Although every real estate transaction is different, the following summary provides a general overview of the typical steps involved in purchasing residential real estate in Lower Fairfield County, Connecticut:
The Offer – Once a buyer has located a home that he/she wishes to purchase, the buyer will need to make an offer. When working with a real estate agent, the offer is usually made by signing a formal binder agreement or offer to purchase. At the time this agreement is signed, the buyer is generally expected to provide a check for one (1%) percent of the purchase price. Although this process is usually completed by the real estate agents, as your attorney, we will be glad to review the offer to purchase or binder agreement to make sure that it is fair and that your interests are protected. If the transaction is going forward without a real estate agent or if the parties are using a Greenwich real estate agent, the binder agreement is generally not used and the parties proceed straight to signing a formal contract of sale.
Contract – After the offer has been accepted by the seller, the buyer will need to meet with an attorney to sign the contract of sale. As your attorney, one of the most important tasks we will perform is to review and, if necessary, revise the proposed contract of sale. Although the local bar associations have prepared a standard contract of sale, many attorneys do not use this form. Instead, they use their own contract of sale which is often biased in favor of the seller. Therefore, if the buyer has not done so already, it is crucial that an attorney experienced in real estate review the contracts to make sure that the buyer’s interests are protected and that the buyer understands his/her contractual obligations. Even if the seller’s attorney uses one of the standard contracts of sale, certain revisions to the contract are usually necessary to protect the buyer. Once the parties have executed the contract of sale, the rights and obligations of the parties become fixed and the parties can no longer change their mind about buying or selling the property. One exception, though, is that the contract of sale usually contains a mortgage contingency provision which allows the buyer to cancel the transaction if, after using their best efforts, they are unable to obtain a mortgage to purchase the property.
Deposit – At the time contracts are signed, the buyer is usually required to pay a deposit. The deposit is generally ten (10%) percent of the sales price, but can be less depending on the circumstances. This deposit is usually held by the seller’s attorney in escrow to insure that the buyer proceeds with the purchase. If the buyer does not go forward with the purchase, the deposit can be forfeited to the seller.
Inspections – Once an offer has been accepted, a purchaser should hire a reputable building inspector to inspect the premises to ensure that the structure is sound and that its systems are in good working order. The inspection is usually completed before contracts are signed so that any issues which arise during the inspection can be addressed in the contracts. However, if necessary, the contracts can contain a provision which allows the agreement to be contingent on a satisfactory building inspection. Such a provision is sometimes beneficial to the buyer because it requires the seller to sign a contract committing to sell to the buyer before the buyer invests a significant amount of money on inspections.
As a general rule, the buyer should always attend the building inspection. The knowledge gained by spending time with the building inspector during the inspection can be invaluable. The inspector will generally check items such as the roof, plumbing, heating, air conditioning, electrical systems, water, radon levels, structural condition, water seepage and many other items. The buyer should also consider retaining a separate inspector to check items such as termites, swimming pools, mold and septic systems. These items can be expensive to repair and often require a specialized knowledge that many home inspectors do not possess. For a list of local home inspectors, please click here.
Mortgage – As early as possible in the purchase process, the buyer should speak with potential lenders about applying for a mortgage. The mortgage process can be complicated and time-consuming. Many decisions have to be made about the loan, including whether to obtain a fixed or adjustable rate loan, the term or length of the mortgage, whether to pay points, how much to borrow, prepayment penalties, nonrefundable lock-in fees, and whether to use a mortgage broker or a direct lender, such as a local bank. Our staff can explain the options and assist in deciding what options work best.
Each lender that the buyer considers should provide to the buyer a good faith estimate of settlement costs and a preliminary truth-in-lending statement. As part of our services, we will review these two documents with our clients and make they are receiving a fair deal from the lender.
After the loan is approved, the lender will provide a written commitment. The buyer should review the commitment carefully to make sure the lender has no conditions and that the approved loan contains the rate and term promised. Until a written commitment is provided, the buyer should not rely on any preapprovals or verbal assurances from the lender promising that the loan is approved. For a list of lenders we work with on a regular basis, please click here.
Title Search – As part of our services we will obtain and review a title search of the property. The title search will confirm that the seller in fact has good title to the property, whether any mortgages, judgments or other liens exist on the property that must be released prior to closing, whether anyone else has any rights to the property and whether any restrictions may affect the buyer’s use of the property. The attorneys will resolve any title issues which arise prior to closing.
Title Insurance – One of the buyer’s more significant closing costs will be title insurance. Title insurance protects the lender and/or owner against monetary loss due to title defects or claims against the property. Title insurance will be required by the lender. Such a policy is called a loan policy or a mortgagee policy. In addition, the buyer should also consider purchasing an owner’s policy which protects the buyer in the event any title issues arise. Examples of title claims include unreleased mortgages or other liens from previous owners, documents improperly indexed by the town clerk, claims by contractors for unpaid improvements made to a home (commonly referred to as mechanic’s liens), forged documents and unpaid taxes that should have been paid by a prior owner. Title insurance will generally cover both the costs to defend the insured if litigation arises involving a title dispute and any costs necessary to remove title defects which existed at the time of the purchase.
Survey – Although generally not required by lenders in Connecticut, in many instances a survey should be obtained by the buyer. Unfortunately, a survey is costly and time consuming, and most buyer’s waive the right to obtain one. However, unless a survey is obtained, the buyer will not receive any details regarding the property’s boundary lines or where on the property structures such as the house, garage, driveways or fences are located within the property. Only a survey will show exactly what is located on the property and whether a neighbor may be inappropriately, yet openly, utilizing the property being purchased.
Homeowner’s Insurance – Unless the property is a condominium, the lender will require that the purchaser obtain homeowner’s insurance (also known as hazard insurance). The policy should provide guaranteed replacement coverage or, if not available, the coverage must be equal to at least the amount of the mortgage. The buyer will be required to pay for the first year’s insurance prior to closing. Since many lenders will not provide a final clear to close until they have received this proof of homeowner’s insurance, we recommend that our clients have their homeowner’s insurance in place at least ten days before the scheduled closing date. This allows the lender sufficient time to review the certificate of insurance and paid receipt prior to the closing.
Walkthrough Inspection – Immediately before the closing, the buyer should meet the real estate agent to conduct a walkthrough inspection. The purpose of this inspection is to make sure that the condition of the property is in accordance with the contract of sale. For example, the buyer should make sure that there are no new problems or defects that did not exist at the time the house was inspected and contracts were signed. The buyer should also make sure that the seller properly performed any agreed-upon repairs, that the premises are clean and that all personal property included in the sale, including appliances, have not been removed and are in proper working order.
Adjustments – The contract of sale will generally require that adjustments to the purchase price be made at closing for certain expenses payable by the homeowner. The purpose of the adjustments is to fairly allocate the costs paid by homeowners so that the buyer and seller are only paying for the expenses incurred during the periods they own the property. Examples of expenses for which adjustments are made include fuel, real estate taxes, sewer charges, water, and, if a condominium, common charges. Buyers should discuss the adjustments with their attorneys prior to closing, as these costs can be significant. For example, in most Connecticut towns, six months worth of real estate taxes are paid in advance in January and July of each year. Therefore, if a closing is scheduled to take place on August 1st, the buyer will have to reimburse the seller for five months of real estate taxes because the seller will have just paid, in advance, the real estate taxes through December 31st. This amount, when combined with other adjustments, can be significant and is usually not contained in the good faith estimate of closing costs or explained by the lender when discussing the amount the buyer will need to bring to the closing.
Closing – The closing is where everything finally comes together. The purchaser will sign all bank documents and pay the balance of the purchase price to the seller, as well as any other closing costs that are due. The seller will also execute certain documents, including the deed, and provide those to the buyer along with the applicable conveyance taxes. After the money and documents have been exchanged, the keys will be provided to the buyer. After the closing, the buyer’s attorney will perform a “title rundown” at the town hall to make sure that no new liens have been recorded since the date of the title search. The buyer’s attorney will also record the deed and mortgage, and pay the conveyance taxes on behalf of the seller. Once the deed is recorded, the buyer is the official owner of the new home.
As you can see, the process is somewhat complicated and unexpected issues often arise. Much is at stake during the real estate transaction and to achieve the outcome you are seeking, it is crucial for you to have an attorney you can trust to advise you and advocate on your behalf. The Law Offices of Seth J. Arnowitz, LLC is experienced in residential real estate transactions. Our goal is to provide you with the best possible representation so that your rights are protected and your transaction proceeds as smoothly and efficiently as possible.
The firm welcomes the opportunity to discuss your legal needs. Please contact Attorney Arnowitz by phone or e-mail with any questions or to schedule an initial consultation.