Things to Consider When Selling or Buying a Home

By Catherine G. Johnson, MSBA Board Certified Real Property Specialist; Vogel & Gorman, PLC,
454 West 4th St., Red Wing, Minnesota 55066; 651-388-2833; cgjohnson@vogelgormanplc.com *


1. Determining the Purchase Price

Whether you are buying or selling a home, there are several different ways to determine a price for the property.  One is to review the records in the Office of the County Assessor.  These records are indexed by the name of the property owner and by the property address.  From these records you can determine the value placed on the property by the county and the price paid at the most recent sale.

Another way to determine a purchase price is to hire an appraiser.  An appraisal will provide a value for the property and will also provide information on other properties of comparable type and value.  It is usually worth spending $300.00 to $500.00 to have an accurate value for the property.

2. Pre-qualifying for a Loan

Before beginning the search for a new home, a buyer can be pre-qualified for a loan.  This will tell you how much home you can afford because it will tell you how much you can afford to borrow.  It is to your advantage to pre-qualify for a mortgage before shopping for a home. By pre-qualifying for a given loan amount, you can comfortably shop for a home within your price range. In addition, prior credit approvals can expedite the closing of your loan, and your pre-authorization letter provides the agents and sellers with whom you work the confidence that you are a determined and qualified buyer.

To pre-qualify for a loan, contact a bank or mortgage company with whom you want to work and set up an appointment with a loan officer.  You will want to have the following information for your appointment:

  1. Recent pay stubs, tax returns and W-2 forms for the past 2 years, or other proof of employment and salary.
  2. If you are self-employed, you need balance sheets, income statements, tax returns and other information about your business for the past 2 years.
  3. Copies of recent bank statements and investment account statements.
  4. If you are interested in a VA loan, the Certificate of Eligibility (COE) from the Veterans Administration. If you have never received a COE, bring a copy of your discharge papers (form DD214).
3. Hiring an Attorney

A qualified real estate attorney can assist you with the sale or purchase of your home. There are plenty of knowledgeable people in real estate who can provide you with information about making an offer, but if you rely on the advice of someone who is not an attorney and the advice is wrong, then there's not much you can do about it.  You want someone in your corner who represents your interests and is obligated to provide you with competent legal advice.  If you do not have your attorney draft the purchase agreement for you, be sure to have your attorney review the purchase agreement before you sign it.  Once the purchase agreement is signed by the buyer and seller, it is very difficult to change the language of the agreement.

4. Drafting the Purchase Agreement

The purchase agreement is the legal contract for the sale or purchase of your home.  This contract is the single most important document involved in the transaction. The purchase agreement is the agreed framework of terms, timetables and contingencies under which the real estate will be sold - or not sold if the deal falls through. The purchase agreement includes important items of agreement between the buyer and seller including the purchase price, closing date, financing timetable and terms, division of closing costs, contingencies for financing, sale of a home or inspection and other legally important provisions.  The following information is needed to draft the purchase agreement:

  1. Name and new address of seller.
  2. Name and current address of buyer.
  3. Whether title will be as an individual or as joint tenants.
  4. Earnest money.
  5. Street address of property.
  6. Legal description of property.
  7. Property identification number from real estate tax statements.
  8. Personal property included in sale.
  9. Purchase price.
  10. Closing date.
  11. Will the buyer be paying cash, obtaining a mortgage or will the seller be financing?
  12. If the seller is financing:
    1. Down Payment.
    2. Interest rate
    3. Monthly payments
    4. Date of first payment
    5. Length of Contract
    6. Date of final payment
  13. Are there any contingencies, such as financing, sale of property or Inspection?
  14. If Financing Contingency.
    1. Amount to be borrowed.
    2. Number of days to apply for the loan
    3. Interest rate acceptable to buyer
    4. Length of loan
    5. Is it conventional, insured, VA or FHA?
  15. If Sale Contingency.
    1. Address of property to be sold
    2. Date when property needs to be sold
  16. If Inspection Contingency, number of days to complete.
  17. Will real estate taxes be pro-rated, paid by the seller or paid by the buyer?
  18. Will assessments be paid by the seller or assumed by the buyer.
  19. If the property is residential, was it built before 1978?
  20. Is there a well?
  21. If there is a well and it is in use, its location needs to be identified.  Provide a drawing showing the location of the well in relation to buildings and roads.
  22. If there is a well and it is not in use, has it been sealed?
  23. If the well has been sealed, who sealed the well and when?
  24. Is there a septic system?
  25. If there is a septic system and it is in use, the type of septic system, the date of installation and its location needs to be provided.  Provide a drawing showing the location of the septic system in relation to buildings and roads.
  26. Is the seller warranting the condition of the buildings and its components or is it being sold “As Is”?
  27. Who will handle the closing?
  28. Which closing costs will each party pay?

In addition to this information, the seller needs to provide an abstract of title, an Owners’ Policy of Title Insurance or a Certificate of Title as well as a copy of the most recent real estate tax statement.  These items needed to be certain that the correct legal description is used.

 

5. Providing the Proper Disclosures

Federal and Minnesota law require several disclosures.  These can include a Lead Paint Disclosure Statement, a Seller’s Property Disclosure Statement, a Methamphetamine Disclosure Statement, a Disclosure of Individual Sewage Treatment Systems, a Well Disclosure Statement and an Addendum regarding Common Interest Community Property.

6. Dividing the Closing Costs

The closing costs may be divided between the seller and the buyer in any way that is acceptable to both parties.  However, the conventional method for dividing the closing costs is as follows:

Seller’s closing costs:

  1. Seller’s attorneys' fees, including the cost to prepare the necessary documents.
  2. The cost of providing updated title information.
  3. The cost of recording any document necessary to make title insurable, except documents related to those matters waived by Buyer.
  4. State Deed Tax, which is .0033 times the purchase price.

Buyer’s closing costs:

  1. Buyer's attorneys’ fees.
  2. The cost of recording the Warranty Deed.
  3. The title closing fee.
  4. The cost of having the title examined or obtaining title insurance.
  5. All costs involved in obtaining financing.


7.Preparing for the Closing

The seller and buyer are each responsible for providing documents for the closing.  It is best to have your attorney provide the documents to be certain that there are no mistakes and the proper forms are used.

The seller is responsible for providing the following documents at closing:

  1. The Warranty Deed
  2. The Certificate of Real Estate Value
  3. Any other documents necessary to convey good title to the property.
  4. An Affidavit of Seller
  5. A sworn statement that the seller is not a foreign entity and containing such other information as may be required by Section 1445 of the Internal Revenue Code and regulations thereunder.
  6. Appropriate Federal Income Tax reporting form.
  7. Proper identification

The buyer is responsible for providing the following documents at closing:

  1. The documentation required by the title insurer.
  2. Proper identification.

* All rights reserved. VOGEL & GORMAN, PLC, 454 West 4th St., Red Wing, MN 55066, 651-388-2833