5 Steps Real Estate Experts Take to Reduce Headaches and Confusion When Buying, Selling or Leasing Property
Statute of Frauds
The Statute of Frauds is based on old English law and requires certain contracts to be in writing to be enforceable. The statute applies to real estate sales and transfers or leases for more than a year. The Statute of Frauds is a misnomer and instead should be called the statute “against” frauds, since its purpose is to memorialize a transaction in writing, preventing confusion and fraud.
But “getting it in writing” is not always easy. Sometimes people become a party to a contract because they feel rushed or take “the word” of the other party. Agreements that are not written often cause disagreements between parties.
How to Reduce Legal Issues
Here are five steps that buyers, sellers, landlords, tenants, real estate agents, investors, borrowers, and lenders can take to reduce legal issues when working with a real estate agreement.
Preliminary Closing Package
Reduce surprises at a real estate closing by asking for a preliminary closing package, including a settlement statement several days before the scheduled closing. Another name for a preliminary closing package is an “attorney’s package”. A lender, mortgage broker, title company or real estate agent should always request advanced documentation.
Final Walk-Through With Checklist
A new home buyer should always go through a final walk-through in advance of a home closing. Likewise, a tenant should do a walk-through with a checklist noting all repairs or issues with the premises. Never take someone’s word that a noted repair will be done. Have the responsible agent put it in writing with a time set for completion. Make sure to keep a copy of the checklist.
Written Estimate of Loan Costs
When applying for a mortgage, applicants are required to receive a written estimate of their anticipated loan costs. Known as a Good Faith Estimate of Settlement Charges (“GFE”), it must be sent to applicants within three days of applying. Its purpose is to allow the consumer to compare mortgage fees from different mortgage companies and prevent sticker shock. Unless there are problems with a loan applicant’s initial qualifications, the terms of the final loan should be similar to the final loan approval. The terms of the loan should remain the same at closing.
Signatures Required for ANY Contract Changes
Changes to an original loan term, real estate purchase or lease agreement require both parties to sign and agree to the changes. These signed changes are evidenced in an amendment or addendum. Sometimes just a term or date may be changed. In that case, both parties need to initialize the changes.
Be Specific About Contract Terms
When reviewing a real estate agreement (or any contract), if there are any ambiguous terms, it’s best to take the time and get specific with a term or provision to reduce confusion later. For instance, a landlord may provide that a leased apartment is for three tenants. Name each tenant. A home buyer may be unsure if a household item they like in a home will be included in the purchase. They should specify it in the offer. Don’t rely on oral promises. Rely on the written word.
Reducing an agreement to writing is important not because people aren’t honest, but because sometimes things don’t go as planned. When there is a problem, the parties can refer to the contract and what was meant and memorialized in writing. Many lawsuits get filed disputing the meaning and intent of written contract provisions. Imagine the legal problems generated by disagreements surrounding an oral real estate agreement. Taking the steps as discussed above will ensure a smooth outcome to one’s real estate transaction.
If you liked what you read, check out our related YouTube videos