Why You Need a Lawyer When You Buy or Sell a House
By FindLaw Staff | Legally reviewed by Robert Rafii, Esq. | Last reviewed October 27, 2022
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Buying a home will probably be the largest and most significant purchase you will make in your life. It also involves the law of real property, which is unique and raises special legal issues and problems not present in other transactions. A real estate lawyer is trained to handle these problems and has the most experience to deal with them.
Buying a Home
In the typical home purchase, the seller enters into a contract with a real estate agent, usually in writing. When the broker finds a potential buyer, they conduct the negotiations and most often act as an intermediary (the go-between) between the buyer and seller.
Once an informal agreement is reached, the buyer and seller enter into a formal written contract for the sale of the new home. This is known as the purchase agreement. The home buying process then follows the following steps:
- The parties open escrow and contemplate on a closing date for the transaction
- The buyer obtains a commitment for financing from a bank (unless the buyer is making a straight cash purchase).
- A title search is conducted to satisfy the lender and the buyer and to ensure there is no cloud on title
- Finally, the property is transferred from the seller to the buyer, and the seller receives the purchase price bargained for in the contract.
The process seems simple, but without a lawyer, the consequences may be more disastrous than purchasing a car that turns out to be a lemon or a stock investment that was unwise.
Avoid Vague or Unclear Terms
A lawyer can help you avoid some common problems with a home purchase or sale. For example, a seller may sign a brokerage agreement that does not deal with a number of legal issues. This happens quite often as realtors often use standard forms, expecting that they will cover all situations.
In the absence of an agreement to the contrary, the seller may become liable to pay a brokerage commission even if a sale does not occur, or they may be forced to pay more than one brokerage commission. This is not always the case, however, because some states explicitly prohibit brokers from collecting unearned commissions. Nevertheless, it is better to have a written agreement with your broker to avoid uncertainty.
It is thus recommended that the seller have the advice and guidance of an attorney with respect to a brokerage agreement. Even if the agreement is a standard form, its terms should be explained to the seller and revised, if necessary.
The purchase agreement is the single most important document in the transaction. Although standard printed forms are useful, a lawyer is helpful in explaining the forms and making changes and additions to reflect the home buyer's and the seller's desires. There are many issues that may need to be addressed in the purchase agreement, such as:
- Ensuring the seller has properly made all legally-required disclosures about the home, and likewise allowing the buyer ample opportunity to analyze the disclosures
- If the property has changed or if there has been an addition to the property, was it done lawfully?
- If the buyer has plans to change the property, can that be done lawfully?
- What happens if a buyer has a home inspector inspect the property and termites, asbestos, radon, or lead-based paint is found?
- What if the property is found to contain hazardous waste?
- What are the legal outcomes if the closing does not take place, and what happens to the down payment?
- Will the down payment be held in escrow by a lawyer according to the escrow instructions? How is the payment to be made? Is the closing conditioned upon the buyer obtaining financing?
Most buyers finance a substantial portion of the purchase price for a home with a mortgage loan from a lending institution. The purchase agreement should contain a carefully worded provision (known as a "contingency") that is subject to the buyer obtaining a commitment for financing.
After the purchase agreement is signed, it is necessary to establish the state of the seller's title to the property to satisfy the buyer and the financial institution. Generally, a title search is ordered from an abstract or title insurance company. An attorney is essential to review the status of title and give an opinion of title in lieu of a title policy.
When it comes to obtaining title insurance, an attorney can help review the title search and explain the title exceptions as to what is not insured. They will also determine whether the legal description is correct and whether there are problems with adjoining owners or prior owners.
In addition, an attorney can explain the effect of easements and agreements or restrictions imposed by a prior owner, and whether there are any legal restrictions which will undermine your ability to sell the property.
The title search does not tell the buyer or seller anything about existing and prospective zoning. A lawyer can explain whether zoning prohibits a two-family home, or whether planned improvements violate zoning ordinances.
The closing is the most important event in the purchase and sale transaction. The deed and other closing papers must be prepared. At the closing, title passes from seller to buyer, who pays the balance of the purchase price. Frequently, this balance is paid in part from the proceeds of a mortgage loan.
A closing statement should be prepared prior to the closing indicating the debits and credits to the buyer and seller. Here, an attorney can be helpful in explaining the nature, amount, and fairness of closing costs. Furthermore, once the deed and other closing documents are signed, an attorney can make sure that these documents are appropriately executed and explained to everyone.
Importance of Having a Lawyer During Closing
The closing process can be confusing and complex to the buyer and seller. Those present at the closing often include the buyer and seller, their respective attorneys, the title and/or escrow agent, an underwriter or loan officer for any lending institution, and the real estate brokers and realtors.
There may also be last-minute disputes about delivering possession and personal property or the adjustment of various costs, such as fuel and taxes. If you are the only person there without a lawyer, your rights may be at risk.
Buying or Selling a House? An Attorney Can Help
Even if a lawyer is not needed during the course of negotiations, both the buyer and seller may want to consult with a lawyer to answer important legal questions, such as the tax consequences of the real estate transaction.
The tax consequences may be of critical importance to a home seller. For example, the income tax consequences of a sale, particularly if the seller makes a large profit, may be considerable. An attorney can advise whether the seller can take advantage of tax provisions allowing for exclusion of capital gains in certain circumstances.
If you want peace of mind when making one of the biggest purchases of your lifetime, you should consider speaking with an experienced real estate attorney.
You Don’t Have To Solve This on Your Own – Get a Lawyer’s Help
Meeting with a lawyer can help you understand your options and how to best protect your rights. Visit our attorney directory to find a lawyer near you who can help.
Contact a qualified real estate attorney to help guide you through the home buying process.