Q: I am still intimidated by the prospect of buying and selling real estate. Yet I am embarrassed to ask dumb questions or show my vulnerability. Could you run through the basics?
A: Now you should not feel self-conscious. I applaud you for having the courage to ask. Let’s try this approach in the limited space that I have.
There are three main documents that should be examined – the listing agreement, the sales contract, and the land title policy.
If applicable, the first key document is the listing agreement. If you are an owner and decide not to find a buyer yourself, this agreement gives the right to your designee to attempt to arrange a sale of your property.
Although it does not have to be so, the listing agreement usually gives the exclusive right to market the real estate. Key provisions that should be negotiable include the length of the listing, the commission rate, and the performance requirements of the agent.
Be careful when dealing with a real estate agent because he or she may be entitled to a commission even though no written listing agreement was ever executed and that person did nothing to find the prospective buyer. Remember, never say or do anything that could be construed as giving the agent the right to sell, unless that is your intent.
The second and more complicated document is the actual sales contract, which in recent years has ballooned to a confusing (in my opinion) six-page document. This is the agreement between the buyer and seller that documents that a sale has occurred and sets out the terms of the sale.
In preparing any sales contract, I would strongly suggest hiring an attorney to review the document for accuracy and also to insure that the blank lines and marked boxed are properly completed and are not overly weighted in the other party’s favor, especially in allocating who (buyer or seller) will be responsible for certain expenses.
If some type of non-typical transaction is involved, such as a 1031 exchange (selling one property and buying another in order to avoid paying capital gains), legal counsel should be included in the drafting of the sales contract.
Briefly, the final step in buying and selling real estate involves the title policy and working out the arrangements for the closing. We are lucky here in Colorado because our system is set up around a title company, unlike many states. The title company insures the marketability of the legal title of the real estate and will reimburse the buyers if they later encounter difficulties which affect the value of the purchased property, provided, of course, that the problems were covered by the policy.
A lawyer can explain the "exceptions" (matters not insured under the policy) and help to either eliminate them or advise his or her client as to paying a bit more for the policy and have certain conditions dropped by the company, thus expanding the coverage of the title insurance.
In addition, I am probably being far too cantankerous as the years go by, but I am surprised at some of the title policy requirements nowadays. More often than should be necessary, I have been able to modify or eliminate certain conditions, at least after I have had a chance to talk to the attorney for the title company. Thus, your attorney can be helpful in eliminating or modifying terms that should not be present and made a requirement to be fulfilled before a policy is issued.
Finally, one of the best deals in Colorado is hiring the title company to do the closing. Papers are prepared, prorations are determined, etc., all the little details that otherwise you would have to worry.
Thus, after the contract is signed and a title company is obtained, the buyer and seller can sit back and "leave the driving to the title company."
Out of space. I hope that his macro-view of the process has helped and never be afraid to ask questions.