your first real estate deal from showing to closing 4.12.13

Bridge the GapNew York County Lawyers’ Association

Continuing Legal Education Institute

April 12, 2013New York, New York

Presented by Adam Leitman Bailey, P.C.

Drafting materials by Adam Leitman Bailey, P.C.

Your First Real Estate Deal:From Showing to Closing

© Adam Leitman Bailey, P.C.April 12, 2013

Residential Contract of Sale

April 12, 2013 © Adam Leitman Bailey, P.C.

Good Faith Estimate


Bargain & Sale Deed with Covenants


Deal Sheet


Mortgage


Note


Finding, Hiring, and Utilizing an Aggressive Attorney

• Whether to hire an attorney

• Finding an attorney

• The mini-interview

• Questions for the attorney candidate(s)

• When to consult an attorney

• The functions of the purchaser’s attorney

• The makings of a good real estate attorney


The Home Inspection

• Always Accompany the Inspector When Visiting the Home. You will learn about your home and its structure as well as important information about the lifespan of its systems and major components.

• Ask For Referrals.The inspector is doing an x-ray and diagnosis of your house. Just as you would not pick a heart surgeon from a phonebook, be sure to ask for referrals when hiring an engineer.

• Cross out Waivers of Liability.When signing a contract with an inspector or engineer, cross out any limitation of liability. Your inspector should be responsible for missing any major repair items in the inspection.


The Home Inspection

• Spend Money to Have the Inspector Accompany You During the Walk-through. This will be your last chance to identify repair issues before you will be paying for the repairs yourself. Make sure that all facilities that were working when you first visited the home are still working at the time of closing. If not, make sure you delay the closing or obtain credits fir the costs of remedying these situations.

• Send the Inspector to the Home as Soon as You Have an Accepted Offer. Unless the sales contract will be contingent on the inspection, you may lose the chance to buy the home if it takes too long for you to sign the contract of sale by waiting on the inspector.


Buying a Newly Constructed Property:What You Must Know Before Signing

the Contract to Purchase• Do not close on a home without a certificate of occupancy or at minimum

a habitable dwelling. Make sure the contract of sale specifies that the buyer cannot be forced to close until the home is habitable and holds either a temporary or final certificate of occupancy.

• For newly constructed properties that are not near completion, the exact move in date in the contract of sale is a fiction as until the property is near completion, any builder will tell you it is impossible to predict a move in date. You should negotiate the ability to cancel your contract if you cannot move in after one year from signing the contract of sale.

• To avoid additional financing costs, ask the builder to pay for any additional financing costs incurred, including increased interest rate costs, if the property does not close when promised.



the Contract to Purchase• Especially for complexes of over 100 units, federal and state

laws and regulations may supersede or amend the purchaser’s rights applicable to the home. For example, The Interstate Land Sales Full Disclosure Act requires the builder to complete construction of the home within two years or the buyer is given the ability to cancel the contract of sale and get back the down payment.

• Make sure that you negotiate warranties into the contract of sale. Ideally, these warranties should last for a number of years, so that you do not end up paying out of your own pocket to fix faulty items prematurely. Additionally, make sure that you obtain copies of all warranties awarded to the home, as well as proof of their lifespan.



the Contract to Purchase• Many times, developers will negotiate items that do not

require extra costs or for monies to be spent. A developer may be willing to provide an outdoor shower, the enlargement of one room versus another, a carpeted basement and additional electrical sockets— especially if the purchaser is willing to pay any extra costs. Of course, such requests must be made before the property is built.

• Substantial changes to condominium rules are infrequent. This stems from the condominium association’s corporate documents, which usually require a majority, or 66 percent of unit owners to change the regulations. When buying, if you are specifically concerned about a particular issue, you should inquire about the issue before purchasing the home.



the Contract to Purchase

• For major projects, you should look into whether or not the construction project is adequately financed. Consider if the builder has enough working capital and monies set aside to cover the costs of building the home. If possible, review the builder’s financial statements and learn about the builder’s funding sources, such as lenders.

• For larger buildings especially, inspecting the unit alone is not enough. Make sure that your engineer also has access to the big-ticket items, which include the boiler, the roof, and the elevators, if applicable, when inspecting multi-family dwellings.


The Purchase of Title Insurance

• When obtaining a mortgage, your lender will require the purchase of a title insurance Loan Policy. You should always purchase an Owner’s Policy of title insurance, even though it is not required by law. Many types of problems or issues, both foreseeable and unforeseeable, may threaten an owner's property interest, thus creating the need for title insurance.

• Your attorney, settlement agent or real estate professional can order title insurance once all parties have signed the contract of sale.

• You should find out what the custom is within your locality regarding which party pays for title insurance, as this can vary. Buyers customarily pay for the Owner’s Policy in many locations, including New York, New Jersey, Pennsylvania and other East Coast states. However, sellers normally purchase the Owner’s Policy for buyers in other places, including Colorado, Illinois, and parts of California. In still other areas, it is customary for buyers and sellers to split the cost of the Owner’s Policy. Speak to local real estate professionals to learn the standard procedure in the area where you wish to purchase.


The Purchase of Title Insurance

• Bear in mind that unless you pay a higher premium for reimbursement of value at the time of the loss, any payment to you from your title insurance company because of a loss or defect in the ownership of the property will be valued at the date you purchased the property and not the current fair market value of the property.

• Unfortunately, in some localities and under certain circumstances, title insurance is not customary and attorneys order an abstract that researches a home’s history of ownership for at least 30 years instead. The abstract checks public records to uncover ownership information and to reveal whether there are any liens or encumbrances on the property. However, abstracts do not provide they buyer with any title insurance. So, if homebuyers are able to purchase title insurance, it is strongly recommended that they do this instead of only ordering an abstract.

• In a co-operative, the underlying building or the co-operative corporation should have its own title insurance policy for the property. Most buyers of a co-operative apartment do not purchase an Owner’s Policy. Instead, a lien search, which investigates the property and unit to determine whether there are any encumbrances, is typically ordered.


The Importance of Homeowner’s Insurance: Acquiring the Knowledge to Purchase and Maintain a

Sufficient Policy for Your Home or Investment Property

• Do not underestimate the importance of educated insurance shopping. Seek out referrals to find your homeowner’s insurance plan, and ask references as many questions as necessary. If a satisfied customer is your reference, also determine whether your source has actually ever filed a claim with the insurance company. Satisfied customers who have tried and tested their insurance providers are usually the best referrals.

• When interviewing potential insurers, ask them about pricing, learn about the types of coverage and plans and evaluate the best and worst things about their insurance policies.

• Many insurance companies also insure the loss of your property when it is stolen or lost in a place other than your home, and some standard policies even cover luggage lost overseas. You should check with the agent to find out exactly what coverage is included in each company’s standard policy.




• Do not assume that every possible type of disaster or damage is covered by the policy. Some standard policies cover terrorist attacks, but not acts of war. It is not common for a policy to cover nuclear attacks or spills, and many basic standard policies exclude flood, earthquake and lead paint casualties, although you can usually purchase these policies at extra cost.

• State and federal governments may step in when the insurance companies bow out. These insurances can be purchased through your insurance agent. You should ask your agent what kinds of insurance your state offers.

• For co-operative and condominium purchases, provided that the co-operative or condominium is using a reputable and financially sound insurance company for the master policy of the building, you may want to use the same insurance company to obtain your policy for your individual unit and its contents. Using the same insurer could prove beneficial when making a claim, as this would eliminate the debate as to which insurance company should cover each particular issue.




• You must be prepared to prove the value of personal property and belongings destroyed if an incident or disaster occurs. Make sure you keep a proper inventory listing all of the personal items in your home. You should write out the inventory in an email and email it to yourself and a loved one periodically (remembering that many email systems erase older emails every few months).

• It is worth supplementing your inventory list with a video recording or pictures of the insured property. Make sure that you also preserve receipts and credit card statements and that you are constantly updating your inventory to include new purchases.




• Remember that insurance companies expect an average of one claim every seven years, so you may want to resist filing a claim until it is significant and costly. Insurance companies may drop you from coverage or raise your policy rate considerably after the one-year contract expires. Also, because insurance companies keep a shared database on customers’ claims history, a history of frequent claims may also destroy your chances of obtaining insurance through another company.

• A common misconception is that the policy will insure the value of the house including any appreciation. Actually, coverage is limited to the amount of the policy, unless you purchase additional protections. You should inform your insurance company in writing of any major improvements to your home or investment, and ask the company to add coverage to the policy.


The Importance of Homeowner’s Insurance:Acquiring the Knowledge to Purchase and Maintain a


• The homeowner’s insurance policy• The function of the homeowner’s insurance policy• Ways to reduce the cost of homeowner’s insurance• Maintaining a homeowner’s insurance policy• Insurance through the Federal Government• Homeowner’s insurance in cooperatives and

condominiums• Obtain references• What you should know before making a claim


The Walk Through (The Final Inspection)

• Since the purchase of property is probably one of the most significant transactions of your life, you must not underestimate the importance of conducting a thorough walk through before closing.

• Treat the walk through as a final inspection. If you are striving for ultimate perfection or if an engineer found problems during the initial inspection, you can hire an inspector to accompany you for the walk through. Otherwise, try to bring people who are knowledgeable and skillful in home repairs to join you. If you cannot find such persons to accompany you, make sure you at least bring a friend. Do not underestimate the value of another pair of eyes when conducting this important final inspection.

• Leave ample time to conduct the walk through so that you may test everything that can possibly be tested. Inspect every aspect of the property with a keen eye and with attention to detail. Turn on every appliance, tap and light switch. Open each door and cabinet. Move rugs and furniture to scrutinize hidden spots. Do not forget to examine your outdoor land and fixtures too.


The Walk Through (The Final Inspection)

• Be thorough in your punch list. Make a list of anything that has broken or deteriorated between the initial inspection and the walk through and bring this list to the seller’s attention at closing.

• You can seek to have the items on the punch list repaired, or replaced, or you can ask the seller for a credit at closing if these items fail to meet the standard stipulated in the contract of sale. For serious problems, you may adjourn the closing until the problem is completely resolved.


Negotiating a Great Deal on a Newly Constructed Property:

What You Must Know Before Signing the Contract to Purchase

• Conduct an extensive inspection of the premises using a qualified inspector/engineer

• Know the builder’s past performances• Obtain warranties from the builder• The brand names and the appliances and fixtures

installed should be itemized in the contract of sale• The most common problem when purchasing a new

construction– The move-in date

• Locking in an interest rate


Closing Cost Guide:Determining the Complete Cost of Selling or

Purchasing a Property

• Customary purchaser closing costs

• Purchaser closing costs unique to cooperatives and condominiums

• Closing cost example

• Customary seller closing costs


Closing Cost Guide: Determining the Complete Cost of Selling or

Purchasing a Property

• You should check the survey against the inspection of the property. Does the survey show the swimming pool, deck, the garage or fences? If the survey does not include such permanent fixtures on your land, this is a problem.


Closing Cost Example:New York customary purchaser closing costs

Condominium purchase in Manhattan

• Sales Price: $715,500.00• Mortgage Amount: $465,075.00 (65% of sales price)

• Lender’s Attorney Closing Fee 850.00• Estimated Loan Charges/Escrows 3,000.00• Lenders Title Insurance Policy 596.00• Owners Title Insurance Policy 2,872.00• Title Searches, Recording Fees & Related Charges 1,100.00• Mortgage Recording Tax 8,341.35• Common Charge and RE Tax Adjustment TBD• Next Month's Common Charges TBD• Purchaser’s Attorney Fees 2,000.00

TOTAL ESTIMATED CHARGES $18,759.35



Closing Cost Example:New York customary purchaser closing costs

Condominium purchase in Manhattan

Details of Purchase

• Purchase Price of Property $715,500.00

• Add: Closing Costs $18,759.35

• Total of Above Items $734,259.35

• Less: Mortgage Amount -$465,075.00

• Deposits on Contract - $71,550.00

CASH REQUIRED FOR CLOSING $197,634.35

Hidden Land Mines to Look Out for

• Determine whether the home is legally habitable

• Be aware of the number of units sold and occupied in newly constructed apartment developments

• Clear all liens and obtain signoffs for extensions and alterations before closing on a home



• Inspecting for and understanding the underground oil tank

• Buying a home with occupants or tenants in possession

• Purchasing a land lease in a cooperative apartment

– Determine whether you are buying or renting the land



• Property taxes can change

• Different ways to take title to the home


your first real estate deal from showing to closing 4.12.13

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