A Lawyer’s Guide to Buying Residential Real Estate
Almost every day I get a phone call from a person that has entered into a real estate contract for a property they wish they’ve never seen. Collapsing foundations, shoddy repair work, knob and tube wiring, asbestos, radon, contaminated well water, and restrictive HOA covenants are all issues I’ve come across. Just when I think I’ve heard it all, a potential client calls and wants to get out of their deal for yet another reason.
Invariably, the story goes something like this: We found the perfect home, we entered into a purchase agreement, the inspection/due diligence discovered something we can’t live with, our agent told us that we have to close or we could be sued, and we don’t know what do to.
Even though I know the answer, I ask them if a lawyer reviewed the purchase agreement before they signed it. The answer is always no. At this point, if they retain me, I’ll look over their boilerplate real estate purchase agreement and break the bad news. The agreement is not designed to allow a buyer to easily exit from the transaction. Instead, it’s filled with various ambiguous terms that encourage closing the transaction—not terminating it.
If the inspection report identifies a defect, is the defect “major”? If the defect is major, was the defect previously disclosed to the buyer? If there was a casualty loss prior to closing, has seller “fully” repaired the property?
All of these scenarios can and have arisen out of these form contracts. Hiring a lawyer to extricate you from this mess will be much more expensive than if you retained a lawyer to assist you with preparing your purchase agreement. And it doesn’t end there. If a court determines that you breached the purchase agreement, you don’t just lose your earnest money and get to walk away. You could be liable to the seller for damages far in excess of that amount.
When you first get serious about purchasing real estate, it may be useful to have a lawyer assist you in reviewing your brokerage contract, your purchase agreement, and continue to provide guidance throughout the course of the transaction. This review process can greatly reduce your legal exposure. It’s better to pay a little upfront than a lot in the end.