Real Estate – FAQs
1. If I am buying or selling real estate, at what point do I need to hire a lawyer?
For most real estate transactions, the Buyer and Seller will use a real estate broker. To sell your home, the real estate broker will want a listing agreement signed. You should consult a real estate lawyer before signing the listing agreement. It is a binding contract when signed by both parties. In the same way, the Buyer should understand the Buyer/Broker’s form before signing. This could potentially obligate the Buyer to pay all or some portion of the real estate commission.
2. What does the multiple listing service do?
In an area where real estate brokers are members of a multiple listing service (MLS), brokers group their exclusive listings in order to give maximum exposure to any potential Buyers. When a sale occurs, the fee arrangements to the brokers are normally predetermined as contained in the multiple listing agreements.
3. When does a real estate broker earn his or her commission and is it a fixed amount?
The standard real estate broker’s commission is six percent of the purchase price, however, the broker’s commission is open to negotiation. The broker is normally entitled to a real estate commission when he or she has procured a ready, willing, and able Buyer. The broker’s commission is paid out of the Seller’s proceeds at closing.
4. What is a binder?
A “binder” or offer to purchase is a written agreement entered into between the Buyer and the Seller. A binder deposit, normally one percent of the purchase price, is tendered from the Buyer to the Seller. The offer to purchase is designed to hold the property from sale pending the preparation by Seller’s counsel of a formal contract. In some areas in Connecticut, the Buyer proceeds immediately to an offer/contract provided by a real estate broker. It is definitely advisable to have this document reviewed by an attorney if there is not going to be a formal contract.
5. At what point is a binding formal contract of sale entered into by the Buyer and the Seller?
After the offer to purchase or binder is entered into, the next step is for the Seller’s attorney to draft a formal contract of sale. This contract is sent to the Buyer’s attorney. It describes the property and contains the necessary terms of sale in order to provide a valid and enforceable contract. Moreover, the Buyer is normally required to pay further deposit monies at the signing of the contract. A total of ten percent of the purchase price is the standard down payment.
6. What does the Seller of the real estate have to disclose to the Buyer about the condition of the premises?
There have been recent developments designed to achieve full disclosure by the Seller. The Seller must provide the Buyer with a signed property disclosure report prior to entering into the contract. However, the Buyer is still responsible to uncover any and all problems regarding the condition of the property. The Buyer should arrange for a professional building inspection, and review the results of this inspection prior to entering into the contract. Examples of some common inspections are: pest, radon, septic, well water, lead, and building.
7. Is a title search necessary and who pays for it?
After the contracts of sale are entered into, the Buyer’s attorney conducts a title search. This is prudent because the title search discloses the previous owners of record and other interests, including mortgages, judgment liens, and other encumbrances. In the event title problems are discovered, they must be resolved in order to ensure good and marketable title. The Buyer pays for the title search as a part of the services rendered by his or her attorney.
8. Do I need to purchase title insurance, and if so, what does it cover?
Title insurance is required by lenders to be purchased by the Buyer at closing. Title insurance provides two types of coverage. First, it will pay to legally defend the insured’s title, and, secondly, it will pay the cost for the removal of a defect in title on behalf of the insured to the extent of the policy limits. Title insurance protects the Buyer from hidden defects not revealed in a title search, such as lost or forged deeds, deeds executed by incompetents, mis-indexed deeds, or improperly probated wills.
9. What is a mortgage commitment letter?
The mortgage commitment letter is the most important document a borrower receives from the lender prior to closing. It informs the borrower of the loan application approval and the commitment of the funds for the loan. There are often conditions outlined in the letter that require fulfillment prior to or at the closing of sale. The commitment should also set forth the basic terms of the loan, as well as the fees associated with the lender and charges to the borrower.
10. What happens at the closing?
The final stage of the real estate transaction is the closing. This is the stage at which the parties sign all documents in connection with the sale and mortgage and the balance of the purchase price is paid to the Seller. The Seller produces all documents necessary for the title transfer and delivers a deed conveying title to the Buyer.