Five Tips for Buyers Shopping for Real Estate
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If you grew up watching The Brady Bunch, you probably remember one of the most memorable episodes ever: Episode 53 “The Wheeler Dealer.” Greg is excited to buy his first set of wheels from his buddy Eddie. And, as we all know, Eddie isn’t always truthful. A doe-eyed Greg gets taken in by Eddie’s pretty prose and Greg gets stuck with a lemon, learning what in Americana is probably the most notable TV Latin lesson: caveat emptor – or let the buyer beware.
That advice is important for any purchase, especially the real estate market. With a lot of inventory on the market, sellers may feel pressured to make their property stand out by embellishing, misrepresenting or even lying about their property’s description and features to close the deal. Will the law protect you the buyer if you end up with buying from Greg’s friend Eddie? Not necessarily.
Here are our five tips for people looking to buy property.
1. Be Wise and Scrutinize.
North Carolina courts have clearly recognized caveat emptor when it comes to real property in our state. Cases have ranged from structural integrity and the right to use an access easement to acreage and square footage.
It all came down to one question: Was the embellishment or misrepresentation able to be revealed if the buyer had exercised reasonable diligence in searching out potential defects in the real property?
This means that buyers have a duty to use all means at their disposal to discover defects like ordering a building inspection, wood-destroying insect report, survey and hiring an attorney to search title and provide legal advice. While the seller doesn’t get a pass to behave unethically, it does mean that buyers should be diligent in knowing as much as possible about the property they intend to purchase.
2. As Is, Was, and Shall Be… Your Responsibility
Properties sold “As Is” are rampant on the market as foreclosures have left banks with many properties to sell. North Carolina courts made it clear that if a property is sold “As Is”, then the buyer assumes all risks, regardless of how expensive or damaging the defect may be.
If you intend to purchase this kind of property, be sure to line up a building contractor or home repair company to provide you with reasonable estimates so you can determine if the repairs are within your budget. If you are borrowing money to purchase the property, get that lined up, too. Many lenders require repairs be completed prior to closing, but some lenders have rehab products available for you.
Also, be sure to include a due diligence period in the
contract. The due diligence period gives
you time to make your inspections, get repair estimates and confirm loan funds
availability prior to being bound by the purchase contract. If the you discover repairs are going to be
much more costly than you anticipated, you can withdraw the offer prior to the
expiration of the due diligence period.
3. Is REO the Way To Go
Bank or lender owned properties (also called Real-Estate Owned or REOs) open up the market to some great deals. But with all things too-good-to-be-true, it’s important to know what you’re getting into. With REO properties, the REO owner will pass title by quitclaim or special warranty deed, meaning they make no or limited guarantees as to the condition of the title to the property.
Most REO contracts state that the seller is not required to provide marketable title, only insurable title. Insurable title means title may not be free and clear of defects but a title insurance company is willing to insure the property for you and deal with a defect if a claim arises against the property.
4. It’s Material
For real estate agents, the courts have imposed a special
duty to disclose material facts. One
material fact relevant in the current atmosphere is if the seller is in
foreclosure. There is no duty for the agent to disclose this information if the
seller is only behind on payments. However, once the seller has a foreclosure
filed against him or her, it becomes a material fact that the seller’s agent
must disclose as soon as he or she has knowledge of the foreclosure.
5. Is Settling as Simple as a Signature?
A recent trend has seen out-of-state settlement companies handling closings by sending “mobile notaries” to oversee the signing of documents. However, a settlement company is limited to collecting and disbursing the buyer’s money, pointing at the loan documents and telling the buyer where to sign.
An employee of a settlement company cannot give the buyer legal advice. Because in North Carolina only a licensed attorney can provide an opinion of title for title insurance purposes, some settlement companies have been known to pay a North Carolina attorney a nominal fee to sign documents without actual supervision of the work performed by the settlement company. Ask for an attorney to be present when you are buying your home. It’s a large investment and you should protect your interest.
With an investment as long term and significant as property, hiring a real estate attorney can save you headaches and hardships down the road. Your attorney will discuss the legal implications of any defect found, verify that there are no issues with ownership of the property and protect your interest in connection with the purchase. He or she can also explain and answer questions regarding your loan documents and what happens if he or she discovers a title defect that causes you to hesitate about moving forward with the purchase.
No matter what type of investment you make, heed Mike Brady’s sage advice to his son and do your homework, because as he says to Greg, “Them who don’t look, sometimes get took.”
Susan Benoit is a real estate attorney and partner at Hutchens Law Firm.