Buying and selling real estate is both fun and frustrating. The process seems simple but takes forever. The terminology sounds familiar but is misunderstood. All too often buyers and sellers feel hoodwinked by a shyster, but that is far from what is occurring. The truth is that real estate closings are really complicated and that is why the State of New York makes it a felony for anyone other than an attorney to prepare an instrument affecting real estate for direct or indirect compensation. However, that doesn’t mean that East Enders cannot understand what is happening in a real estate deal. To start, let’s go through the steps in a real estate transaction…
Listing the Property
A Real Estate Salesperson or Associate Real Estate Broker (aka an agent) will place property on the market for sale by and through their association with a Real Estate Brokerage Firm. Initially, the agent must make disclosure about representation and the agent’s conflicts of interest in the transaction (prospective or realized) and then obtain a compensation agreement, calling a listing agreement (e.g., Exclusive Right to Sell).
Thereafter, the agent will market the property, hold open houses, show the property, obtain offers and then negotiate. This is where a top real estate agent makes her mark. By strategically negotiating an offer, the agent can extract concessions for their client while keeping everyone motivated to make a deal.
After offer and acceptance, the first step is to have a licensed home inspector perform a visual inspection of the systems, components and structure of the property together with obtaining a wood destroying insect report. Additionally, environmental tests can be performed for oil-spills and the like.
Real Estate Contract
Upon obtaining inspection reports, the offer and acceptance is often renegotiated. If terms can be agreed upon, then the parties have a contract negotiated. The contract is initially drafted by the seller’s attorney, but local custom is that the seller’s attorney utilizes language in a cover letter that forces the buyer to make an offer, which is subject to acceptance by the seller. The purpose of the contract of sale is to provide for due diligence of the property’s condition while affording responsibilities and rights between the parties should a condition be other than what was expected when the property was bid on for sale.
Upon entering into the contract, the buyer’s attorney will order a title report and thereafter share such report with the seller’s attorney. Then, the buyer’s attorney will notice the seller’s attorney as to any deficiencies with respect to the property’s ownership, boundary lines, legality, violations and the like (i.e., liens, encroachments, easements, taxes, permits and certificates of occupancy).
Upon receipt of notice from the buyer’s attorney, the seller’s attorney will commence clearing title issues. These issues can range greatly. They can be opening an estate of a deceased owner in order to transfer the property into an heir’s name to effectuate the sale. They can be that the property needs to be legalized when open permits are discovered. Alternatively, a boundary line dispute can be realized and adverse claims to ownership may need to be quieted before the sale is consummated.
There are endless possible issues that can be realized when clearing title. However, the contract will not always require the seller to fix every problem. Instead, certain times the contract will provide for a credit to the purchaser when the issue may remain or enable the purchaser to cancel the contract (i.e., exercise an exculpatory clause) and be refunded his down payment. This is where a top real estate closing attorney makes his mark. By successfully juggling advocacy and deal making, a top transactional attorney can leverage his client’s position while always getting to the closing table.
When all is said and done, it’s time to close. A closing involves the signing of the deed, mortgage, note, and transfer tax forms, while paying-off all existing liens on the property. At the closing, a lender, title closer, the parties and their respective attorneys will be present. Sometimes, a real estate broker will attend for moral support. Regardless, money will be exchanged for keys, the title closer will provide an insurance policy and then, the closer will leave with the deed and tax forms for recording and filing.
The closing is not the end of the real estate transaction because we live in what is known as a Race-Notice State. What this means is that the title closer will race to the County Clerk’s Office after the closing to notice the world of the transaction and the buyer’s newfound ownership interest. Unfortunately, the Clerk’s Office does not participate in this race and the recorded deed is often returned months later. Upon return of the deed, the parties’ respective attorneys will finalize their closing statements, including a summary of all money exchanged, issues with the property accepted and resolved, and a copy of the deed. When the closing statement arrives in the mail, it should be provided to an accountant and the deal is complete.
As you can see, it’s a good thing to know a little thing called the law.
Andrew M. Lieb, Esq., MPH, is the managing attorney of Lieb at Law P.C. and a contributing writer to Behind the Hedges.