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What to Do Before Signing A Contract to Buy or Sell Real Estate

What You Should Know

Before You Buy or Sell Your Home

(Version 041107a)

If you are thinking of buying or selling a home, below are some tips and information to help ensure that your transaction will go smoothly and without unanticipated problems or surprises and that it will be an enjoyable and rewarding experience. These tips were written for residential real estate transactions in Monroe County, New York State. If you are planning on buying or selling a house in another County or state, then you should determine how the information below would be affected by the laws, practices and procedures of such other County or state.

Table of Contents

  1. The Anatomy of a Real Estate Transaction
    1. Seller Decides to Sell
    2. The Seller Decides on a Listing, or Asking Price
    3. Seller Decides to Market the Property

    4. Buyer Decides to Buy

    5. Preparation of the Purchase Offer

    6. The Purchase Offer is Submitted to the Seller for Acceptance, Rejection or Counteroffer

    7. After the Purchase Offer is Accepted, the Contract is Submitted to the Attorneys for Approval

    8. Coordination of Contracts -- Timing

    9. Buyer Applies for a Mortgage and Avoiding Loan Fraud

    10. Mortgage Commitment Obtained

    11. Examination of Title by the Buyer's Attorney

    12. Obtaining Title Insurance by the Buyer's Attorney

    13. Pre-Closing Possession Agreement

    14. Cancellation of Sale or Purchase

    15. The Closing

    16. After the Closing

  2. What Should a Buyer or Seller Discuss with the Real Estate Agent and the Attorney?

    1. Full Disclosure

    2. Mortgage Commitment

    3. Coordination of Purchase and Sale

    4. A Buyer Must Exercise Due Diligence

  3. Glossary of Terms

  4. Regional Information (Upstate New York and Monroe County)

Outline of A Real Estate Transaction

  1. The Anatomy of a Real Estate Transaction.

  1. Seller Decides to Sell. The reason a seller is selling could be valuable negotiating information for a buyer. A buyer should try to find out why the seller is selling to determine if he or she is a "motivated seller."

    Conversely, often the seller does not want the buyer to know the seller's motivation. If the seller is highly motivated, it could result in a reduction in the purchase price.

  2. The Seller Decides on a Listing, or Asking Price. This is usually done with the help of a real estate agent. The agent should provide the seller with written comparable sales information that should enable the seller to see what price similar houses, as geographically close as possible, and as recently as possible, have sold for.

    Most real estate agents are willing to do a "market analysis" before a seller signs a listing agreement with them. Comparing the seller's property to these comparable sales should enable the seller to arrive at an asking, or listing price.

  3. Seller Decides to Market the Property. The seller has to decide whether to multiple list the property with a real estate agent, or to sell the property himself or herself (commonly called a FSBO -"For Sale By Owner").

    Commissions. If a seller decides to market the property with a real estate agent, the seller can expect to pay a commission (in Monroe County usually 6% for residential property and 10% for vacant land).

    Multiple Listing. The advantages of listing with a real estate agent are that the property is usually listed with The Multiple Listing Service, which is maintained by the Greater Rochester Association of Realtors®, Inc. (GRAR), and exposes the property to virtually every active buyer. Listing with a real estate agent also offers the seller the advantages of an experienced professional who will advertise the sale and conduct open houses (for other real estate agents for greater exposure, and to the general public) and usually assist the buyer in obtaining financing for the house. Listing with a real estate agent is the customary way to sell a house.

    For Sale By Owner (FSBO). If the seller decides to market the property himself or herself, the costs can be lower because there is no commission; however, the advertising costs must be paid by the seller. In addition, the seller can market the property at a reduced rate, or have a greater cushion for negotiating the sales price, taking into account that there is no commission to be paid. However, when the seller decides to market the house himself or herself, he or she loses all of the services provided by a real estate agent, which are considerable. Unless you have considerable experience in buying and selling real estate, Dibble & Miller, P.C., does not recommend that sellers market homes without the assistance of a real estate broker.

    Price Negotiations. Buyers generally expect that the seller will accept a sale price that is somewhat lower than the listing or asking price; however, this does not always happen.

    Property Condition Disclosure Statement.  Sellers are required to complete and sign a Property Condition Disclosure Statement.  This statement gives a potential buyer some information regarding the property including, but not limited to, the length of time the seller has occupied the property, the age of the roof and furnace (if known to the seller), the school district in which the property sits and an indication of any known defects with the property.  If the seller fails to deliver a disclosure statement to the buyer prior to the buyer signing a binding contract of sale, the buyer is entitled to receive a $500 credit from the seller upon the transfer of title; other than this credit, the seller's failure to provide a Property Condition Disclosure Statement cannot be the basis of a lawsuit by the buyer.  In fact, a common practice has developed to automatically not give the statement, and instead give a $500 credit. If the seller makes a false statement in the disclosure, the seller may be subject to claims by the buyer prior to or after the transfer of title. If a false statement is made by the seller at any time, you should contact your attorney immediately and advise him or her of the statement.

    Attached is a copy of the Property Condition Disclosure Statement originally required NYS Real Property Law § 462. By the time you read this copy, it is possible that it may not be the current version required by law. Therefore, you should check with your closing attorney or your real estate agent in order to determine if this is the current version. It is, nevertheless, attached because it does provide information about what you should be aware if you plan to sell or buy a house.

  4. Buyer Decides to Buy. If possible, a buyer should be "pre-qualified" for a mortgage if a mortgage is necessary to finance the purchase. A pre-qualification can make the difference if two parties are bidding on a house, and one is pre-qualified and the other is not.  Pre-qualification is free and might give you an edge!

    Buyer's Duty to Know Mortgage Amount Limits. At a minimum, a buyer should know how much of a mortgage the buyer can afford, which is based on the buyer's income, assets, debts, and credit rating. The buyer's real estate agent, a mortgage broker, or a lender can assist the buyer in determining what he or she can afford and in obtaining a "pre-qualification letter" to give to sellers (there is no cost to the buyer to obtain a pre-qualification).

  5. Preparation of the Purchase Offer. When a buyer finds a house the buyer likes in his or her price range, the buyer's real estate agent (or the attorney if no agent has been used) will prepare the Purchase Offer. The offer should be made subject to the buyer's attorney's approval.

    Consultation with Buyer's Attorney. The buyer may want to consult with his or her attorney prior to signing or submitting the offer to the seller, but the usual practice is to use a pre-approved form (see below for more information pertaining to pre-approved forms) and to send the accepted offer to the buyer and seller's attorneys after acceptance.  Both buyer and seller should make sure any offer signed by them is subject to attorney approval.

    Contingency for Sale of Present House. If the buyer also has a house to sell, and needs the equity in the house or cannot afford to pay two mortgages at the same time or the bank will not allow the buyer to pay for two mortgages at the same time, the Purchase Offer MUST be made contingent on the sale of the buyer's property. This protects the buyer from being committed to purchasing a property if the sale of the buyer's house does not close for any reason.

    However, any contingency required by the buyer makes the buyer less attractive to the seller.

  6. The Purchase Offer is Submitted to the Seller for Acceptance, Rejection or Counteroffer. The seller can accept the offer, reject the offer, or counter the offer. The seller often counteroffers over some issue, but the seller's response is dependent on the seller's motivation and the type of real estate market (buyer's or seller's market).

    A seller should know the likelihood of the buyer obtaining a mortgage, if the contract is contingent on the buyer obtaining a mortgage.

    The acceptance should be made subject to the seller's attorney's approval.  The seller may also want to consult with his or her attorney prior to signing, accepting the offer, or presenting a counteroffer to the buyer, but the usual practice is for the seller to use the pre-approved form (see below for more information pertaining to pre-approved forms) and to send the accepted offer or counteroffer to the buyer without first consulting an attorney.

    The seller (as well as the buyer) should know that, if the seller responds to the buyer with a counteroffer, the buyer can reject the counteroffer and not buy the house.

    Every time either the seller or the buyer submits a counteroffer, the other party can reject the counteroffer, submit  another counteroffer or decide not to go through with the deal. Therefore, be careful before you submit a counteroffer because the other party may be looking for an excuse to terminate the contract --  for example, the seller may have received a higher offer or the buyer may have found a house he or she likes better.

  7. After the Purchase Offer is Accepted, the Contract is Submitted to the Attorneys for Approval. You should make sure that the contract provides that it is subject to attorney approval and you should also note the time frame (usually 7 business days) required for your attorney to provide his or her approval of the contract.  Your attorney should discuss with you all the issues listed in paragraph (2) below before approving the contract.  When your attorney approves the contract it means that the terms of the contract are acceptable to you.  Attorney approval of the contract does not waive any contingency contained in the contract (for example, property inspection, mortgage contingency, etc.).

  8. Coordination of Contracts -- Timing. Unless a seller is willing to move twice (assuming that the seller is buying another house), a seller's sale contract and the seller's purchase contract need to be coordinated to the extent possible! This can only be done well through experienced counsel.

    If the buyer has a house that he or she needs to sell in order to purchase the new house, a practical coordination of the two transactions is often more important to the buyer than the other crucial, but behind the scenes, legal work the buyer's attorney performs. Sometimes this can be a very complex issue, depending on how long the chain of the transaction runs (buyer has a house to sell, the buyer of his house has a house to sell, etc.).

  9. Buyer Applies for a Mortgage and Avoiding Loan Fraud. Once the offer is accepted by the seller, the buyer should immediately apply for a mortgage, as the Purchase Offer is almost always contingent upon the buyer obtaining a mortgage commitment, within a specific time period.

    Be aware that filing a false financial statement with a bank is a very serious crime, under both federal and state law. It is against your best interest to continue to deal with any mortgage or real estate broker who encourages you to falsify your information.  Never make a false financial statement.

Buyers Must Not Commit Loan Fraud

Buyers are required to provide complete and accurate information when applying for a mortgage loan. This includes both the buyer and any third party that is assisting the buyer in either completing the application, or submitting the application to a lending institution. In this regard:

  1. Do not overstate income or assets.

  2. Disclose all loans and debts (including money that may have been borrowed to make the down payment).

  3. Do not provide false letters of credit, cash on hand statements, gift letters or sweat equity letters.

  4. Do not provide false or intentionally inaccurate 1040s, W-2s, 1099s, job letters or leases.

  5. Do not accept funds to be used for the down payment from any other party (seller, real estate, sales-person, builder, etc.) involved in the transaction.

  6. Do not falsely state that the buyer is receiving gift funds to use towards the purchase, when, in fact, the buyer is borrowing the funds.

  7. Do not falsely state that a property will be used for primary residence when it actually is going to be used as rental property.

  8. Do not act as a “straw buyer” (somebody who purchases property for another person and then transfers title of the property to that person), nor should the buyer give that person personal credit information for them to use in any such transaction.

  9. Do not apply for a loan assuming the identity of another person.

  10. Do not give a real estate purchase agreement to a mortgage broker or a lending institution that is different from the one that will be relied upon at closing. For example, the lending institution is given a real estate purchase agreement for $150,000 but is not aware of a seller’s concession or a purchase price reduction that makes the actual cost to the buyer less than $150,000.

  11. Do not submit, or agree to submit, or assist in submitting, to a mortgage broker or lending institution a false or misleading appraisal of the property to be purchased.

Federal law provides severe penalties for fraud, misrepresentation and conspiracy to wrongly influence the issuance of a mortgage. Buyers can be subject to criminal prosecution for providing false information.

If a buyer is aware of any fraud in the buyer’s mortgage loan application, or if any individual tries to persuade the buyer to make false statements on a loan application, the buyer should then immediately consult with an attorney.

  1. Mortgage Commitment Obtained. Once the buyer obtains a mortgage commitment, he or she should make sure that his or her attorney receives a complete copy of the mortgage commitment (including all pages, from the first page to the signature page, with any attachments) as soon as it is issued (either directly from the bank or by providing a copy themselves). It is crucial that the buyer review the terms and the conditions of the commitment with his or her attorney PRIOR to signing their acceptance of the commitment and returning it to the bank.

    If all other contingencies are satisfied at this time, the seller's attorney will prepare and forward the title package to the buyer's attorney.

    Once the mortgage commitment letter has been accepted by the buyer, it is the buyer's responsibility to satisfy all of the conditions of the commitment letter (that is, verification of employment, pay stubs, copies of bank statements, etc.). The sooner these conditions have been satisfied, the sooner the buyer is "cleared to close" by the bank.

    In addition to supplying the documentation required by the bank in order to satisfy the mortgage commitment letter, the buyer must verify with the loan processor directly whether the items submitted to satisfy the commitment letter actually do satisfy the conditions specified in the commitment letter. Occasionally the bank requires that the closing cannot even be scheduled until the buyer is "cleared to close."

  2. Examination of Title by the Buyer's Attorney. The buyer's attorney should examine the title package to determine that the buyer will receive marketable title. This is the most critical function the buyer's attorney performs for the buyer.

    Dibble & Miller, P.C., recommends that a buyer hire an attorney who performs his or her own title exam.

  3. Obtaining Title Insurance by the Buyer's Attorney. The buyer's attorney prepares or obtains a commitment for title insurance.

    Mortgagee Policy. Title insurance is a requirement of the bank, as it protects its interest in the title to the property. This form of title insurance is called a mortgagee policy.

    Fee Policy. This is an insurance policy that protects the buyer's interests in the title of the property, which is called a fee policy (fee in this case does not mean money, but rather refers to the fact that the buyer is the owner of the land -- the buyer is often called the fee owner of the land). This is an optional insurance, however, Dibble & Miller, P.C., always recommends that it be obtained.

    Simultaneous Insurance Policy. A simultaneous title insurance policy is one that obtains both mortgagee and fee coverage at the same time. The advantage to this type of policy is that it is less expensive to obtain the additional fee coverage at the time of the purchase, when the buyer is required to obtain the mortgagee policy anyway.

    Title Examination. Dibble & Miller, P.C. examines each individual title on behalf of our clients, rather than relying on the title company, because it has different interests which are based more on statistical factors, rather than on the interests of the buyer (you should note that while we perform title examinations, we do not warrant title).

  4. Pre-Closing Possession Agreement. Once in a while the buyer wants to obtain possession of the house before the closing. This can happen when the buyer has to sell his or her old house and move out before the closing on the new house. If the buyer moves into the new house before closing, the seller's attorney will want the buyer to sign a pre-closing possession agreement, which is a an agreement protecting the rights of both parties, but especially the seller.

    Pre-closing possession agreements are not favored, but are sometimes necessary to make the deal. There is a higher risk of buyer remorse when there is a pre-closing agreement, because the buyer is in the house and, for example, may decide that he or she does not like it, or may find out that the seller had animals in the house which affects his or her allergies. If this happens, the buyer may attempt to terminate the purchase.  Therefore, when a seller enters into a pre-closing possession agreement he or she should also collect a non-refundable deposit from the buyer to make it more difficult, and costly, for the buyer if he or she attempts to back out of the deal.

  5. Cancellation of Sale or Purchase. If the buyer or seller cancels a valid contract without legal justification, the party cancelling the contract may be held liable for certain damages by the other party. A buyer runs the risk of losing the deposit he or she placed on the property at the time of the signing of the Purchase Offer, and either party may be held liable for broker's commissions, legal fees and/or be subject to a lawsuit to force the sale of the property.

  6. The Closing. At the closing, the buyer's attorney explains the legal impact of the numerous documents the buyer signs or reviews, and collects the title objection curatives.

    The seller's attorney delivers the deed and title objection curatives, and collects the money due the seller.

    The lender's representative collects the documents signed or reviewed by the buyer and sees that the documents that need to be recorded (usually the deed, mortgage and discharge of the seller's mortgage, assuming that the seller has a preexisting mortgage on the house being sold) are recorded in the County Clerk's Office.

    After the documents are recorded the buyer has a new home.  (Technically, the buyer owns the home after delivery of the deed at closing, but the closing is held in escrow until the documents are recorded in the County Clerk's Office).  A seller should never cancel homeowner's insurance on a property until he or she has been informed that the documents were recorded in the County Clerk's Office.

  7. After the Closing. After the closing the attorneys for the parties send closing statements and other documents to their clients.

    The original deed is returned to the buyer's attorney about four to eight weeks after it was recorded, and often it is then forwarded to the client.

  1. What Should a Buyer or Seller Discuss with the Real Estate Agent and the Attorney?

    1. Full Disclosure. The buyer and the seller should discuss with their real estate agent and their attorney all their circumstances.

      1. Why they are Buying or Selling. Each party should discuss why they are buying or selling, where they are moving from or to, what efforts they have taken so far, and their financial circumstances relevant to the transaction. In summary, everything relevant to the transaction should be disclosed.

      2. Information about the House. Regarding the house itself, the seller should disclose whether there (a) is any personal property included in the sale, (b) are any hidden defects, (c) is any structural damage, (d) are any repairs or improvements to be made before closing, (e) are any pest infestations, (f) is zoning compliance (did the seller get a permit for the new deck or guest room that was built?).

      3. Property Inspection. We always recommend a property inspection for a buyer.  Sometimes even the seller is unaware of a serious defect.  If the contract is contingent upon the completion of a property inspection to the buyer's satisfaction, the inspection must be completed within days of the acceptance of the contract by the seller, as specified by the terms of the contract.  It is very important to note the time frame to complete the property inspection because it is the buyer's sole responsibility to complete the inspection within the specified time frame.  If the inspection is not completed in time, the buyer waives his or her right to the inspection and may have to purchase the property as is without the benefit of a professional property inspection to alert the buyer to possible defects.  Given that the buyer must hire a professional to complete the inspection within a limited time frame, we recommend that the buyer require at least 10 business days to complete the inspection after the seller has accepted the contract.  That way the buyer should have ample opportunity to hire an inspector, receive and review the inspection report and decide if the property is acceptable or if he or she wishes to cancel the contract due to the unsatisfactory results of the property inspection.

      4. Certificate of Occupancy (C of O).  Any non-owner occupied dwelling or multiple residence dwelling may require a C of O.  A C of O is an official document issued by the local municipality in which the property is located.  A C of O is typically required upon the transfer of title of multiple residential units (or rental units).  A C of O is usually issued by a municipality after it completes an inspection of the property and determines it is in substantial compliance with the applicable provisions of its Building Code.  We recommend that a buyer purchasing a property that he or she does not plan to occupy, but to rent, ensure that the contract is contingent upon the seller providing a C of O, if required by the local municipality, prior to closing, as obtaining a C of O can require a substantial amount of money, work and time.

      5. Tenants.  If you are planning to purchase a property with existing tenancies, you will want to review and approve any existing leases, gather information regarding the tenants and perform due diligence to determine that all rents are current and all security deposits will be assigned to you at closing.

      6. Other Real Estate. If you must sell your present house before you can purchase another house, or if you must buy a house before you can sell your present house, consider making the contract contingent on the other purchase or sale, to the extent possible.

    2. Mortgage Commitment.  If you are obtaining financing to purchase the property, ensure that the contract is contingent upon your receipt and acceptance of a mortgage commitment; so in the event you are unable to obtain a mortgage, within the allotted time frame, you will be able to provide the seller with a declination letter from the bank evidencing that you were unable to obtain financing.  That way you can show you have made reasonable efforts to obtain a mortgage and you should be able to cancel the contract, relieving you of any obligation to purchase the property.

    3. Coordination of Purchase and Sale. Unless a seller is willing to move twice (assuming that the seller is buying a replacement home), the seller's sale contract and the seller's purchase contract need to be coordinated to the extent possible!

    4. A Buyer Must Exercise Due Diligence.  It is important that the buyer understand that it is his or her responsibility to carefully consider all aspects of a purchase of real estate in New York State.  The Buyer must understand that his or her attomey will review the contract and title documents on behalf of the buyer, but will not be offering any opinion as to the: (1) suitability of the property purchase as an investment; (2) fair market value of the property; (3) the actual condition of the property (as a visual inspection of the property will not be completed by the attorney); (4) impact, payment or amount of property taxes or possible exemptions from property taxes; (5) impact of the purchase of rental property on income taxes; or (6) the suitability of any property management company a buyer may choose to hire to manage his or her rental property.

  2. Glossary of Terms.

    1. "abstract of title" -- is a summary of all the legal transactions recorded in the County Clerk's Office affecting the property for at least the last 60 years in Monroe County, or some other period, depending on local custom.

      The seller should search his or her files for the abstract of title, as it may have been received when the property was purchased. If it is not in the seller's possession, it may be found at the previous attorney's office, a title company, etc.

      Part of the seller's attorney's services is to locate the abstract and have it re-dated (brought current).

      Locating the old abstract can save the seller a significant amount of money ($200 to $600) and time in completing the transaction.

      Whether the seller or buyer pays for the abstract of title depends on local custom; in the Monroe County area, unless otherwise provided in the contract, it is an obligation of the seller.

    2. "adverse possession" -- a method of acquisition of title to real property by possession under the required conditions for 10 years. For example, if you place your fence on your neighbor's property and it stays there for over 10 years, the property enclosed by the fence, under certain circumstances, becomes yours.

      Since there are certain conditions that have to be met in order to establish ownership of land by adverse possession, you should contact your attorney if you are either the neighbor whose property has been taken, or the property owner who has taken his or her neighbor's property.

      Dibble & Miller, P.C. has considerable experience in handling adverse possession cases.

    3. "buyer's market" -- is a phrase that refers to a real estate market that generally has more houses available for sale than there are buyers.

      The usual result of a buyer's market is that the selling price of houses stays the same or decreases relative to the rate of inflation because of the relatively low demand.

      In a buyer's market there is more of a likelihood that the purchase price of the house can be negotiated downward.

      The 1990's, generally, was a buyer's market because the baby boomers had bought their first houses in the 1980's, and the pool of first time homebuyers was much smaller than the pool of sellers.

    4. "counteroffer" -- Any change to a real estate contract after it has been signed by the buyer or seller (this includes any changes to the contract made by the attorney approving the contract for the buyer or the seller).

    5. "closing" -- is when the money and the title to the property change hands between or among the seller, buyer and lenders.

    6. "consideration" -- the reason or material cause of a contract; some right, interest, profit or benefit accruing to one party, or some forbearance, detriment, loss or responsibility, given, suffered, or undertaken by the other.

    7. "contract" -- is formed when an offer is accepted and there is consideration.

    8. "fence agreement" -- an agreement that deals with a fence encroachment (for example, a land owner's fence is on the land owner's neighbor's property) in order to respond to an adverse possession issue that arises when title is being examined before closing. The agreement clarifies the ownership of the property between the fence and the property line.

      An affidavit was used in the past, but an agreement is required now, as a result of a change in local practice caused by a case handled by Dibble & Miller, P.C.

    9. "gift letter or affidavit" -- a statement (usually used by the buyer for the down payment for the purchase of a house) from a donor (often a relative) that the transfer to another (the donee, who is usually the buyer of a house) of money was made gratuitously (without expectation of repayment).

      To issue a gift letter or affidavit when there is expectation of repayment is fraudulent, and depending on circumstances, could be a crime. It is important that the gift letter or affidavit be a true and accurate statement when made.

    10. "instrument survey" -- is a map of the property tying it to some permanent, locatable point, and showing all the improvements on the property and improvements off the property but that are close to the boundary lines of the property.

      In the Monroe County area of New York State, the seller usually pays for the instrument survey. Once again, it will save the seller a significant amount of money if he or she can obtain the original survey for the seller's attorney to have re-dated (updated).

    11. "mortgage" -- literally translated as "dead pledge". An interest in real estate created by a written instrument providing security for the performance of a duty or the payment of a debt.

      Word History: The great jurist Sir Edward Coke, who lived from 1552 to 1634, explained why the term mortgage comes from the Old French words mort, “dead,” and gage, “pledge.” It seemed to him that it had to do with the doubtfulness of whether or not the mortgagor will pay the debt. If the mortgagor does not, then the land pledged to the mortgagee as security for the debt “is taken from him for ever, and so dead to him upon condition [that this is what the agreement provides]. And if he doth pay the money, then the pledge is dead as to the [mortgagee]....”

      Excerpted from The American Heritage Dictionary of the English Language, Third Edition Copyright © 1992 by Houghton Mifflin Company.

    12. "mortgagee" - the party that lends money and takes or receives the mortgage as security (for example, a bank).

    13. "mortgagor" -- the owner of the property who pledges the real estate as security for the money loaned to him or her (for example, the borrower).

    14. "motivated seller" -- is eager to sell for some reason (house too small, neighborhood bad) or compelled to sell for some reason (job transfer, foreclosure pending). Motivated sellers will often accept less than the market value of the property.

    15. "Multiple Listing Service (MLS)" -- is a computerized database of houses for sale maintained in Monroe County by the Greater Rochester Association of Realtors®, Inc. (GRAR), which markets the property to virtually every active buyer.

    16. "pre-qualification" -- allows a buyer to determine approximately how much he or she can borrow. This is based on the buyer's income, assets, debts and credit rating.

      The buyer's real estate agent, a mortgage broker, or a lender can assist the buyer in determining what he or she can afford and in obtaining a "pre-qualification letter" to give to sellers.

      Sellers prefer buyers who are pre-qualified because the seller often concludes from this that a pre-qualified buyer is likely to obtain a mortgage commitment, but there is no guarantee that one will be obtained.

    17. "real estate" -- is land, including the buildings and improvements on it and its natural assets, such as minerals, timber and water.

    18. "real estate agents" -- real estate agents are licensed by New York State to represent sellers and buyers of real estate. Real estate agents work for real estate brokers.

      Buyer's and Seller's Agents. There are real estate agents for "buyers", who represent the interests of the buyer (that is, identify desirable properties in the buyer's price range and advise the buyer regarding the neighborhood, schools, resale value and taxes), and real estate agents for "sellers", who represent the interests of the seller (that is, identifying potential buyers).

      Commissions Paid. The commission paid by the seller (usually 6% in Monroe County) is split by the agent for the seller and the agent for the buyer (3% each). The buyer's agent maintains independence because he or she is free to find the buyer any house to buy.

      Both Agents Work for Same Broker. If the agent for the seller and the agent for the buyer both happen to work for the same real estate broker, the agent must, by law, disclose this dual agency relationship to both the seller and the buyer and the parties must acknowledge, in writing, that the agent fully explained the existence of the dual agency and implications of the dual agency to them. Dual agency is a fairly common practice in real estate transactions because of the size of many real estate brokers. However, the main issue to recognize in this situation is that the agent is working for both the buyer and the seller and the result is that there may be some division of loyalty during the negotiation of the real estate transaction. For more information on dual agency, see the NYS Department of State, Counsel's Office Legal Memorandum entitled: Be Wary of Dual Agency.

      Dual Agent. Occasionally, one agent will act in a dual capacity and such an agent must, by law, disclose this dual agency relationship to both the seller and the buyer and the parties must acknowledge, in writing, that the agent fully explained the existence of the dual agency and implications of the dual agency to them.  In a dual agency situation, neither the buyer nor the seller should expect to receive the independent real estate advice that they would have received had they had their own agents. In a dual agency situation, the agent receives the entire commission (usually 6%). For more information on dual agency, see the NYS Department of State, Counsel's Office Legal Memorandum entitled: Be Wary of Dual Agency.

      Dual Agent Fee Negotiations. Sellers sometime become upset if their agent attempts to become a dual agent and will seek to renegotiate the commission to be paid if the seller's agent does become a dual agent (from 6% in Monroe County to between 3% to 5%).

      Dibble & Miller, P.C., usually does not recommend a dual agency relationship.

      Historical Prospective. In years past there were only seller's agents, because the sellers paid the agents and the agents owed a fiduciary duty (an obligation to act for the seller's benefit in the transaction) to the seller.

      Now, while the seller still generally pays both the seller's agent and the buyer's agent, the buyer's agent has a fiduciary duty only to the buyer.

      Seller Disclosure of Information. A seller should, therefore, understand that a buyer's agent has a fiduciary duty to the buyer, and the seller, or the seller's agent, should usually not disclose the seller's motivation to the buyer or the buyer's agent.

    19. "seller's market" -- is a phrase that refers to a real estate market that generally has more buyers than there are houses available for sale.

      The usual result of a seller's market is that the selling price of houses increases relative to the rate of inflation because of the relatively high demand. The 1980's, generally, was a seller's market because the baby boom generation was buying their first houses.

      In a seller's market there is more of a likelihood that the purchase price of the house cannot be negotiated downward.

    20. "title objection curative" -- is a document required by the title insurance company in order to cure a title problem prior to the issuance of a fee or mortgagee policy (for example, a fence agreement is an example of a title curative that a title insurance company may require to cure a boundary line issue concerning the placement of a fence and a property line).

    21. "title insurance" -- is insurance against loss or damage resulting from defects or failure of title for a specific parcel of real estate. This insurance also pays the cost of the legal defense of claims against title.

      Buyers should carefully review and understand any exceptions from coverage, and understand that the exceptions that are to be included in the policy are decided between the issuance of the title commitment, and the closing.

      There are two forms of title insurance:

      • fee title insurance - insures the borrower's or buyer's interest.

      • mortgagee title insurance - insures the mortgagee's (lender's) interest.

      Note: When a property is purchased and financed with a mortgage, fee and mortgagee insurance can be simultaneously issued, at a substantially lower amount than if they are purchased separately.

    22. "title package" -- is the common term for an abstract of title, instrument survey, and a proposed deed for a property. The seller's attorney prepares these documents and forwards them to the buyer's attorney upon receipt of buyer's mortgage commitment.

  3. Regional Information (Upstate New York and Monroe County):

  1. Pre-approved forms for residential real estate purchases are used in the Monroe County area. The contract form for residential transactions should be the "Purchase and Sale Contract for Residential Property" published by the GRAR and the Monroe County Bar Association. The current contract form can viewed by visiting the Monroe County Bar Association web site.

  2. In Western New York, an "Abstract of Title" is provided by the seller to the buyer as evidence of the quality of title held by the seller.

  3. Since the early 1980's, Instrument Surveys have been required by lenders and are required in the GRAR Residential Purchase and Sale Contract, which requires the seller to pay for the survey.

  4. The general custom in Monroe County is that the seller pays a realtor's commission of 6 percent (6%) of the purchase price for residential real estate.

  5. The general custom in the Buffalo and Syracuse areas is that the seller pays a realtor's commission of 7 percent (7%) of the purchase price.

This information is not legal advice or a substitute for legal counsel. Readers should not act upon, or use as legal advice, any of this information without seeking professional advice. This information is not intended to create, and use of it does not constitute, an attorney-client relationship or the rendering of legal advice.

 

   

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