Buying a Home
Topics on this page
- Real Estate Agents
- Preparing and Submitting your Offer
- Mortgage Approval
- Home Inspection
- Title Search
- Other Property Ownership Considerations
For most Americans, a home is the single most expensive purchase they will ever make. Buying a home presents both practical considerations and legal issues. Careful planning can help you avoid legal pitfalls and save time, money, and hassle. This article is intended to assist your planning by identifying the most important legal issues associated with home purchases. Because of the financial significance and relative legal complexity, you should consider retaining an experienced real estate lawyer to assist you. At minimum, be certain to read carefully and fully understand any documents presented to you in connection with your home purchase.
Real Estate Agents
When searching for a home, most people use a real estate agent. Real estate agents can assist in determining the price range you can afford, identify available properties to visit, recommend home features that you should consider, assist with the presentation of a formal proposal to a seller, recommend lenders, home inspectors and other necessary professionals, and otherwise assist with the many steps associated with a home purchase. You should consider entering into a formal agreement with your agent that specifies that the agent will be acting as a buyer agent. Absent an agreement, by law, a real estate agent does not work for you but, rather, for the seller, with the agent’s fee being a percentage of the home’s sale price. Although real estate agents must treat all parties honestly and fairly, a realtor designated as a buyer agent owes their client a higher duty of care, loyalty, and diligence. The Maryland Real Estate Commission governs real estate agents and provides useful information for both home buyers and sellers.
Preparing and Submitting your Offer
Once you find a home that you want to buy, the next step is to present the owner with a detailed, written offer that includes your proposed terms.The offer will typically include the following:
- the identity of the real property to be transferred
- the purchase price
- earnest money to be paid
- a contingency for financing
- the closing date
- a description of personal property – for example appliances, window treatments, and any furniture – to be included in the sale and transferred to you by the owner
In addition, the offer ordinarily provides for inspection of the property prior to closing. Inspections typically cover structural soundness, the condition of plumbing and electrical systems, whether pests (particularly termites) are present, and whether certain other conditions, such as the presence of radon gas, require attention.
If the owner accepts your proposal, the offer becomes a contract for sale. After you and the seller have agreed to the sale contract’s terms, you, as the buyer, will pay a deposit, often called "earnest money”, to secure the deal by demonstrating your intention to follow through with the purchase. In return for your deposit, the seller can not accept any subsequent offer from another buyer. Earnest money is not a down-payment. A down-payment is the money you must come up with on your own to get a mortgage from your lender. The deposit amount can vary widely depending on the price of the home and other factors. The deposit you pay will be credited to you at closing.
Most buyers finance a significant portion of their home’s purchase price. Once your offer is accepted, you will apply for financing. Banks and other lenders offer a wide range of mortgages with a variety of interest rates and repayment terms. It pays to shop. Some buyers pre-qualify for mortgages, that is, they secure a commitment from a lender before submitting an offer. Doing so can speed the process of acquiring your home.
Maryland offers programs, many targeted at first time buyers, to assist with obtaining mortgage financing. Likewise, there are federal programs, including programs benefiting veterans, that assist home buyers.
To ensure the good condition of the home you seek to buy, a physical inspection is important. If you are financing your property, your lender will likely require an inspection. Licensed, professional consultants conduct inspections. Look for one who guarantees their work. The inspection’s scope may vary depending on the property. Ordinarily, an inspection of an older home will be more comprehensive than one for a newly built condominium unit. Inspectors report on the condition of the home’s basic structure, wiring, plumbing and roof and determine the presence of insect or water damage. Usually, the inspection is at the buyer's expense and is not done until after the agreement of sale has been signed. The sale agreement must state what happens if the inspection turns up a serious problem. The parties may agree to any number of options. Resolution of an issue identified by the inspection may vary depending on the nature of the problem and the necessary repair costs.
Related to the physical condition of the home is a determination as to whether the property that you want to buy is in a flood zone, earthquake area, fire prone area, or in an area where extensive underground mining has taken place or where landslides are frequent. Any of these present the risk of catastrophic damage to your property. Know the risks, and be sure that you either avoid them or insure against them. State and local environmental agencies should be able to provide this type of information. Your lender will have interest in this area of potential concern and can also provide assistance.
The term “title” means an owner’s rights in real property. Through your purchase, you seek "clear" title from the seller. Clear title means that there are no existing liens on the property and no defects in the title.
"Liens" are legal claims by the seller’s creditors. Liens result from unpaid mortgage balances, from other unpaid loans for which the home was used as collateral, from judgments issued against the owner by a court or from governmental bodies for unpaid taxes or utility assessments. Until paid, a lien stays with the property. The lien holder can collect on the lien by selling the home even if it has been sold to a new owner. Liens must be formally recorded in the public records of the courts or local governmental offices where deeds are registered in the county where the property is located. Thus, a search of these records will reveal the existence of any liens on the home you seek to buy.
Other problems with title can involve defects in the "chain of title." The chain of title is the history of transfers of a particular property. Title defects can arise from many different circumstances. A property titled in the name of a deceased ancestor of the person who is occupying the property and trying to sell it would be an example of a title defect. Likewise, property boundary disputes and rights-of-way through a property may present title issues.
Liens and title defects are discovered by examining the municipal records where deeds, liens, and judgments are recorded. Title investigation requires some knowledge and experience. If you are financing your purchase, the lender will normally require a title search and, in most instances, make arrangements to have it performed. The cost will be charged to you as part of the loan fees. You should also expect to be charged for the lender’s title insurance policy premium. The lender’s policy protects their security interest in the property. Problems with title are not common, but if one arises it can be expensive to resolve. Title insurance will provide legal representation and pay any expenses required to settle the issue. The title insurance premium is a one-time fee and is not too expensive. Even if you are not financing your purchase and are not required to buy title insurance, you will want to have a title search and you should purchase insurance.
Other Property Ownership Considerations
Real property ownership is not absolute. Your ownership of your home will be affected by zoning and other governmental land use regulation. Your ownership may also be affected by private arrangements such as home owner association or condominium association agreements.
If you are buying a detached single-family home, make certain to ask about zoning, not only for the property you are buying, but for the neighborhood. If zoning allows for other than residential use you could be faced with nearby development which may be undesirable. If you are looking in an area being developed or undergoing renewal, nearby development may be of concern. You should be aware of local laws concerning issues such as construction of additions, out buildings, fences, walls, and the like. If you are thinking about making improvements, this is essential. Even if you are not, could a neighbor build a 10 foot tall concrete wall next to your house? These are important matters to know about and consider.
If you are looking for a condominium, co-op, town (row) house, duplex or any type of unit in a planned community, it is important to find out how common areas are managed. Common areas are roofs, walls, halls, driveways, utility lines, or any area or structure shared by unit owners. Condominiums, co-ops and planned communities will have written rules and regulations. Get copies and check them thoroughly. You should consider: Who enforces the rules – is it the developer, an association of the unit-owners, or a manager hired for that purpose? What input into decision-making do unit owners have? What part of the physical premises is the responsibility of the group and where does unit owner responsibility begin? Are there any rules restricting use of your unit? Can you rent out your unit if you want? How much are the taxes, utilities, insurance and maintenance, and what is the breakdown of what the owner pays and what the association pays? You should ask to see copies of budgets for the past several years and a projected one for the next year, if available. How are finances handled? Ordinarily, the governing documents cover many issues and are typically both long and complicated. For most buyers, a lawyer’s assistance in reviewing the documents is helpful.
Row houses and duplexes may not be part of an owners’ association. Each owner has a property deed that defines the property’s boundaries. Although each owner maintains their own property, adjoining properties may share common areas such as the roof, sidewalks, driveways, and walls. Problems arise when neighbors do not cooperate with necessary maintenance. It is important for you to get accurate information about these issues. Determine if agreements are in place and if and how state and local laws apply. Again, this information is best provided by your own attorney.
Closing, also referred to as settlement, is the last step in carrying out a real estate transfer. The parties, with certain representatives, meet to exchange the deed for the purchase price. A settlement agent, selected by you and most often a representative of the title company providing title insurance, conducts closing.
Most residential settlements are subject to the Real Estate Settlement Procedures Act (RESPA) of 1974, under which you enjoy significant rights. You are entitled to receive settlement cost information early in the settlement process. You are entitled to receive a draft of the settlement statement on Form HUD-1 one business day before settlement. Detailed on the HUD-1 will be all amounts flowing through at settlement and a specification of all settlement costs. The HUD-1 will detail all costs and credits to buyer, seller, lender, realtor, and attorneys and will itemize deed recording fees, municipal taxes, and utilities paid as part of closing. You should consider having your attorney present to represent you at closing. On occasion, problems arise that require immediate resolution to avoid a delay in the transfer of the property
Federal law and Maryland law prohibit a carrier from taking your household goods hostage. The Maryland Household Goods Movers Act prohibits movers from refusing to deliver a consumer's household goods when providing household goods moving services on an in-state move. Violation of this law by a mover is an unfair deceptive trade practice and is subject to a fine of up to $1000, a year imprisonment, or both. Contact your local Better Business Bureau for more information.