In a FSBO, the hardest part of the transaction has already been completed – the Buyer and Seller have found each other. However, there is quite a bit of work involved to get the parties from the negotiating table to closing. A good real estate attorney can help you through the following process:
1. The Purchase Agreement: The Purchase Agreement is a contract signed by both the Buyer and Seller setting forth all important terms of the sale. There are many items that must be agreed upon, and the Purchase Agreement sets forth the rules of how the sale is to take place. When a would-be Buyer or Seller contacts me, I ask them for the general terms of the sale and provide them with an information checklist that shows what additional information is needed in order to prepare the purchase agreement.
2. The Disclosures: Each state has a different set of mandatory disclosure forms which must be provided to a Buyer at the time of closing. In Iowa, a Seller must provide a Residential Property Seller Disclosure Statement and, depending upon the age of the house, a Lead-Based Paint Disclosure. The Buyer must also be provided with informational pamphlets on lead-based paint and radon. These disclosure forms provide the Buyers with important information about the condition of the house they intend to purchase and also identify potential safety risks.
3. The Inspections: Some Buyers are not interested in doing inspections of the property they intend to purchase. Other Buyers want to have a home inspection, a radon inspection, and/or a termite inspection. A home inspection is a general type of inspection where an inspector is hired by the Buyer to examine the structure and major systems of the house. A Radon Inspection is a test to determine whether radon is in existence within the home at unsafe levels. Radon can be located anywhere in the Sioux City area, and levels can vary substantially from neighborhood to neighborhood or even house to house. Termites are also located in some areas of Siouxland. Sometimes, the home inspector may notice termite damage, which causes the Buyer to undertake a termite inspection.
4. The Financing: Almost all Buyers need a loan to purchase a house. If the parties agree that the Buyer does not need to purchase the house if the Buyer cannot get financing, the purchase agreement provides for this. There are other terms that need to be considered regarding financing so that all parties are protected.
5. The Title: A house is a big investment. Ensuring that the Sellers have good title (free of liens, mortgages, and judgments) is vitally important. In Iowa, marketable title is determined by the Buyer’s attorney examining an abstract of title for the property to be purchased. The Buyer’s attorney will then render a title opinion for the Buyer and the Buyer’s lender (if a lender is involved). Iowa also has a form of title insurance called Iowa Title Guarantee that is sometimes required by the Buyer or Buyer’s lender. South Dakota and Nebraska use insurance companies who provide title insurance to insure good title.
6. The Deed: In order to transfer ownership from the Seller to the Buyer, a Deed and additional transfer documents are signed by the Seller and held until Closing. Sometimes, a Real Estate Contract is used, which allows a Buyer to pay Seller for the house over a set period of time. In this instance, Seller essentially becomes the lender by allowing Buyer to pay for the purchase price in installment payments.
7. The Closing: Once the Purchase Agreement is signed, the inspections are completed, financing is secured, and clear title is determined, the parties can proceed to Closing. Closing is simply the process of transferring funds to Buyer and the property to Seller. Closings are sometimes handled at an attorney’s office. Other times, an independent closing company is utilized. Real estate closings seldom require that both parties appear at the same time. In fact, most closing documents are signed electronically and the funds are wired electronically. The closing company will prepare a closing statement showing the money to be paid from Buyer and the amount going to Seller. The closing statement will also show funds going to inspectors/abstracters/lawyers, transfer taxes, and recording fees. Once the money and the deed are both received by the closing company, the transaction is deemed closed. Keys are then exchanged, and the Buyer has possession of the home.