Coordinating Successful Closings: Best Practices for a Smooth Real Estate Transaction
A real estate transaction will involve a seller offering a home or property for sale and a buyer agreeing to purchase the property. There will be several steps in buying a house, and the steps can vary depending on the type of transaction and California state regulations.
Before a closing can take place, many other activities and tasks will need to be completed on time, and real estate agents are typically responsible for such tasks although both a buyer and seller will need to complete their own tasks. For help with any real estate transaction in California, seek the help of an experienced Los Angeles small business attorney.
Making an Offer
When a person is ready to purchase a home, they must get all of the details in writing. An offer will begin with a written proposal spelling out a price and any stipulations regarding a purchase.
If a seller agrees to pay part of the closing costs, that must be specified in an accepted offer. Offers to purchase could be contingent upon factors such as a buyers’ ability to obtain financing or a seller finding housing within a certain time frame.
A residential purchase agreement will contain comprehensive terms of a deal, including the sales price, deposit, closing date, disclosure requirements, inspections, and fees to by both parties. Other provisions could also include a buyer’s final inspection and the method by which all real estate taxes and other bills will be prorated between a buyer and seller.
An agreement can define the scope of the tasks and duties to be performed by a buyer and broker leading up to the completion of a real estate sale. It will also provide a written consent to a dual agency if one develops, and inform the buyer that a broker or agent for the broker can be working with other buyers looking for similar properties.
An agreement will not obligate a buyer to pay the broker for services rendered. Even when an agreement is signed, a broker still needs to look to a seller or a listing broker for compensation.
An agreement also places a limit on the time within which a legal action can be brought against a broker. All-cash buyers and parties who are already pre-approved for mortgages will have an advantage because sellers who are ready to move will prefer buyers who do not have a house to sell first.
An offer to purchase will often be followed by a counteroffer from the seller, which can again be countered by the buyer.
Up-Front Fees
In conjunction with a residential purchase agreement, buyers are typically expected to put down a deposit at the beginning of a transaction. If a buyer completes a sale, the money is credited toward the buyer’s down payment.
If a buyer does not complete a sale for legal or contractual reasons, the money will typically be returned. When a buyer does not complete a sale for other reasons, a seller could be entitled to keep the deposit.
The United States Department of Housing and Urban Development (HUD) recommends that deposits be “substantial enough to demonstrate good faith,” usually being 1 to 5 percent of a purchase price. Many buyers will put as much as 20 percent down.
Since most buyers pay for inspections, it can be a good idea to investigate the costs of inspections if a person plans to obtain them before an offer is made.
Home Inspections and Appraisals
Home inspections can vary, with some checking a home’s structure, construction, and mechanical systems as well as appliances, all of which could be transferred with the property. While some inspectors may look for and test different concerns and not discover everything that is wrong with a property, obtaining inspections will be the best way to become informed of any repairs or problems with a home.
It is important to note that inspectors do not assess the value of a home. An inspector will typically check electrical systems, plumbing, waste disposal, water heaters, insulation, ventilation, an HVAC system, water source, ceilings, walls, floors, and roof. A home also undergoes an appraisal by a trained professional.
The appraisal will be an opinion of a property’s value used primarily to protect the lender’s interest. Appraisals are often based on past sales data, the location of a home, the size of the lot, and the condition of the home.
For mortgages insured through the Federal Housing Administration (FHA), appraisers must disclose potential problems relating to the physical condition of a home. Non-FHA mortgages do not have the same stipulations.
Closing
Prior to a closing, an escrow agent will present a person with many legal documents to review and sign, and the person will be expected to pay their down payment and closing costs. Several other legal procedures will need to be completed before a sale can close, including approving a mortgage application, clearing a title, appraising the property, and recording the deed.
The Real Estate Settlement Procedures Act (RESPA) provides specific protection to buyers before, during, and after a closing. If a settlement service has referred you to a realtor with whom the service has a business connection, an Affiliated Business Arrangement Disclosure will be required prior to closing.
A person is entitled to receive a preliminary copy of a HUD-1 Settlement Statement, which lists estimates of all settlement fees to be paid by a buyer and seller. The final HUD-1 Statement will be a requisite part of closing.
An Initial Escrow Settlement Statement is required at closing or within 45 days of closing. It will detail the estimated taxes, insurance premiums, and other charges that need to be paid from the escrow account during the first year of the loan.
Within three days of a loan application being received, a lender must deliver or mail a person a “good faith estimate” of the total amount due at closing, as well as a copy of the HUD publication Settlement Costs: A HUD Guide. Closing costs are typically 3 to 6 percent of the total sales price, being comprised of attorneys’ or escrow fees, loan origination fees, survey fees, property taxes, interest, recording fees, title insurance, first premium of mortgage insurance, loan discount points, first payment to escrow account, paid receipt for homeowner’s insurance policy, and any documentation preparation fees.
Contact Our Los Angeles Small Business Attorney
Are you preparing to buy real estate in California? Make sure you have skilled legal representation on your side by working with Steinberg Law.
Our firm represents all kinds of clients involved in real estate transactions. Call (818) 855-1103 or contact our Los Angeles small business attorney online to take advantage of a free consultation.
