date. However, the buyer may choose to walk away if the repairs are major or accept the property as is, especially if the purchase price is much under market value. During negotiations, buyers should work with their agents and attorneys to discuss these matters further and determine what route would be the most appropriate to take. (For more information on inspection negotiations, check out our previously written article titled: “Real Estate Matters: Negotiating After Home Inspections,” August 2013, http://bzlaw-firm.com/blog.html )

Keep in mind that the inspection and attorney review periods usually last for a short period of time, often five to ten days. The terms of the contract will indicate how much time is provided. Once the periods expire, no additional changes may be made, unless the parties agree to an extension of the deadlines. This request must be made prior to or on the deadline. Therefore, it is imperative that the buyer forward a copy of the accepted contract to his or her attorney as soon as possible.

Once attorney review and inspection periods expire, the buyer’s attorney will help the buyer manage the mortgage contingency. This is only for transactions where the buyer requires financing to purchase the property. If the buyer is paying cash, then no mortgage contingency is necessary. But if the buyer needs financing to cover most or some of the purchase price, then there will be a mortgage contingency deadline. This allows the buyer to lawfully cancel a transaction if s/he cannot obtain a loan that satisfies the terms of the mortgage called for by the contract.

The next undertaking is to make sure that the title to the property is clear or will be clear by the closing date. Once the seller’s attorney forwards to the buyer’s attorney a Title Commitment document, then the buyer’s attorney evaluates the document to make sure that there are no lose ends. If every item as discussed above is resolved, then the next and final step is to attend the actual closing date.

By the closing date or, at times, on the same day, the buyer’s lender will deliver a package of documents to the title company. This package is comprised of many documents, including the note and mortgage and also the closing statement which includes all of the lender fees. At closing, the buyer’s attorney will walk the buyer through all the stack of thick, often repetitive documents, stressing the important terms and protecting the buyer’s rights against the bank.

The Seller’s attorney will also forward to the title company a package of documents, including the deed to the property and the seller’s closing statement. The buyer’s attorney will analyze these documents to make sure that the buyer is purchasing (and the seller is conveying) the correct property, that all taxes and liens are paid, and that title is cleared and insured by the title company. This usually involves a review of the documents and a survey (if purchasing a condominium, a survey is usually not required) provided by the Seller.

The services of a competent, approachable and professional real estate attorney greatly reduce the likelihood of problems down the road, make the whole process easier and smoother, and more importantly creates peace of mind to buyers in this very long and complex maze of buying a home.

By: Kathy E. Bojczuk, Attorney

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Tips for Selling Your Home in 2014

With low inventory, still low mortgage interest rates, and slowly rising prices, here’s what you need to do to get your home in selling shape for 2014:

• Get your home ready, “HGTV” ready.

Cleaning your home is a must. After that, you should consider hiring a stager (or a friend/agent who is good with home decorating) to give your home the television-worthy (“HGTV”) look so many buyers expect today. Assess what other sort of work needs to be done, such as fixing things that don’t work, touching up paint, or cleaning or replacing your carpets.
Decide if you need to update your landscaping, and paint, clean or tuck point your home’s exterior. And if you’re selling in January, clear out the holiday decorations as quickly as possible.

• Have at least three agents come and assess your property.

Often, sellers simply call the agent who sold them their home to list it. While you may wind up hiring that agent, you’ll be doing yourself a favor if you invite a couple of other agents so that you get different assessments of your home. Each agent will bring different ideas to the table about how much your house is worth and what kind of marketing plan will work. They will all have a variety of experiences to draw on.

• Understand what it will take to sell your home.

If you live in an area plagued with foreclosures and short sales, you may have to meet that price point in order to sell. You have to ask yourself if it is worth it. You will have to evaluate the price and timing in order to get the most for your property. If homes have recently sold for more, you might be pleasantly surprised. Again, you will need to get comparable home sales from your agent to make sure you price your home correctly.

• When pricing your home, be realistic.

Find out what types of properties are selling in your area and how many days they are sitting on the market. Accept the reality of your local market and make sure you price your home realistically.
Don’t blame your agent if you don’t get any offers within 24 hours of listing your home on the market. And remember that Sellers who set over-the-top prices could wait months or years for an offer and may wind up with a lower price than the price the agent originally recommended.

• Find a good attorney that will guide you through all of the legal steps and documents.

Having a trustworthy attorney that will explain things to you in plain English and be there with you at each important step–whether it’s negotiating during the inspections or performing a careful title examination–is extremely important. Choose an attorney that you feel comfortable with, one who will guide you and represent your best interests.

For more information on real estate matters, contact Attorney Kathy E. Bojczuk at (773) 580-1122.

Real Estate Matters: Negotiating After Home Inspections

Many people have different grasps on what the concept of “reasonable” means when it comes to home repair negotiations. Basically, my concept of reasonable is, “what would an ordinary buyer AND seller consider reasonable, and what is fair to BOTH parties?”

In Illinois, buyers have two bites at the apple when negotiating the terms and conditions of a residential real estate purchase. The initial negotiation is focused mainly on the purchase price and the closing date. But that is not the end of the negotiation process. The contract must also survive home inspections before it is a “hard” contract. That means, in most cases, a second negotiation.

The second, final negotiation is completed after the buyer has a home inspection performed. The buyer may then seek remedy or compensation for hidden defects or repairs that were unknown or undisclosed at the time of the initial contract. The buyer, through a final proposed amendment, essential tells the seller “if you agree to these additional terms and conditions, which are a direct result of the inspection or other discovery, we will waive our Termination Option and proceed to closing”. Or the buyer may choose to waive any repairs requests or credits and proceed to closing.

Sellers in Illinois have no contractual obligation to make any repairs whatsoever. However, a seller can refuse to work with a buyer on repair issues at risk of the buyer terminating the deal and seeking another home in better condition or price. Sellers often fail to consider the fact that, if they let the current buyer walk away, the next reasonable buyer will probably ask for the same or similar repair remedies. So, those tree damaged roof shingles, leaking boiler or A/C, plumbing leaks and other items are not going to disappear upon the next buyer’s inspection. Furthermore, the next buyer may be even tougher in their requests than the current buyer or it might take months before a new buyer comes along.

So unless the buyer is completely unreasonable, absurd and unwarranted in the requests being made (as often the case), it’s almost always going to be in a seller’s best interest to work with the buyer and make the deal happen – but there is a limit.
This would be a lot easier if all buyers and sellers had a common viewpoint or opinion of what constitutes “reasonable” repair requests. I have my own concept of what reasonable is, and I advise buyers and sellers according to this approach. But we often run into buyers or sellers who have different ideas about what constitutes “reasonable” requests. When that happens, the final repair negotiations can become difficult, normally because of emotions, and sometimes deals fall apart. This isn’t a good outcome for either side.

So what do I consider reasonable?

FOR SELLERS:
f you are selling a home and in your contract you list as the included components of that home items such as a sprinkler system, central air and heat, gas range, etc., AND you have furthermore noted on your Seller’s Disclosure Notice that all of the major mechanical items of your home are in good working condition and without defect, it is completely reasonable of the buyer to request that the home be delivered at closing as it was represented at the time of the initial contract. This, to me, is reasonable.

So, if the inspection reveals that the sprinkler system has multiple leaks and broken heads, it is reasonable that the buyer asks for it to be repaired, or for a price adjustment to fund the repairs after closing. The buyer may in fact have picked your home over another just because of the sprinkler system. If you stated in the Seller Disclosure it was working, this would be a misrepresentation of fact. You should fix it or pay the cost of fixing it to the buyer at closing.

If you represented any items in the contract or disclosure notices as being in good working order, the buyer did not factor in these potential expenses when she agreed to the purchase price. It is, therefore, reasonable to expect a buyer to pay the necessary costs to remedy items that were misrepresented by you (knowingly or not) or to absorb the financial consequences of your neglect and failure to properly maintain your property and its equipment. By not properly maintaining your home while you owned it, the maintenance expenses remained in your pocket. You do not get to keep the money you thought you saved by not properly maintaining your home. Unfortunately, you must spend it now.

When presented with a repair amendment based on this logic, you should not become angry or insulted. There is nothing unreasonable or insulting about a buyer’s request to cure items that you represented as being in good working order and which negatively affect the value of the home.

FOR BUYERS:
The home inspection period is intended to be the time when you can inspect and verify that the home does not have any major hidden defects which could not have been anticipated or assumed when you visited the home yourself. You want to make sure that the home is without any huge mechanical repairs, which may affect you financially in the near future, and which you were not aware of when you first signed the contract.

Examples would be failing or near-failing HVAC equipment, plumbing leaks, damaged roof, leaking roof, foundation issues, non-functioning appliances, dangerous electrical or mechanical conditions, etc.

Should such items be discovered, the value of the home has changed. A $200,000 home that contains potentially $20,000 in urgent deferred maintenance is no longer worth $200,000. It can easily cost $5,000 to $10,000 to replace a bad roof. It can cost $2,000 to $10,000 to repair/replace failing HVAC equipment. All of these items must be mentally added to the purchase price, and you must make sure you understand the TOTAL cost of purchasing and owning the home.

It is perfectly reasonable, as a buyer, to seek remedy or price adjustments for these items. Additionally, items not functioning at the time of closing are excluded from the Home Warranty you are receiving from the seller when you purchase the home. Thus, do not let the seller tell you “the Home Warranty will replace that after closing.” It will not. It must be fixed. It has to be in working order at closing to be covered by your home warranty, otherwise, your coverage will be void and you will be stuck paying for the new A/C system.

WHAT IS UNREASONABLE?
It is highly unreasonable to expect a seller to cure minor, petty repair items. No home is perfect, and any home you buy will have small defects and problems. Even newer homes have small problems and defects. The older the home is, the more problems you should expect there to be and, accordingly, must prepare to accept these minor items without protest.

It is unreasonable to expect sellers to cure code items in older homes, when those items were not required at the time the home was built. A buyer purchasing a home built in the 1980s who sends the seller a laundry list of requested repairs which essentially represents a remodel and code upgrade of the entire home to present day standards is absolutely outrageous. The seller will, of course, refuse and the buyers will miss out on a great home which someone else will quickly purchase with no hassle.

Yes, the inspector may flag things on the inspection report as “safety” issues, such as missing GFI outlets or the flex gas line supplying your furnace (which really should be converted to solid pipe at your expense after you purchase your home), but that is the way the house was built when it was new. It met code at that time, and the seller did not agree to upgrade or modify the home to current building standards when your offer was accepted. When you choose to buy an older home, you should know and accept these minor items.

Buyers and sellers must be reasonable throughout the process. In most cases, sellers should mentally be prepared to give up at least $500 in repair concessions if asked and justified, before accepting the initial offer. It simply keeps the deal moving along.
Likewise, buyers must be willing and prepared to accept at least $500 in needed repairs that a seller may not be willing to cure, plus the smaller trivial items and code upgrade items. If buyers factor that into the price, they will not have to get stressed out when the seller resists or counter-offers their repair request items.

Finally, there can be exceptions. If the buyer has absolutely hammered the seller on price right at the outset, you can’t come and hammer them again on repairs. Likewise, if the seller holds out for at or above market value, expect to be a bit more flexible on the repairs, as the buyer will want the full price home to be in “tip-top price condition”, which means no major problems.
If everybody would approach their deals this way, there would be fewer instances of buyers and seller letting emotion and unreasonable expectations ignite and derail what could otherwise be a win/win, smooth transaction.

For more information on real estate matters, contact Attorney Kathy E. Bojczuk at (773) 580-1122.