Property in New York is expensive. Whether you are buying your first home or selling your tenth investment property, there are several things that could go wrong, ruining your entire real estate transaction and turning your home buying or property selling experience into a nightmare.
One of the most important things to keep in mind is that a real estate transaction is a legal transaction. Not only does it involve a large sum of money, making it one of the most important transactions that you will ever make, but it also involves a lot of documents, paperwork, and most importantly a legal contract that is generally 10-15 and sometimes 20 pages long.
One of the best ways to avoid mistakes, issues, and problems in a real estate transaction is to hire an experienced real estate attorney.
The truth is, you wouldn’t go about any legal action or court case without proper legal representation would you? Well, why go about one of the most important legal procedures and one of the most significant financial investments in your life without one?
In this article, we are going to discuss some of the most common hiccups that occur during a real estate transaction.
While you read this, keep in mind that we strongly suggest you hire a real estate attorney to avoid these issues.
In a recent article we wrote about why you should hire a real estate attorney one of the most important points we made is that throughout the real estate transactional process, your real estate attorney will be the only person who is looking out for and protecting has an ethical duty to protect your best interest regardless of the outcome of the transaction. Working for you to make sure all documentation is in place, that all the contractual languages are beneficial for you, your real estate attorney will ensure there are no issues, delays, or problems resulting in delays or additional fees.
Things That Can Go Wrong in a Real Estate Transaction
- Termites. Small insects that cause a big problem. Homes with extensive termite damage are unfit to live in and many homeowners who discover significant termite damage usually move out of their home. For this reason, when you are getting a loan for your property, your lender will conduct a pest inspection. Usually paid by you (about $100-120), the inspection protects the lender by ensuring the house you are about to buy has no serious damage caused by termites. While some lenders will not require a termite inspection, many lenders will turn down financing for a home that has termites or they require the damaged areas to receive termite treatment before the escrow can close.
- Low appraisals. An appraisal is a valuation done on the property you want to buy/sell. Conducted by the lender but usually paid by the buyer, an appraisal is done to ensure that the property is worth the asking price or the amount being borrowed and to protect the lender’s interest in the home. Appraisers use different methods to determine the value of a property, but if the value of a property is far below the buying/selling price, the lender will generally not finance the transaction unless the selling price is lowered.
- Cloudy titles Title Defects. Believe it or not title issues can cause quite some problems in a real estate transaction. Title insurance protects the buyer and the lender in case there are any other claims on the property. If a property or title has any liens or claims against it, this issue will need to be resolved before the real estate transaction can proceed. Title insurance covers things such as ownership by a third party, title fraud or forgery, as well as liens or judgements against the property being bought or sold.
- A home inspection shows property damage or defects. Most real estate transactional contracts contain some kind of contingency that protects the buyer should the property have damage or defects that were previously not foreseen or that are not stated in the contract. Prior to the purchase of a home the buyer usually has a specified number of days to conduct a home inspection by a certified home inspector. As a buyer, providing your contract has the right contingency language, you will be able to back out of your purchase without penalty should damage or defects come up during the inspection. You may also request an adjusted/lower selling price to take into account property fixes that will need to be made, or request that the defects and damage be fixed prior to proceeding. These latter options are based on negotiations made with the seller directly.
- Financing falls through. Most sellers require a pre approval prior to accepting an offer on a property, meaning a review from a bank or lending organization concerning your financial situation that tentatively approves the buyer for a loan of the appropriate amount. You must remember that this is not a binding document and you will need an official commitment from the bank during your commitment phase. Most New York contracts are conditioned upon the buyer receiving an official loan commitment from the bank or lending institution. In the event the buyer is denied a loan commitment and, after making a good faith effort to obtain the loan, the contact is conditioned to return the down payment back to the buyer. If the buyer waives the commitment condition in the contract then the buyer would be at risk of losing the down payment funds.But a pre approval isn’t a guarantee that the buyer will get the financing. Many things can get in the way of financing between the initial offer and the closing. Buyers may have incorrectly filled out their initial application, job situations may change, interest rates may increase, credit scores can change, and so on. As a buyer, it’s important to know that lenders who deny financing after pre approval are required to give an explanation if the financing falls through. Denying financing due to race, religion, or national origin is illegal, If you feel that you have been discriminated against based on race, religion, sex, national origin, diasbility, and so on, contact a real estate attorney to see what your legal options are. Don’t let discirmation get in the way of you buying your dream home.
- The home is not insurable or is in a high-risk area. Some homes are located in naturally hazardous high-risk areas. In such cases, the lender may require you to purchase hazard insurance above and beyond homeowners insurance, which can be quite costly. Some homes were the subject of extensive damage or large insurance claims due to mold, or water damage. Such damage or claims would show up on the property’s insurance record. To protect their interests, some lenders will choose not to finance the purchase of a home that has had significant damage or large insurance claims. If the property you want to buy is not able to be insured, you may need to find another property or consider a full cash payment.
- Errors that prevent an on-time closing. There are many different parties and documents involved in buying or selling a home or property. If anyone along the way makes a mistake, it could delay your closing. Depending on the contract language, the mistake and who made the mistake, there may also be penalties that need to be paid. In some cases, the seller may refuse to extend the closing date, and the entire real estate transaction can be nullified. The best way to avoid such mistakes and to protect your interest, whether selling or buying, is to hire a real estate attorney.
New York real estate transactions can be stressful for all parties involved. There are many different people involved, a lot of paperwork, and many things that have to happen within a short period of time. And the ramifications of mistakes along the real estate transactional process can not only be costly but can cost you the sale or purchase of your home or property.
Hiring a real estate attorney can help you to avoid stress, unforeseen issues, and to ensure a smooth real estate transactional process that takes your best interest into account, protecting both you and your investment.