WHAT SHOULD I KNOW ABOUT BUYING A HOME?
Buying (and/or selling) a home is one of the most important financial decisions you will make. This pamphlet provides general information about buying a home in Rhode Island and notes how an attorney can assist you with the legal matters involved in this transaction.
When you are involved in buying or selling a home, you will most likely deal with one or more real estate brokers and one or more attorneys. To ensure you have a positive experience, it is important to understand the professional responsibilities of the brokers and the attorneys.
Real Estate Broker’s Role
Unless you buy directly from the owner, your first contact is with a real estate broker who is trained to help you by determining your home needs and by showing you appropriate houses. The broker is a professional salesperson who usually receives a commission from the seller. Therefore, although you, as buyer, are an important part of the transaction, the broker represents the seller unless you have retained a buyer’s broker. The circumstances do not change even if there is more than one broker involved unless the broker has given you an agency disclosure form stating that he/she is acting as a buyer’s agent.
Your attorney should participate in all phases of the transaction to represent your interests to all other parties. He or she can help you select other advisors and explain their functions. There may be times when the real estate broker prepares legal documents such as an Offer to Purchase or the Purchase and Sale Agreement. Real estate brokers are not attorneys. YOUR ATTORNEY SHOULD REVIEW ANY DOCUMENT REQUIRING YOUR SIGNATURE. This is true regardless of what the document is or how it is described to you.
Rhode Island law gives you the right to choose your own attorney to perform the title examination and to choose your own lender when you purchase or refinance your home. The attorney you select to perform the title examination should be an attorney knowledgeable in the area of residential real estate law. In some cases, your lender may agree to allow this attorney to also conduct the closing. The attorney you select may also be willing to offer insight and advice as needed. The additional cost in selecting your own attorney will be nominal in relation to your total investment.
Unless you are going to buy your home for cash, the bank will help you obtain a mortgage and show you what you will really pay for your home over the term of the mortgage. A mortgage is a loan secured by the value of your home.
Home Inspector’s Role
It is wise to make the purchase of your home contingent on the satisfactory results of a home inspection, as unseen or unreported problems are often expensive to fix. A home inspection
includes, but is not limited to, the condition of the house’s structural elements; the heating and air conditioning systems and appliances; wastewater removal systems; as well as determining the presence of lead paint, radon, pests, and other existing issues. The buyer usually pays for the home inspection.
Offer to Purchase
An Offer to Purchase is a binding legal contract although it may be much shorter in format than a Purchase and Sale Agreement. Your attorney should review this document before you return it to the seller. An offer to purchase should reference basic terms such as price and occupancy and contingent on a final purchase and sales agreement.
Purchase and Sale Agreement
The Purchase and Sale Agreement is the most important document in the transaction. It is a binding legal contract obligating you to buy the house, and the seller to sell the house, as long as all the terms of the agreement are satisfied.
Frequently, a pre-printed form is used for the agreement, and the precise terms are added by completing blanks on the form. However, there is no standard form appropriate for use in all real estate transactions. In fact, any Purchase and Sale Agreement may contain variations unfavorable to at least one party in the transaction. This is why it is important to carefully review the agreement with your attorney or have him or her prepare the agreement for your specific transaction.
The contract for the sale of real estate usually includes such items as:
Legal description of the property being purchased;
List of all personal property included in the sale, such as furniture and appliances;
Purchase price and deposit to be paid by the buyer;
When the buyer can move into the house;
Time and place of closing;
Determination of the share of real estate taxes and special assessments (such as condominium fees or sewer betterment fees) the buyer and seller must pay.
Whether your obligation to purchase is subject to a satisfactory home inspection;
Whether your obligation to purchase depends on obtaining a loan at a specific interest rate (also known as a mortgage contingency);
Whether the property shall be conveyed free and clear of all encumbrances including mortgages, tax liens and contractors’ liens;
The amount of insurance coverage the seller must maintain on the property until the closing occurs and if the property is damaged by fire prior to closing;
The amount of damages to be paid if you refuse to purchase or the seller refuses to sell.
This list is not intended to be a complete checklist but merely illustrates some of the basic items that should be included in all real estate contracts.
REMEMBER, ONCE YOU SIGN A PURCHASE AND SALES AGREEMENT, IT IS OFTEN TOO LATE TO CHANGE IT. It is extremely difficult and sometimes impossible for an attorney to protect a client in a real estate transaction when the client has already bargained away his or her protection in a poorly drawn contract.
Before settlement, the title to the property should be examined to determine if the seller owns the property and whether anyone else has a claim against the property. For example, the title examination will disclose if taxes are unpaid or if a utility company has a right to place its poles or lines on your property. In Rhode Island, the title examination is performed by your attorney or by a title insurance company by reviewing the public records relating to the ownership of real estate and sometimes other title evidence. The buyer usually pays for the title examination.
A title insurance policy protects against losses resulting from a defect in the title. Defects in title may come as the result of fraud, forgery or human error. The policy is a contract between the insured and an insurance company. It is customary in Rhode Island for mortgage lenders to require a Loan Policy in their name as a condition of making the loan. The Loan Policy will protect only the lender holding your mortgage. Unless you purchase an Owner’s Policy, you are not insured. The policy states the type and amount of coverage provided by it. The amount of the premium is determined by a schedule of rates based on the real estate purchase price or loan amount and may include the price of the examination. In most cases, your purchase price is the maximum amount for which you can be insured. As with any other insurance policy, exceptions and exclusions to coverage are included in the policy.
Building Under Construction
If the home you are buying is still under construction or has been recently completed, special care is required to ensure all building costs have been paid by the seller before the closing and that you are fully protected against mechanics’ and materialmen’s liens. You should consider lien protection when you are buying a house which has recently been repaired or to which building materials have recently been delivered. You should also be concerned about protection from whole or partial loss due to fire, windstorm or other calamities occurring after your purchase, but before the building has been completed. Your attorney can help you to ensure all costs are paid.
The final stage in the purchase of property is called the closing or the settlement. The closing may be held at an attorney’s office, in the office of the title insurance company, at the broker’s office or at the lender’s office. At the closing, the lender’s attorney and your attorney will determine that the terms of the agreement of sale have been satisfied. The seller will deliver a signed deed to you, and you will sign the mortgage documents. There are many other documents that will be reviewed and signed at this time. Your attorney should attend the settlement with you and will help you understand exactly what takes place. After the closing, your title attorney will examine the title one last time and record the deed and mortgage in the Land Evidence Records in the appropriate city or town hall. The seller will then be paid, and the property is yours.
Common Expenses Incurred when Purchasing a Home
Title examination and title insurance fees;
Mortgage financing charges;
Adjustments for taxes, water, sewer, condominium fees and other items;
Your attorney’s fee, if not included above;
Inspection fees and homeowner’s insurance
As a careful buyer, you should insist that your attorney attend the closing with you to review each detail. Your attorney knows the significance of your real estate transaction and the importance of addressing your concerns before you move into your new home.
The Rhode Island Bar Association provides this information as a public service. It contains general information about buying a home, but it does not contain legal advice. If you have specific questions concerning any of this information, you are encouraged to consult your attorney or you may contact the Rhode Island Bar Association’s Lawyer Referral Service by telephone at (401) 421-7799.
This piece is produced as a public service by the Rhode Island Bar Association and intended to provide background information. This is not a substitute for legal advice and representation by a licensed attorney of the Rhode Island Bar.
Rhode Island Bar Association
115 Cedar Street * Providence, Rhode Island * 02903
website: www.ribar.com telephone: 401-421-5740