Guide to LEGALLY SELLING YOUR HOMEList your Home for Sale
Not surprisingly, the sale of a high-priced property involves quite a bit of legal documentation and adherence to rules. Requirements vary from state to state, so seek out specific information that pertains to your state of residence. Obtaining your own legal counsel through the FSBO process is highly recommended; in fact, some states require an attorney to conduct at least some portions of the closing process.
Some basic legal issues pertain to selling your home; keep in mind that your specific situation is just that -- specific -- so seek counsel from a real estate attorney.
Purchase and Sale AgreementYour real estate transaction will be based on the information contained in the purchase and sale agreement. Also known as a residential offer or an earnest money agreement, this document serves as a contract that governs the purchase, sale and transfer of your property.
The contract creation process begins when the buyer makes an offer. This offer, which is initially signed only by the buyer, contains terms and contingencies that the buyer would like the contract to contain. The seller can accept the offer, reject it or change the terms and present a counteroffer to the buyer. The counter-offer process can continue until both parties are satisfied or until one party rejects it outright.
If and when both parties accept the terms and sign the offer -- known as mutual consent or mutual acceptance -- it becomes a contract or purchase and sale agreement.
To be legally binding, the contract must contain certain required elements. Again, these may vary from state to state but generally will include:
• Final sale price – The purchase price agreed upon by the buyer and the seller; this may change before closing if the inspection reveals problems
• Closing date – The date the transaction will be completed
• Earnest money – The dollar amount and deposit instructions
• Title insurance company – The title company that will be used; buyers have the right to choose the company
• Title conditions – The seller must provide a clear title of ownership to the buyer
• Addendums – Also known as riders, these additional requests from the buyer to the seller may be added to the contract
• Clauses – Clauses are specific terms in the contract; each establishes a right or obligation of the buyer or seller
• Contingencies – Conditions that must be met for the sale to go through; common conditions may include:
• Appraisal contingency – The buyer can back out of the transaction if the appraisal indicates that the home is not worth the purchase price
• Financing contingency – The buyer must put in a good-faith effort to obtain mortgage approval
• Home sale contingency – If the buyer cannot sell their current house, they may be able to back out of the contract
• Inspection contingency – The buyer may have the home inspected; if problems are revealed, the buyer may request the seller to fix the issues or offer a credit; if problem’s aren’t fixed, the buyer may be able to back out of the transaction
• Title contingency – If the buyer discovers a problem with the title they may be able to back out of the deal
In states where title agents are required to handle closings, the buyer is responsible for preparing the contract. In states where attorneys lead closings, attorneys will prepare the purchase and sale agreement.
In addition to these standard elements, many contracts also contain specifications of certain conditions, such as:
• The type of loan and specific interest rate that the buyer is seeking
• Who pays which closing costs
• Which appliances and fixtures are included in the sale
Rights, Obligations and Breach of ContractThe contract will define both party’s rights and obligations, as well as the conditions, contingencies and details of the home sale. If the buyer or the seller fails to meet these obligations, the other party may be able to claim a breach of contract.
For instance, if the buyer simply changes her mind and backs out of the deal, this breach of contract may result in consequences such as forfeiture of earnest money. If the seller receives a higher offer and decides to sell to someone else, the buyer may be able to sue him for specific performance. Regulations vary by state.
Disclosure RequirementsWhen you’re selling your home, the state, federal and sometimes your local government may require you to disclose certain information about the property. Attempting to hide problems, such as the fact that the roof leaks every time if rains, is against the law.
In most states, you have to disclose only the information already within your personal knowledge. That means you don’t have to search for problems or hire an inspector. However, other states have more stringent rules and the question of what you knew, when you knew it, and if you deliberately withheld information could cause the deal to fall through or, even worse, land you in court.
While each state has its own regulations related to disclosure, issues may include:
• The existence of lead paint
• Leaky roofs
• Neighborhood nuisances, such as loud dogs
• Risk from natural disasters, such as floods, fires or earthquakes
• Deaths that have occurred on the property
• Location of registered sex offenders
Make your disclosures in writing; your attorney can help you prepare the correct forms. State-specific forms can also be purchased from sites like U.S. Legal Forms. Keep copies of the disclosure form on your kitchen counter; buyers and buyers’ agents will ask to see a copy from time to time. The buyer should sign and date the forms to acknowledge he's received and read the material.
Remember, protect yourself by always erring on the side of disclosure. Investing in an inspection may cost money up front, but could save you more in the long run.
Termination and RescissionIn most cases, the buyer or seller may terminate the contract only in a case of material breach of contract. A material breach is when one party totally or substantially fails to uphold their obligations as detailed in the contract.
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