Guide to buying and selling real estate in the State of Virginia
This guide explains some of the important aspects of buying or selling real estate with an emphasis on “For Sale by Owner” transactions. It contains general information for both buyers and sellers. If you would like additional information, please call either of our offices 571 765 6210 (Fairfax), 540 785 2122 (Fredericksburg) or go to the CONTACT PAGE and submit the form with your questions.
We have helped hundreds of buyers and sellers with For Sale By Owner transactions and provide a complete package from Contract through closing. We handle your transaction professionally while buyers and sellers save many thousands of dollars in commissions.
Written and published by: The Buck Law Firm, PC Attorneys-at-Law. This material may only be copied and published for use by clients and prospective clients of The Buck Law Firm, PC. All information provided is courtesy of The Buck Law Firm, PC who is solely responsible for the content. All legal services described are performed by the law firm. Alliance Title & Escrow is a title insurance agency owned by the principals of The Buck Law Firm and does not engage in the practice of law.
You have chosen to buy or sell without the assistance of a real estate agent. That means you will handle many of the details yourself. Our firm can assist you by preparing the contract and processing your closing. That is what we do best. We can’t tell sellers how to market their property. There are plenty of self-help books available to do that. Neither can we advise buyers and sellers of a fair price. You’ll have to do your own market research. We can assist you by providing the information and services you need to get your case to closing. Because you have chosen to go it on your own, there are some things requiring your personal attention. This Guide should prepare you by explaining the settlement process and what is expected of you. It also discusses our fees and services.
Preparing the property for sale
Obviously, a neat, clean and recently-painted home will show better. The home will look larger and more attractive if you remove clutter and extra furniture. Closets look bigger when you put out-of-season clothes in storage. Deal with any repairs before they discourage a potential buyer. Pets and their odors should be gone too. We recommend sellers remove any attached items that will not convey. Take Aunt Bessie’s chandelier down and put it in storage. If you can’t reasonably remove an item, be sure it is labeled clearly as “not conveying.”
What About Real Estate Agents?
Would you be surprised to learn you can operate as a For Sale by Owner and still have real estate agents involved? As a seller, you can hire an agent or an on-line service for the sole purpose of placing your property in the multiple listing service (MLS or MRIS) and/or to provide limited assistance, such as preparing a comparative market analysis to help you price your home. When you do, you will pay a fee to your agent for the limited service. In addition, you will be expected to offer compensation to the selling agent who brings you the buyer. That compensation will be set forth in the listing agreement you sign when your property is listed.
As a seller, even if you have decided not to have an agent represent you, agents representing a buyer may approach you. Here are some tips to help you understand how that might work:
• Real estate agents can provide services to both the buyer and seller. The buyer may hire an agent to represent him. This is buyer agency. Agents must disclose, in writing, which party they represent. You will be asked to sign this disclosure acknowledging that you have received it.
• The buyer’s agent will ask you to sign an agreement acknowledging his participation and agreeing to pay a fee. The seller usually pays the agent but the fee is negotiated into the sale price. As a seller, you should be concerned about your net bottom line, not who writes the check.
When you receive an offer from a real estate agent representing a buyer, you may want a professional of your own to review the offer with you. Call our office and we will be glad to assist. Our fee for reviewing the offer with you is $350.
What Should Sellers Tell Buyers About The Property
Virginia is a caveat emptor (buyer beware) state. This means it is up to the buyer to inspect the property carefully to determine if it is suitable for his needs. The seller is under no duty or obligation to point out defects – even hidden defects.
Caveat emptor has two important exceptions:
The Seller May Not Mislead. The seller can not do or say anything to throw the buyer off. The seller can not lie if asked a question, and should not do anything to conceal a defect. As an example, the seller should not pile boxes against a wall to cover a crack or damp spot. However, even the exception has an exception. If the defect is obvious, such that a reasonably inquisitive buyer could have found it, the buyer will be expected to find it. In one court case, the seller lied about a plumbing leak but the buyer lost because he did not crawl under the house and inspect the plumbing himself.
Mandatory Seller Disclosure. Virginia requires sellers deliver a statement warning the buyer that the seller is making no representations concerning the condition of the property, adjacent properties, historic districts, Chesapeake Bay Preservation Act, sexual offenders and dam breaking zones. Therefore, buyers should investigate and not rely on what a well-intentioned seller might disclose. We recommend a professional home inspection. Buyers may also want a home warranty. These warranties cost about $500 a year and cover most systems and appliances in the home. The typical deductible is $50 to $100 per occurrence. Our firm can order the warranty coverage. In the vast majority of transactions, the sellers are not necessarily hiding a defect. They may not know what occurred during previous ownership. They may be reluctant to certify or express an opinion on conditions that are not in their field of expertise. Even if the seller discloses something, it is only to the best of his knowledge and belief. Honest errors do not give the buyer a right to complain. Caveat emptor also applies to neighborhoods, schools, zoning and other issues.
If there is a mandatory Home Owners Association, the Seller must supply a disclosure packet of information from the Association. This is explained further in the section below titled “Prior to Settlement.”
I Found A Buyer, Now What?
We have developed an easy three-step process that has worked for hundreds of For Sale by Owner clients:
Step 1: the buyer and seller agree on a Letter of Intent.
Step 2: we prepare the Contract and To Do lists for both sides.
Step 3: we take the case through closing
The Letter of Intent
The Letter of Intent is an agreement to negotiate in good faith toward an eventual contract. A Letter of Intent is at the bottom of this page or you can request a WORD version from Craig@BuckLawyer.com. The purpose is to set forth the most important aspects of the transaction – the price, possession date and any seller contributions to the buyer’s closing costs. Once you have reached agreement on the Letter of Intent, send it to us and we’ll start the processing. We can usually prepare a Contract the same day..
The Contract of Sale
The Contract will define the details of the transaction and is a binding commitment on the parties. Oral agreements are not binding. There is no “cooling off” period to change your mind unless specifically provided in the written agreement. After signing the contract, any changes must be agreed to by both parties. Be certain you understand and agree to all its terms. Every word is there for a reason and carries obligations and responsibilities. Every term is also subject to negotiation and change. Our attorneys will go over the contract with you and provide a detailed “to do” list to guide you through to closing.
Our law firm assists buyers and sellers by preparing and explaining the contract. This usually means that we prepare the contract based on the mutual instructions of the parties. We don’t represent one party against the other but act as an intermediary to explain the contract terms and assist you in reaching an agreement. If you want your own attorney, to represent you solely, please advise us before we meet. The typical cost to prepare the contract is $375 to the buyer and $375 to the seller. If we are not doing the closing as well, there is a surcharge of $750 to compensate for the additional work involved with a third party. Estate sales or difficult situations requiring extensive drafting or negotiation could be more. We will give each party a good faith estimate of closing costs.
We do not recommend you use an Internet or office supply-store contract form, as they lack the specific provisions required in Virginia and might not be legally enforceable. We also do not recommend you “borrow” a contract from an agent. The forms are complicated and require many additions to cover various contingencies and disclosures required by law. Even if you think you understand the form, you might not be fully aware of your rights and responsibilities. An incomplete or misunderstood form can only get you into trouble.
Here is a summary of seller and buyer obligations under the contract. This list is not exclusive. There are many other provisions in the contract. The attorney will explain these to you.
For the Seller The Seller is obligated to deliver clear title to the real estate and all personal property listed in the contract. The property may be subject to normal subdivision easements and covenants. The contract provides the structure conveys in its present condition but that appliances, heating, air conditioning, plumbing, electrical and mechanical systems are to be in “normal working order” at the time of settlement. That is not “new” condition. The house must be “broom clean” when the buyer takes possession (usually the day of settlement). The buyer and seller will do a final inspection shortly before closing. You should get estimates and try to resolve any repair issues before coming to settlement. If there is a mandatory Home Owners Association, the Seller must provide the buyer with a disclosure packet. See the section on Home Owners Associations below under the heading “Prior to Settlement.”
For the Buyer The Contract contains a contingency that releases the buyer if the lender denies the loan. The buyer must diligently pursue loan approval and deliver a firm commitment within an agreed time or the seller may cancel the contract. The buyer is obligated to settle on the date specified. Lack of down payment funds is no excuse and will put the buyer in default. The buyer may apply for financing other than as specified in the contract, but must obtain a contract addendum signed by the seller or waive the financing contingency. The lender will provide the buyer with a Good Faith Estimate of closing costs. Often the seller will agree to pay some of the buyer’s closing costs as part of the purchase price. If the buyer needs to sell a house before buying the new one, the contract should be made contingent on the sale. Termite, well, radon, home and septic inspections, may be required.
Prior To Settlement
A lot happens between the time the contract is written and settlement. Here’s a review to help you understand what is going on with your case.
Home Owners Associations Many subdivisions have mandatory homeowner’s associations. All condominiums have a unit owner’s association. The association is responsible for maintaining common area, such as private streets, playgrounds and sidewalks. There will also be restrictions that limit what you can do with your property. There may be restrictions prohibiting an antenna or storing a boat or recreational vehicle. Color changes, fences and improvements may require approval from an architectural control committee. These restrictions are a normal part of association living. Virginia law requires the seller furnish a report from the association explaining the association, its budget, dues and regulations. The seller should comply with and correct any architectural control or maintenance obligations noted in the report. The contract is contingent on the buyer’s acceptance of the disclosure package. Therefore, the Seller must order the disclosure packet from the association and deliver it to the buyer as soon as possible. Buyers have three days to review the package and opt out of the contract if they object to what they see.
Financing There are many sources of mortgage money available. Mortgage companies act as brokers for institutional investors such as the Federal National Mortgage Association (FNMA) and others. There is competition between lenders and buyers should shop for financing, dealing only with reputable, known and recommended lenders. If the lender cannot deliver the loan on time, the entire transaction may fail. We do not recommend out-of-state and Internet lenders – our experience with them has been poor. Credit Unions are a great source. If you qualify for membership be sure to check out their offerings. The lender will provide a good faith estimate of all closing costs. Certain charges collected when applying for the loan may be non-refundable.
• How long will application and approval take?
• What is the interest rate and how long will the lender commit to hold it?
• Will the interest rate or payments vary over the life of the loan? If the loan carries an adjustable rate, does it have a conversion option so you can convert to a fixed rate later, and how? Ask for an explanation of the “Index, Margin and Caps.”
• Will you need private mortgage insurance? What will that cost? Lenders require mortgage insurance when you put less than 20% down. This does not pay the loan off if you die or become disabled. It only serves to protect the lender against your default.
• Will there be a prepayment penalty if you pay the loan early and how much?
• Will the loan be assumable and under what circumstances?
• Does the loan “balloon” or come due before the expiration of its normal pay out?
• If the transaction involves assuming an existing loan, there are usually savings in settlement costs. Be sure that you understand the terms of the loan you assume.
Types of Ownership Most married couples chose “tenants by the entirety with the common law right of survivorship.” If one of the parties dies, the other automatically inherits the property without regard to wills or probate. A creditor of one can not force the sale of the property to collect a debt.
Unmarried persons may choose either “joint tenants” or “tenants in common.” With joint tenants, the survivor inherits. With tenants in common, each owns a portion of the property and may convey that portion independently. Consult with the settlement attorney about any tax and estate planning consequences. We strongly recommend a joint ownership agreement for all purchasers who are not married couples. These agreements document each party’s responsibilities and ownership interest. The typical joint ownership agreement costs $350.
Refer questions about title, joint ownership agreements, partnerships, divorces, the rights of spouses and powers of attorney to our office as soon as possible.
Title Insurance Land is usually subject to real estate taxes, restrictive covenants limiting use of the property, or easements for utilities and other public purposes. Many of these matters are not defects and do not entitle the purchaser to cancel the transaction. The seller must give marketable title, which is title of such quality as to assure its ready acceptance by a future purchaser or lender. The seller must correct title defects such as unreleased mortgages or judgments, unpaid taxes, and sewer and water liens.
We will order a careful search of the public records to identify documents bearing on the title in question. An attorney reviews
an abstract or summary prepared by the title examiner to determine the legal impact of the various documents. The sale must include all parties who have an interest in the property. A title insurance binder, prepared based on information found in the abstract, commits the title insurance company to insure the transaction.
The title insurance binder and the policies issued after settlement represent an insurance company’s obligation to protect the insured’s interest in the property. The insurance company may choose to insure against loss or damage due to known defects. These include slight surveying errors, judgments against persons with similar names or incomplete notary acknowledgments.
The most important benefit of title insurance is protection against matters you cannot discover examining the public records. Examples are fraud, forgery, missing heirs and clerical mistakes in indexing documents or posting taxes. Newer, enhanced policies also cover building and subdivision code violations as well as post-closing matters such as identity theft. The enhanced policy has an inflation guard feature that increases coverage over time at no additional premium.
The lender will require title insurance to protect the amount of the loan but this does not protect the buyer’s equity. The amount of lender’s title insurance declines as the loan balance pays down. A policy issued to a prior owner does not protect the buyer either. To obtain protection for his growing equity, the buyer can get an owner’s title insurance policy. We recommend the enhanced owner’s title insurance in most situations. The additional premium collected at settlement is usually not significant when compared to the amount of coverage. The buyer pays the premium only once, at settlement, while the coverage continues forever.
House Location Survey In transactions involving new financing, lenders usually require a house location survey prepared by a licensed professional land surveyor. The purpose of the survey is to verify the legal description of the property and discover encroachments. Encroachments would include a carport or shed built over the property line. House location surveys for a simple subdivision lot typically cost $350 – $500. Acreage and difficult terrain may increase the price substantially. These prices do not include setting posts at the corners of the lot. Contact the surveyor early to discuss setting corners. The charge is about $50 per corner. You will not need a survey for a condominium. Surveys are not required for every loan, but may be advisable.
SETTLEMENT Settlement is the formal process that accomplishes the transfer of ownership. The practice in Virginia is to have one settlement agent conduct settlement and mediate disputes. If a serious dispute arises, the buyer and seller may need to seek separate attorneys. You should notify us immediately if you desire separate legal counsel so we can discuss how to divide the settlement duties.
Typically the buyer and seller each pay about $700 for settlement and document preparation. The Seller pays an additional $150 for each loan or lien to be released. There may also be messenger fees to pick up or deliver documents and payoff checks. Fees from the lender, recording taxes and title insurance are in addition. Understand, we can’t quote exact fees until we know the details of your transaction and see the lender’s good faith estimate. Anyone who quotes you fees without all the information is just guessing and probably underestimating just to get your business. The bait and switch comes later.
What Happens at Settlement? At settlement, the parties execute the various documents necessary to meet their obligations under the contract. All parties should be present. Most lenders do not accept a power of attorney for settlement and none will do so without prior notice. Many power of attorney forms are not acceptable for settlement. Some lenders have their own form. Be sure to tell both the settlement attorney and lender as soon as possible if there is any chance either the buyer or seller may not be present.
The documents the buyer executes at closing include: • Note — evidencing the loan and setting forth the terms of repayment. • Deed of Trust — pledging the property as security for the loan. In other states, this document is often called a mortgage. • Disclosure documents and other certifications required by the lender. If the seller is staying in the property after settlement, the parties will execute an occupancy agreement similar to a lease. The seller will execute the Deed and deliver possession of the property.
The Buck Law Firm will handle the financial accounting and mediate the settlement. We will receive and disburse funds among the purchaser, seller, new and old lenders, surveyor, termite inspector, title insurance company, and homeowner’s or condominium association. After settlement, we will record the Deed and Deed of Trust in the city or county land records. The title examiner checks title up to the time of recording to protect the purchaser and lender against intervening liens. The moment of recording is the determining factor when deciding priorities.
WHO TO USE FOR SETTLEMENT? Be very careful when calling for fee quotes. Many companies quote low settlement fees but more than make up the “savings” by over-charging for other services. Since non-lawyers cannot practice law, a non-lawyer Settlement Agent cannot answer legal questions. The Buck Law Firm will guarantee to meet any competitor’s total closing cost package. We have extensive real estate experience having helped over 35,000 families buy, sell or refinance their homes since 1979 and look forward to helping you.
Your continuing liability
A short sale is not without consequences. You are legally liable for any deficiency. In some cases, the lender will ask you to contribute money to closing or sign a note for part or all of the deficiency. In some cases, the lender will commit to forgiving the deficiency. In many cases, the lender will say nothing and, in so doing, preserve their right to collect additional money in the future. Unfortunately, there is no way to force their hand on this and many short sales go through without a definitive answer.
If the lender forgives the debt, it is treated as income for tax purposes. You will receive a form 1099 at the end of the year. However if the property was your principal residence, or if you are insolvent at the time of the short sale, a short sale deficiency may not be considered taxable income. Consult with your tax advisor for details.
We can assist you by providing the information and services you need to get your case to closing. Because you have chosen to go it on your own, there are some things requiring your personal attention. This Guide should prepare you by explaining the settlement process and what is expected of you. It also discusses our fees and services.
How we can help
The Buck Law Firm has extensive experience with short sales and we are ready to assist you. We will prepare the preliminary settlement statements your lender will require as part of the short sale package and conduct the closing. Contact us today.
LETTER OF INTENT TO BUY AND SELL REAL ESTATE
This Letter Of Intent dated: __________________ is between:
and (Sellers) ____________________________________________________________
for the Property known as: __________________________________________________ to include those fixtures, appliances and items determined in the final agreement.
The parties agree to negotiate exclusively and in good faith toward a contract for the purchase and sale of the Property. If they do not reach written agreement on a contract within 7 days, this letter of intent shall be of no further force and effect. The general terms are as follows:
Price: $_________________ Deposit: $_____________ Closing date: ______________
Contingent on buyer obtaining a loan of: $__________________ and subject to Seller’s and lender’s acceptance of Buyer’s credit and financial information and appraisal.
Circle the loan type: VA / FHA / Conventional. Optional: Seller’s contribution toward buyer’s closing costs: $____________ plus Home Warranty up to $500. (write “none” or cross out if not applicable).
Seller will grant Buyer or Buyer’s inspectors access to the property and the final contract will be contingent on the results of Buyer’s inspections. Select: The Property is/is not in a mandatory Homeowner’s Association. The property is or is not on public water and is or is not on public sewer.
Other Terms: __________________________________________________________________
Select: The cost of contract preparation for settlements conducted by The Buck Law Firm is $750 paid by Seller/Buyer/Split and $1,500 if settlement is elsewhere. The parties will also incur normal closing costs and settlement fees collected at closing. The parties instruct The Buck Law Firm, PC to prepare a Sales Contract and to conduct closing on their mutual behalf. Either party may elect to have their own attorney represent their individual interests.
eMail: _______________________ eMail:_________________________
Email this Letter of Intent to Craig@BuckLawyer.com or fax to (540) 785-5075. Phone (540) 785-2122
Copyright 2020, May be reproduced ONLY for settlements conducted by The Buck Law Firm PC