Benjamin Katz, Esq. P.C.

The Contract stage of a residential real estate transaction is the longest and most crucial stage.  It includes the drafting, editing and signing of a Contract as well as appropriate due diligence by the purchaser and the purchaser’s attorney.  Whether or not a mortgage loan is being obtained, a title report is a critical aspect of due diligence.  An appraisal may also be obtained by the purchaser to confirm market value of the property.  However, this item is generally utilized by lenders providing mortgage loans.

The Contract of Sale

Once the parties agree on the general terms, the seller’s attorney prepares a contract of sale.  This is the most critical part of a real estate transaction.  If a promise by a party regarding any aspect of the transaction is not contained in the signed contract of sale, that promise will not be enforceable.  For example, if a seller and purchaser verbally agreed to include certain furniture or to repair certain defects as part of the sale, but did not include those promises in the contract, the purchaser has no recourse if the seller refuses to live up to those promises.      

Although most attorneys use standard forms for Contracts of Sale, it is common to modify and edit those forms.  In addition, both seller’s and purchaser’s attorneys often add more terms than those contained in the Contract of Sale with the use of an addendum known as a “rider”.  It is the responsibility of each attorney to ensure their client is properly protected should in case something goes wrong.  For that reason, the wording of the Contract of Sale and the riders must be carefully reviewed.  Rarely is the final Contract of Sale identical to the initial one drafted by the seller’s attorney.  

Once all Contract terms are mutually agreeable, the Contract of Sale is signed by the seller and purchaser and the contract deposit provided to the escrow agent, the property is officially “in contract”.  Depending upon local custom, the escrow agent may be either the the seller’s attorney or a title agent. If the transaction involves mortgage financing, the purchaser will submit a copy of the Contract of Sale with their loan application to a lender. If the sale involves a coop, a copy will also be submitted with other required information to the coop board for approval of the sale.

Title Search

A title search should be conducted to determine whether there are any existing liens, judgments, or violations against the property or the seller.  It also ensures that the seller is the legal owner entitled to sell the property.  Title/Settlement agents search public records for deeds, mortgages, and other documents filed against the property including the existence of unpaid taxes and municipal charges.  A report of the findings is provided to the parties’ attorneys so that any impediments to completing the transaction may be dealt with as quickly as possible. The parties will work with the title/settlement agent to resolve any issues.  Once the issues are resolved, insurance may be provided to both the purchaser and/or lender.  If some of these issues can not be successfully resolved, the transaction may need to be cancelled.  The title insurer may not provide insurance for the transaction if there are unresolved issues relating to title.  Co-ops will require a lien search to make sure there are no potential issues with the transfer of shares to the purchaser.

Appraisal

A home inspection is used to determine the physical condition of the property as well as any potential costs for repair an maintenance.  An appraisal, on the other hand, is used to determine current market value of the property.  An appraisal is an unbiased professional opinion of a home’s value and is normally used when a mortgage is involved in buying, refinancing, or selling that property.  A qualified appraiser creates a report based on an in-person inspection, using recent sales of similar properties, current market trends, and aspects of the home (for example, amenities, floor plan, square footage) to determine the property’s value. 

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