Buying a Home
Topics on this page
- Real Estate Agents
- Preparing and Submitting your Offer
- Mortgage Approval
- Home Inspection
- Title Search
- Potential Title Issues
- Title Insurance
- Other Property Ownership Considerations
For most Americans, a home is the single most expensive purchase they will ever make. Buying a home involves 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 you by identifying the most important legal issues associated with home purchases. Because of the financial significance and legal complexity, you should consider retaining an experienced real estate lawyer to assist you.
Recommendation: At minimum, be certain to read carefully and fully understand any documents presented to you in connection with your home purchase.
Real Estate Agents
Most people use a real estate agent when purchasing or selling a home. As a buyer, you can enter into an agreement with a real estate to represent you throughout the process. Your agent is known as the buyer’s agent and can assist with the many steps associated with a home purchase. A buyer’s agent can help you locate and evaluate houses. They can also help determine the price range you can afford and assist with the presentation of a formal proposal to a seller. A buyer’s agent can also recommend lenders, home inspectors and other professional you may need to work with during the home buying process.
An individual selling a home will also have an agent. A seller’s agent works for the real estate company that lists the property. A seller’s agent exclusively represents the seller. A seller’s agent may assist a buyer, but absent an agreement with the buyer, the agent’s duty of loyalty is only to the seller. A real estate agent does not work for you without a formal agreement. They work for the seller and their fee is paid as a percentage of the home’s sale price.
As a buyer, if you are interested in property listed by the company your agent works for, the situation is said to be one of “dual agents.” That is, both the buyer’s and seller’s agents work for the same real estate company. Due to potential conflicts of interest, dual agents do not act exclusively in the interests of either the seller or buyer. As such, they cannot give undivided loyalty to either party. If either party does not agree to dual agency, the real estate company must withdraw the brokerage agreement for that particular property with either the buyer or seller, or both.
No matter what type of agent you choose to work with, real estate agents must:
- treat all parties honestly and fairly.
- exercise reasonable care and diligence and maintain the confidentiality of clients.
- not discriminate in the offering of properties,
- promptly present each written offer or counteroffer to the other party,
- answer questions truthfully,
- disclose all material facts that they know or should know relating to a property.
- NOTE: An agent’s duty to maintain confidentiality does not apply to the disclosure of material facts about a property.
All agreements with real estate brokers and agents must:
- be in writing
- explain the duties and obligations of both the broker and the agent
- explain how the broker and agent will be paid and any fee-sharing agreements with other brokers.
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.
NOTE: A licensed real estate agent is qualified to advise you on real estate matters only. You should consult a licensed attorney or accountant if you need legal or tax advice about your home purchase.
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. If you are working with a buyer’s agent, they can assist in generating the proposal. The offer will typically include the following:
- identity of the real estate to be transferred
- purchase price
- amount of deposit to be paid
- contingency for financing, if any,
- the closing date,
- description of personal property – for example appliances, window treatments, and any furniture – to be included in the sale
In addition, an offer ordinarily provides for inspection of the property prior to closing. During a home inspection, the property will be inspected for 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 cannot accept any subsequent offer from another buyer. 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.
NOTE: 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.
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 around. If you are working with a buyer’s agent, the agent may recommend a lender to work with.
Some buyers pre-qualify for mortgages. Pre-qualifying for a mortgage means that you secure a commitment from a lender before submitting an offer to purchase a home. Pre-qualifying can speed the process of purchasing a 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 that the property you are looking to buy is in good condition, a physical inspection of the property must be completed. If you are financing your property, your lender will likely require an inspection. Licensed, professional consultants conduct home inspections. When contracting for a home inspection, look for an inspector who guarantees their work.
The scope of an inspection may vary, depending on the property. For example, 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. Inspectors also determine the presence of insect or water damage.
Usually, the inspection is paid for by the buyer 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.
In addition to the physical condition of the home, you should also determine if the property you want to buy is in an area with high risk of catastrophic damage to your property. High risk areas can include flood zones, earthquake areas, fire prone areas, or areas where extensive underground mining has taken place or where landslides are frequent. You should 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.
A title search is an examination of public records to verify the legal ownership of a property. The purpose of a title search is to uncover any potential issues or discrepancies that could affect the ownership rights of the property.
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. That is, no one other than the seller can claim an interest in the property.
During a title search, the following aspects are typically investigated:
- Ownership Records: The search will reveal the “chain of title”, showing how the property has been transferred from one owner to another over time.
- Liens and Encumbrances: Any outstanding liens, mortgages, easements, or other encumbrances on the property will be identified. These could impact the property's marketability or the ability to transfer a clear title.
- Legal Description: The legal description of the property will be reviewed to ensure it matches the property being examined.
- Taxes and Assessments: Any unpaid property taxes or assessments will be identified.
- Judgments and Legal Actions: Any legal judgments or pending legal actions related to the property may be uncovered.
- Survey Records: Property survey records may be reviewed to ensure accurate property boundaries and dimensions.
If you are financing your purchase, the lender will normally require a title search. In most instances the lender will make arrangements to have it performed. The cost for the title search will be charged to you as part of the loan fees.
Potential Title Issues
"Liens" are legal claims by the seller’s creditors. Liens can result from unpaid mortgage balances, other loans for which the home was used as collateral, and judgments issued against the owner by a court or 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.
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. A title search is typically conducted by a title company, attorney, or a qualified professional.
A title insurance policy protects the buyer or lender from any unforeseen title-related problems that may arise in the future. The policy provides coverage for potential issues that may arise from problems with the property's title history, such as undiscovered liens, conflicting ownership claims, fraud, errors in public records, or other title defects.
There are two main types of title insurance:
Owner's Title Insurance: This type of insurance is purchased by the buyer and helps protect the buyer’s investment in the property. The policy covers losses that may occur if someone challenges their ownership or if a title defect is discovered after the purchase.
Lender's Title Insurance: This type of insurance protects the lender's investment in the property. This policy ensures that the lender's lien is valid and that their priority as a lienholder is protected. Lenders generally require borrowers to pay the cost of their title insurance policy premium.
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. Title insurance policies remains in effect for as long as the insured party owns the property or holds the mortgage. 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. Private arrangements such as homeowner association or condominium association agreements may also affect your ownership.
Detached Single-Family Home
If you are buying a detached single-family home, make certain to ask about zoning. Check the zoning not only for the property you are buying, but for the neighborhood. If zoning allows for use other than residential you might be faced with nearby development, which may be undesirable.
If you are looking in an area currently being developed or undergoing renewal, nearby development may be of concern. You should also 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 changes of improvements to the property, this is essential. Even if you are not, you probably want to know whether the law allows a neighbor build a 10-foot-tall concrete wall next to your house. These are important matters to know about and consider.
Home in a Planned Community
If you are looking for a condominium, co-op, town (row) house, duplex or any type of unit in a planned community, finding out how common areas are managed is important. 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 of the rules and regulations and review 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 group's responsibility, 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 also ask to see copies of budgets for the past several years and a projected one for the next year, if available. Make sure you understand how finances are handled. Ordinarily, the governing documents cover many issues and are typically both long and complicated. A lawyer’s assistance in reviewing the documents is helpful for most buyers.
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. At the closing, the parties 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 the closing.
Most residential settlements are subject to the Real Estate Settlement Procedures Act (RESPA) of 1974. You enjoy significant rights under RESPA. 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. The settlement statement will detail all amounts flowing through at settlement and a specification of all settlement costs. The settlement statement will also detail all costs and credits to the buyer, seller, lender, realtor, and attorneys. The settlement statement will itemize the deed recording fees, municipal taxes, and utilities paid as part of closing.
Recommendation: 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.