Although I am not a full-time real estate attorney, I am fortunate to have closed a few residential and commercial real estate deals over the years for my clients, including some 1031 like-kind exchanges. For my physician clients, it is more common for me to advise them in buying or selling a home. If the client is buying a home, here are some of the key points I run through with them:
- Inspect everything. In addition to the general home inspection, make sure the sewer line or septic tank is inspected, pay for a survey (even if a new development), check the square footage and have a termite inspection performed.
- Check your contract regarding how you can back out and get your earnest money back. This includes your financing and home selling contingencies as well as how broad the language is that lets you back out if you are dissatisfied with the inspection.
- Try to buy some time by changing the “days” term to business days instead of calendar days, or try to get yourself a few more days to complete your inspections. It is not uncommon for the surveyor or other inspector to not be available on short notice or be late with their report.
- Purchase an owner’s title policy and try to get as many exceptions removed as possible. As with all insurance, there is a general (albeit limited) rule of coverage, and then dozens of exceptions. Unlike most other forms of insurance, however, the title company will agree to remove some of the exceptions prior to closing. Obtaining a survey will help with getting many of the exceptions removed.
- Make sure you get a copy of the settlement statement, deed, title commitment and mortgage prior to closing. The settlement statement, or HUD-1, is key, since it describes how all of the money flows. That is where many errors are made, and too much money is at stake to not review it carefully.
- Don’t sign anything unless everything is right. If the home doesn’t pass your final inspection, don’t sign the closing documents until it has been resolved. If something doesn’t look right on the deed, settlement statement, or anything else, don’t sign the closing documents. Once you have signed those documents, you are at worst the owner of a property you may not want that is tied to a mortgage you do not want, and at best in no-man’s-land with significant costs, if not a lawsuit, over unwinding the deal.
- This is more state specific, but consider who should be on the mortgage and the deed. There could be asset protection reasons to have the property in name of the non-physician spouse, or perhaps even in a trust or business entity, but there are tax consequences and liability concerns regarding any choice.
Here are some key points for selling a house:
- Make sure the contract allows you to accept backup offers. If you have a backup offer in place, then that puts pressure on the current prospective buyer to not push too hard in the negotiation process. It may also speed up the time to sell your home if the first offer falls through.
- Make sure the inspection contingency excludes cosmetic and other minor deficiencies. This is the opposite of number 2 above, in that you do not want a buyer to back out for a minor reason or no reason, meanwhile you may have missed out on other chances to sell your home.
- Offer a purchase price reduction or cash back rather than make repairs to the house as part of the inspection. If you do not have to make any repairs yourself, then all of the risk is on the buyer if the repairs are not satisfactory or cost more than expected.
- Check the settlement statement prior to closing. As the seller, you do not have as many documents to sign, but the settlement statement is still key.
- Keep in mind how long you have owned the home. The first $250,000 of gains on the sale of your home ($500,000 if married filing jointly) is exempt from tax, so long as you have owned and lived in the property for two out of the past five years.
- If you have to provide a property disclosure form in your state, then fill it out very carefully. The disclosure form can create significant liability if you fail to disclose any problems. In other cases, the language of the form may not require disclosure. If there are major problems that you have to disclose, then attack the problem head on, with a supplemental explaination of the problem and how you have fixed it.
- If you are attempting a FSBO, then hire an attorney to help you through the process, starting with any contract with the buyer’s agent and through the rest of the process. There are too many contracts to sign and places for things to go wrong to not have an experienced advocate helping you.
I have good real estate agents that I can recommend for Chattanooga, Nashville, Lexington and Colorado Springs. Just e-mail me and I will let you know.