By Callie Pancoe
The 2021 real estate market faces two conflicting pressures: an increased demand from buyers and a low supply of listings. These trends created an ultra-competitive market with soaring prices. To make a competitive offer, buyers must act fast. Even in the fast-paced market, prospective buyers should do their homework before consummating a purchase. Most real estate transactions proceed without complications. However, taking specific preliminary actions can help to avoid a negative outcome.
Real estate transactions usually begin with the parties entering into a written agreement for the sale/purchase of specific real estate. This document includes more terms than the purchase price and closing date; it defines each party’s right to terminate the agreement under certain circumstances. It also outlines each party’s legal remedies if the other party breaches the contract. The parties should thoughtfully prepare the agreement and include provisions to protect their respective interests. Once the purchase agreement is signed, it may be too late to include new conditions or address further issues.
Once the parties have signed the agreement, there are several next steps. First, the buyer may need to obtain financing to complete the purchase. Prospective lenders often analyze the buyer’s current financial condition and the proposed deal before agreeing to make a loan. If willing to provide financing, the lender proposes the conditions under which it will make the loan. This includes the length of the loan, repayment schedule, and interest rate. Parties should draft the purchase agreement to include the minimum loan terms considered acceptable before being obligated to proceed with the contract. If not met, such protective contract terms would allow the buyer to terminate the agreement without penalty.
Second, the buyer should obtain a title commitment from a reputable title insurance company. The commitment states the conditions under which the title insurance company will issue a policy insuring clear title in the owner’s name and any exceptions for which the policy will not provide coverage. The title company will research the current and previous ownership of the real estate and other public records that may affect the property to determine if there are any documented encumbrances or issues with the current title. A thoroughly prepared purchase agreement will set forth the title issues that, if determined to exist, will allow the buyer to terminate the contract without penalty.
Third, the purchase agreement should include rights of the buyer to conduct surveys and inspections to determine the suitability of the real estate for the buyer’s needs and the physical condition of the real estate. For example, a buyer who intends to develop the real estate may want the right to have the real estate tested or inspected for suitability for building or to determine the presence of contaminants that may create potential liabilities. Among other things, a survey can locate the current boundaries of the real estate, which may be different from the boundaries that a visual inspection may suggest. Regardless of the intended use, the right to survey and inspect the property is valuable to any real estate transaction.
A buyer’s or seller’s protection begins, and if not carefully prepared, ends with the purchase/sale agreement. In today’s fast-paced real estate market it is important to protect your interests. To consult with an AKC Law attorney knowledgeable about real estate law, call 402.392.1250, or online at akclaw.com.