Anatomy of a Residential Real Estate Purchase and Sale

Real Estate Transactions - Residential (Condos, Houses & Co-ops)

Anatomy of a Residential Real Estate Purchase and Sale

1) Mortgage Pre-qualification. Get pre-qualified for a mortgage at a bank. This shows the real estate broker and seller you are a serious buyer.

2) Research/Search for Property. Get to know the market. Search for properties using a real estate agent and all other means available to you. However, a local real estate agent has a wealth of information that you should take advantage of.

3) Make an Offer. When you find a property you like you make a price offer through the real estate agents. If you are using an agent to look at properties, she will relay your offer to the seller’s agent, also called the listing agent. The buyer’s agent and the seller’s agent split any commissions, which, by the way, are paid by the seller. If you saw the property from the internet or the newspaper, you were probably shown the property by the listing agent, who, don’t forget, works for the seller. You would then make your offer through that agent.

4) Go into Contract. If your price offer is accepted, you then go into contract. The real estate agents will ask who your attorney is and for the contact information. They will then prepare a deal memo with all parties contact information. The time to find out if your interests are adequately protected is before you are bound. In New York, real estate brokers may not prepare contracts at all. In New Jersey, real estate brokers may prepare contracts for one to four family homes, but there is a required three (3) day right to review by an attorney to protect you. The attorneys will then negotiate the contract. They will work with you and the broker to understand the business terms, what appliances are included, is there storage space included (in an apt.), is it a cash deal or do you need a mortgage contingency, when do you want to close, is there damage to the property that you want fixed, etc. Your attorney should explain the terms of the contract to you so you know what you are signing. With the contact, the buyer will usually put a down-payment of 10% of the purchase price into escrow with the seller’s attorney.

5) Home Inspection. For Houses in NJ, a home inspection by an engineer is done after going into contract, the price is then renegotiated depending on what is found. For houses in NY, an inspection is done prior to going into contract and may affect the price offered. For co-ops and condos, it is rare to hire an engineer to do an inspection as the buyer is responsible only for what is in the apartment. The buyer’s attorney should review the board minutes and corporation’s financials to gather information on the building condition and repair plans and well as any discussion of increasing maintenance/common fees or assessments.

6) Mortgage Application/Board Package for a Co-op. At this point, through bank or mortgage broker (who deals with many banks and is paid by the banks), the buyer applies for a mortgage. If purchasing a Co-op, the buyer will also start to compile the information necessary for the board package. The real estate agent will usually work closely with the buyer to present the buyer in the best possible light through the board package.

7) Title Report/Lien Search. If it is an all cash deal, the attorney will order a title report and title insurance for houses and condos or a lien search for co-ops. This is part of the buyers due diligence to know that they are buying the property or shares of stock (in a co-op corporation) free of any claims of third parties. If claims do show in the report, the buyer will have to clear them. For a house, if no recent survey can be located, a surveyor will be hired to survey the property. For more about title insurance see below.

8) Mortgage Commitment. If the buyer is waiting for a mortgage commitment from the bank, the title report or lien search is usually ordered after the Mortgage Commitment is in hand. The co-op board package requires a copy of the mortgage commitment and must be turned into the board shortly after it becomes available.

9) Schedule Closing. Assuming the property/co-op is clear of any claims and the money is assured, closing can be scheduled for a house or condo.

10) Board Interview for a Co-op. The sale is always contingent on the approval of the Board of Directors of the co-op corporation. After the board package is turned in and reviewed, the board will schedule an interview of the buyers. After the board approves, a co-op closing can be scheduled.

11) Closing. A closing is where the title to the house, condo or co-op is transferred. In NY, the bank sends an attorney to disburse the mortgage funds and the title company (for condos and houses) sends a title closer. The buyer’s attorney and the seller’s attorney are there and all of the documents get signed. In NJ, the buyer’s attorney usually acts as the "settlement agent" and will collect the mortgage proceeds and other purchase moneys and disburse them as directed by the parties. The bank attorney in NY or the settlement agent in NJ use these monies to pay the Seller, the broker, the title insurance company, the transfer taxes, filing fees, surveyor, and all others that are entitled to be paid. All funds of the transaction are itemized and reflected in a document known as a RESPA or HUD-1 (a form required by the Real Estate Settlement Procedures Act, hence the acronym "RESPA"). At closing, the RESPA is signed by the Buyer and the Seller, so that both can see exactly how the finances of the transaction work out. Other documents that need to be signed are, in the case of the Seller, the deed that the Seller is delivering as well as various affidavits and related documents, and in the case of the Buyer, all the documentation required to be signed by the lender, including the mortgage and the note. A Buyer who is getting a mortgage can expect to be going through and signing many more documents than the Seller. Other documents include the New York State and City Transfer Taxes returns, (or NJ Transfer Tax returns) paid by Seller, the mortgage, and the deed. For a c-op, the managing agent will provide the buyers with a stock certificate for the shares of the corporation they are buying and a lease to the specific apartment (which the bank attorney will take as security if the buyers have a mortgage).

Title Insurance
Title insurance protects purchasers and lenders against a loss for a title defect, or a third party making a claim to your property, these claims may be the result of fraud, undisclosed or missing heirs, recording errors, unfilled liens, improper court proceedings, false impersonation of the true owner of the property, unfilled easements and restrictions on the use of your property, forged deeds, mortgages, wills, documents executed under an invalid or expired power of attorney, deeds by persons supposedly single, but actually married, liens for unpaid estate, inheritance or income taxes.

While most other forms of insurance protect against losses arising out of unforeseen future events, the primary purpose of title insurance is to eliminate risk and prevent losses caused by defects in title arising out of events that have happened in the past.

For a one-time premium, an owner's a title policy remains in effect as long as the insured, or the insured's heirs, retain an interest in the property.

The title insurance agency does their searches of the property and the parties to the transaction and issues a title report and a title insurance commitment.

The searches include the following:

Bankruptcy Search
Tax Search
Assessment Search
Upper Court Search
Survey Inspection/Certification
Closing Service Letter
Alta 8.1 Environmental Lien Endorsement
Notice of Settlement
Flood Search
Patriot Act Search


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