As if purchasing or refinancing a home isn’t stressful enough, the key professional players in a real estate transaction don’t necessarily have their client’s best interest in mind. Contractual limitations, professional conflicts of interest, and lack of proper professional guidance are
Here are six things purchasers need to know about the real estate process that are not frequently discussed:
- Home Inspectors. Never waive the right to a home inspection. Never. Second, purchasers should select their own home inspector. Real estate agents sell real estate every day, and may have a stable of these home pros, and therein lies the potential conflict of interest that compromises the integrity of the inspection in favor of “getting a deal done”. Avoid blurring the distinction between an appraisal and an inspection. An appraisal is a professional opinion as to the value of the subject property. That’s it. While the appraiser may note deficiencies in the property’s condition, it cannot ever be mistaken for a home inspection. An inspection should consist of a thorough examination of a home’s mechanical and structural condition. A home inspector’s liability is often limited to the cost of the inspection itself, and no more. So an inspector who fails to note a leaky roof may only be liable for $300, the average cost of an inspection. Therefore, if a specific item is questionable, call on a licensed contractor to delve further and give you peace of mind.
- Real Estate Agents. It is not surprising that many legal issues involved with real estate transactions involve the real estate agent as they are the center of the transaction. But understand an agent’s limitations. Work with a buyer’s agent or seller’s real estate agent, but not both. Known as a “dual agent”, the real estate agent is responsible for representing both parties. There is absolutely no way that a professional can represent the competing interest of a buyer and seller. Purchasers can remove the potential for conflict of interest by hiring their own buyer’s agent. Understand that a seller’s agent has their professional duty to the seller. Not the buyer — so tread carefully. Purchasers should not disclose information to a seller’s agent that they don’t want the seller to know.
- Lending Officers. Residential lenders are required to disclose all of the third-party vendors that they intend to use in a transaction. Appraisers and title companies are third-party vendors and loan applicants are not legally required to use them. Find a licensed appraiser or title company before you apply for your mortgage. Also get “pre-approved” by a lender before going house hunting. Purchasers should avoid using the real estate agent’s lender referral unless they are having difficulty securing a mortgage on their own. Loan officers often rely on referrals from agents and they can, and will discuss your finances and credit with the agent.
- Insurance Agents. Buying a home requires home insurance. After closing on the property, keep the insurance agent informed of significant changes planned for the home. When making any material structural changes that involve wiring or plumbing, or any other change that requires pulling a building permit, don’t skimp, pull the permit. No matter how handy a homeowner may be, if there is a fire, flood or other home disaster, the insurance company could deny your claim because your improvements were done without a permit. This is true even when homeowner repairs were not the direct cause of a structural problem.
- Title Agents. It is standard in the real estate industry to secure title insurance with a home sale or refinance. In a sale, the seller customarily pays for an owner’s policy for the buyer equal to the purchase price. If the buyer financed the purchase, then a lender’s policy in the amount of the mortgage is paid for by the buyer. Review the title policy. Title insurance has exceptions and exclusions, which is based upon what is revealed in the public real estate records. A buyer needs to know these exceptions, as it could impede their ability to sell their property in the future. Moreover, when a buyer purchases a home below market value, they should purchase title insurance equal to the home value, not the purchase price. For example, a buyer who purchases a home for $75,000 and valued at $100,000 would be exposed to $25,000 in the event of a title claim. No one is ever precluded from purchasing more title coverage. Finally: if there is a title issue, consult with a real estate attorney, as no other real estate professional is qualified to comment on the legal consequences of clouded title.
6. Real estate attorneys. While it sounds self-serving for most people, purchasing real estate is one of life’s most significant legal and financial transactions. Hiring a real estate agent costs about 3% — 6% of a home’s purchase price. Secure home financing cost anywhere from 1% — 3% of the loan amount. Why people sign a purchase agreement, mortgage loan agreement, or sign off on warranties, title schedules, insurance declarations, or other various third-party legal agreements without the expertise of a real estate attorney, is puzzling. Real estate transactions are all about legal contracts in the end. A loan officer is not an attorney. A real estate agent is not an attorney. A neighbor or cousin may or may not be an attorney. Don’t skimp. And when any real estate professional pushes or “encourages” a home buyer to forgo legal advice, then that in itself is a pretty good sign that a real estate attorney is needed.