I get asked this question a lot, and with the Boston Business Journal just having named this area as the hottest real estate market in Massachusetts, the question is coming up again… and again.
There are several steps and pitfalls involved the process, and before you jump into the pool, it would be wise to be at least a little bit familiar with the waters. This column provides you a very general overview of the process, and when you should get an attorney involved. Next week we will post Part II of II, giving you a specific list of common traps to look out for when selling your home.
The Listing:
You will need to tell the world that your house is for sale, of course. Most people in the Greater Boston area hire a professional realtor to handle this aspect, but there are always some do-it-yourselfers out there. You are going to need to come up with a price that 1) is a good comparable price for your neighborhood, 2) someone will actually pay you, and 3) is sufficient to put enough money in your pocket. None of these three issues can be resolved with a simple mathematical formula, unfortunately, but you can come close with some research.
The third issue, what will put enough money in your pocket at the end of the day, is the most important. Don’t just sell a home for as much as you can get, if that price won’t get you what you need. Take into consideration all mortgages and liens against the house, the realtor’s commission, the costs of the sale (cleaning, upgrades, transfer taxes, legal fees, etc.), and the potential capital gain. This last point, capital gains, is the least looked at prior to a sale, and it could be devastating. Definitely consult with your accountant to find out the potential tax you could pay on a capital gain, especially if the house you are selling was given to you as a gift by relatives.
The Offer:
Your “For Sale” sign is up, people have checked out your house, and a buyer comes forward with an Offer. There is nothing more exciting than a potential buyer when you have put so much effort into listing and showing – but slow down! The Offer, sometimes called the Contract to Purchase, is just that – it is a legally binding contract. In Massachusetts, an Offer usually contains the basic terms of the sale: the price and the amount of any deposit, whether the buyer will be getting a mortgage, the buyer’s right to have a home inspection, deadlines for all of these things; and the final closing date. If you “accept” the offer by signing it, then you are agreeing to each and every single term contained in it; not just the price.
Unfortunately, most realtors, and buyers without realtors, in our area give a very short window of opportunity for accepting their offers, often only 24 hours or less. If this time-frame concerns you, let everyone know during the Listing phase that any offers must be written so that they remain open for two or three days, whatever you prefer.
Note – there is nothing that stops you from making a counter-offer to the buyer, by changing some of the terms and then signing the bottom and clearly noting that it is a “counter-offer”. In fact, it could be the extra “push” that gets you the price you want (or need).
Following the offer, the buyer will usually engage the services of a professional home inspector, and may do some preliminary research on the title of the house or examine the governing documents of a condominium unit.
Purchase & Sale Agreement:
Usually one to two weeks after the Offer (or Counter-offer) is accepted, the buyer and seller both sign a purchase and sale agreement. As with the Offer, this is a legally binding contract and sets forth the parties’ respective responsibilities in a much more specific manner. It might include certain repairs of items for the seller to complete prior to closing, based upon the results of the home inspection. If the buyer is getting a mortgage loan, it will set forth the terms of the loan and usually gives the buyer a date to pull out of the deal if he or she is unable to get that loan. The loan process usually begins at this stage also; most banks will not consider a loan application until the purchase and sale agreement is finalized and signed.
The closing agent (the bank’s attorney), or the buyer’s attorney if there is no bank involved, takes on several other tasks during this phase. The title to the house is fully examined, a survey of the lot might be taken, and the bank conducts an appraisal. This stage usually takes 3-5 weeks, depending upon the complexity of the issues. As a seller, you of course want to leave yourself enough time to move and take care of personal matters, but otherwise the shorter this time period, the better.
The Closing:
The bank’s financing is in place, any title issues have been resolved, and everyone is ready to finalize the deal. The closing is usually held at the closing agent’s office or at the local Registry of Deeds. (The attorney’s office is usually a lot more comfortable!) On this date, to put it very simply, you give the buyer a deed to their new house, and they pay you a nice sum of cash. If you have a mortgage loan on the house, it will be the closing agent’s responsibility to pay off the mortgage in a timely manner, and the payoff amount will be withheld from your gross sale proceeds for this purpose.
You will be asked to sign 5-10 pages of documents which assure the buyer that there are no hidden liens on the property, that you do not know about any lot line encroachments, and you are not subject to withholding for income tax purposes. (This relates, again, to any capital gain that you incur upon the sale.) The proceeds are not handed to the seller until the deed is actually on record at the Registry, so if the closing is held at an attorney’s office, you might have to wait a few hours before the proceeds can be released to you. It is common practice, however, for the closing agent to hand the check over to the seller’s attorney, who holds the check in escrow until he or she is notified that the deed is on record.
Oh, and don’t forget to hand them the keys. You would be surprised how often that step is forgotten!
THE BIG QUESTION: DO I NEED A LAWYER?
Let’s face it: if the answer were no, then I would not have written this article, right? In fact, the answer is, “it depends”. Some people like to spend days fixing their own cars or motorcycles. If they screw it up, they might be out a few hundred dollars. Some like to take care of their own lawns instead of hiring a landscaper. If they over-fertilize, the result could be burnt grass. So the best strategy is to weigh your potential risk against the potential cost of an attorney.
So what are the potential results if you make a big mistake while selling your house? Of course, each and every transaction is different. I once received a call from a person who wanted to buy a piece of land next door to his house, which my client owned. He had signed a purchase and sale agreement to sell his own home, and the contract assured his buyer that he had good title to his own land. Why wouldn’t he, right? As it turned out, there was a title problem that dated back many years, and the agreement required him to use reasonable efforts to clear the title. His call to me was the last one he made to about 8 different people who owned pieces of the surrounding land. When all was said and done, it cost him about $250,000 to sell his house.
Now, compare this to the cost. Most people do not realize that the going rates for attorneys in this area are incredibly low for simple real estate transactions. In fact, while prices of homes, title insurance premiums and realtor commissions are about 300% of what they were 20 to 30 years ago, attorney’s fees have just about stayed the same. Additionally, many attorneys will charge a flat rate for services, or at least cap them. For this reason, it is to your advantage to have your attorney involved at the very beginning of the process. Do not wait until someone sends you a purchase and sale agreement to think about hiring an attorney. You should involve your attorney at the Offer stage, and even at the Listing stage. (Think about it: if you wouldn’t hesitate to sign a listing agreement with a realtor for 5% of the sale price of your house, then why would you hesitate to spend – at most – a few hundred dollars to have that agreement reviewed first?)
By contacting an attorney at the very beginning of the process, you will get the best possible bang for your buck – and you’ll find that the bucks you pay are relatively small.
NEXT WEEK:
Part II: The Most Common Errors a Seller Makes when Selling a Home
Lucas Law Group, LLC
Boston Business Journal.
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