For Sale by Owner Guide - Virginia

Buck, Anderson & Associates, PC FOR SALE BY OWNER GUIDE TO BUYING OR SELLING VIRGINIA REAL ESTATE This guide explains some of the important aspects of selling real estate with an emphasis on “For Sale by Owner” transactions. It contains general information for both buyers and sellers. If you would like additional information, please call any of our offices. Written and published by: BUCK, ANDERSON & ASSOCIATES, PC Attorneys-at-Law Franconia/Springfield 6088D Franconia Rd. Alexandria. Va. 22310 (703) 921-0809 Fax (703) 921-0829 Fredericksburg 1109 Heatherstone Dr., Fredericksburg, Va. 22407 (540) 785-6575 Fax (540) 785-5075 Visit our Websites at: www.VirginiaClosings.com and www.VirginiaTrustsandWills.com E Mail to ReaLawBuck@aol.com Copyright ©2009 Buck, Anderson & Associates Permission granted to copy and distribute this Guide in its entirety TABLE OF CONTENTS PREPARING THE PROPERTY FOR SALE ....................................................1 WHAT ABOUT AGENTS? ................................................................................1 WHAT SHOULD SELLERS TELL BUYERS? ................................................2 About the Property........................................................................................2 The Seller May Not Mislead.........................................................................2 Mandatory Seller Disclosure ........................................................................2 About the Neighborhood, Zoning, Highway Plans or Schools ...................3 In General .....................................................................................................3 I FOUND A BUYER – NOW WHAT? ...............................................................3 The Letter of Intent .......................................................................................3 The Contract of Sale ....................................................................................3 CONTRACT OBLIGATIONS.............................................................................4 For the Seller ................................................................................................4 For the Buyer ................................................................................................5 Negotiated Items ..........................................................................................5 PRIOR TO SETTLEMENT .................................................................................5 Home Owners Associations ........................................................................5 Financing ......................................................................................................6 Other considerations: ...................................................................................6 Types of Ownership .....................................................................................6 Title Insurance ..............................................................................................7 House Location Survey ................................................................................8 SETTLEMENT ....................................................................................................8 Our Services .................................................................................................8 What Happens at Settlement?.....................................................................9 WHO TO USE FOR SETTLEMENT? ...............................................................9 LETTER OF INTENT ....................................................................................... 11 BUYER AND SELLER CHECKLISTS ..................................................... 12,13 Copyright ©2009 Buck, Anderson & Associates Permission granted to copy and distribute this Guide in its entirety FOR SALE BY OWNER The Basics You have chosen to buy or sell without the assistance of a real estate agent. That means you will handle many of the details yourself. Our firm can assist you by preparing the contract and processing your closing. That is what we do best. We can’t tell sellers how to market their property. There are plenty of self-help books available to do that. Neither can we advise buyers and sellers of a fair price. You’ll have to do your own market research. We can assist you by providing the information and services you need to get your case to closing. Because you have chosen to go it on your own, there are some things requiring your personal attention. This Guide should prepare you by explaining the settlement process and what is expected of you. It also discusses our fees and services. PREPARING THE PROPERTY FOR SALE Obviously, a neat, clean and recently-painted home will show better. The home will look larger and more attractive if you remove clutter. Closets look bigger when you put out-of-season clothes in storage. Deal with any repairs before they discourage a potential buyer. Pets and their odors should be gone too. We recommend sellers remove any attached items that will not convey. Take Aunt Bessie’s chandelier down and put it in storage. If you can’t reasonably remove an item, be sure it is labeled clearly as “not conveying.” WHAT ABOUT AGENTS? Would you be surprised to learn you can operate as a For Sale by Owner and still have real estate agents involved? As a seller, you can hire an agent for the sole purpose of placing your property in the multiple listing service (MLS or MRIS) and/or to provide limited assistance, such as preparing a comparative market analysis to help you price your home. When you do, you will pay a fee to your agent for the limited service. In addition, you will be expected to offer compensation to the selling agent who brings you the buyer. That compensation will be set forth in the listing agreement you sign when your property is listed. As a seller, even if you have decided not to have an agent represent you, agents representing a buyer may approach you. Here are some tips to help you understand how that might work: Copyright ©2009 Buck, Anderson & Associates Page 1 Permission granted to copy and distribute this Guide in its entirety  Real estate agents can provide services to both the buyer and seller. The buyer may hire an agent to represent him. This is buyer agency. Agents must disclose, in writing, which party they represent. You will be asked to sign this disclosure acknowledging that you have received it. The buyer’s agent will ask you to sign an agreement acknowledging his participation and agreeing to pay a fee. The seller usually pays the agent but the fee is negotiated into the sale price. As a seller, you should be concerned about your net bottom line, not who writes the check.  When you receive an offer from a real estate agent representing a buyer, you may want a professional of your own to review the offer with you. Call our office and we will be glad to assist. Our fee for reviewing the offer with you should not be more than $250. WHAT SHOULD SELLERS TELL BUYERS ? About the Property Virginia is a caveat emptor (buyer beware) state. This means it is up to the buyer to inspect the property carefully to determine if it is suitable for his needs. The seller is under no duty or obligation to point out defects – even hidden defects. Caveat emptor has two important exceptions. The Seller May Not Mislead The seller can not do or say anything to throw the buyer off. The seller can not lie if asked a question, and should not do anything to conceal a defect. As an example, the seller should not pile boxes against a wall to cover a crack or damp spot. However, even the exception has an exception. If the defect is obvious, such that a reasonably inquisitive buyer could have found it, the buyer will be expected to find it. In one court case, the seller lied about a plumbing leak but the buyer lost because he did not crawl under the house and inspect the plumbing himself. Seller Disclosure Virginia Code Section 55-517 to 525 requires sellers deliver a statement warning the buyer that the seller is making no representations concerning the condition of the property, adjacent properties, historic districts, Chesapeake Bay Preservation Act, sexual offenders and dam breaking zones. Copyright ©2009 Buck, Anderson & Associates Page 2 Permission granted to copy and distribute this Guide in its entirety Therefore, buyers should investigate and not rely on what a well-intentioned seller might disclose. We recommend a professional home inspection. Buyers may also want a home warranty. These warranties cost about $400 a year and cover most systems and appliances in the home. The typical deductible is $50 to $100 per occurrence. Our firm can order the warranty coverage. About the Neighborhood, Zoning, Highway Plans or Schools Caveat emptor will apply to these issues also. If there is a mandatory Home Owners Association, the seller must supply a disclosure packet of information from the Association. This is explained further in the section below titled “Prior to Settlement.” In General Legally speaking, the less said the better. sellers can easily mislead buyers (often unintentionally) and both parties will hear what they want to hear. Buyers should expect to do their own research. I FOUND A BUYER – NOW WHAT? We have developed an easy two-step process that has worked for hundreds of For Sale by Owner clients. Step 1 is for the buyer and seller to agree on a Letter of Intent. Step 2 is to meet with an attorney and prepare the Contract. The Letter of Intent A Letter of Intent is an agreement to negotiate in good faith toward an eventual contract. A sample Letter of Intent is contained in the Appendix to this Guide. You should copy and use it. The purpose is to set forth the most important aspects of the transaction – the price, possession date and any seller contributions to the buyer’s closing costs. Once you have reached agreement on the Letter of Intent, call our closest office to arrange a time to meet and prepare the Contract. The Contract of Sale The Contract will define the details of the transaction and is a binding commitment on the parties. Oral agreements are not binding. There is no "cooling off" period to change your mind unless specifically provided in the written agreement. Copyright ©2009 Buck, Anderson & Associates Page 3 Permission granted to copy and distribute this Guide in its entirety After signing the contract, any changes must be agreed to by both parties. Be certain you understand and agree to all its terms. Every word is there for a reason and carries obligations and responsibilities. Every term is also subject to negotiation and change. Our attorneys will go over the contract with you. Our firm assists buyers and sellers by preparing and explaining the contract. This usually means that we prepare the contract based on the mutual instructions of the parties. We don’t represent one party against the other but act as an intermediary to explain the contract terms and assist you in reaching an agreement. If you want your own attorney, to represent you solely, please advise us before we meet. The typical cost to meet and prepare the contract is $250 to the buyer and $250 to the seller. Estate sales or difficult situations requiring extensive drafting or negotiation could be more. We will give each party a good faith estimate of closing costs. We do not recommend you use an office supply-store contract form, as they are not legally enforceable in most cases. We also do not recommend you “borrow” a contract from an agent. The forms are complicated and require many additions to cover various contingencies and disclosures required by law. Even if you think you understand the form, you might not be fully aware of your rights and responsibilities. An incomplete or misunderstood form can only get you into trouble. CONTRACT OBLIGATIONS Here is a summary of seller and buyer obligations under the contract. This list is not exclusive. There are many other provisions in the contract. The attorney will explain these to you. For the Seller The seller is obligated to deliver clear title to the real estate and all personal property listed in the contract. The property may be subject to normal subdivision easements and covenants. The contract provides the structure conveys in its present condition but that appliances, heating, air conditioning, plumbing, electrical and mechanical systems are to be in "normal working order" at the time of settlement. That is not "new" condition. The house must be “broom clean” when the buyer takes possession (usually the day of settlement). The buyer and seller will do a final inspection shortly before closing. You should get estimates and try to resolve any repair issues before coming to settlement. Copyright ©2009 Buck, Anderson & Associates Page 4 Permission granted to copy and distribute this Guide in its entirety If there is a mandatory Home Owners Association, the seller must provide the buyer with a disclosure packet. See the section on Home Owners Associations below under the heading “Prior to Settlement.” For the Buyer The Contract contains a contingency that releases the buyer if the lender denies the loan. The buyer must diligently pursue loan approval and deliver a firm commitment within an agreed time or the seller may cancel the contract. The buyer is obligated to settle on the date specified. Lack of down payment funds is no excuse and will put the buyer in default. The buyer may apply for financing other than as specified in the contract, but must obtain a contract addendum signed by the seller or waive the financing contingency. Negotiated Items The lender will provide the buyer with a Good Faith Estimate of closing costs. Often the seller will agree to pay some of the buyer’s closing costs as part of the purchase price. If the buyer needs to sell a house before buying the new one, the contract should be made contingent on the sale. Termite, well, radon, home and septic inspections, may be required. PRIOR TO SETTLEMENT A lot happens between the time the contract is written and settlement. Here’s a review to help you understand what is going on with your case. Home Owners Associations Many subdivisions have mandatory homeowner's associations. All condominiums have a unit owner’s association. The association is responsible for maintaining common area, such as private streets, playgrounds and sidewalks. There will also be restrictions that limit what you can do with your property. There may be restrictions prohibiting an antenna or storing a boat or recreational vehicle. Color changes, fences and improvements may require approval from an architectural control committee. These restrictions are a normal part of association living. Virginia law requires the seller furnish a report from the association explaining the association, its budget, dues and regulations. The seller should comply with and correct any architectural control or maintenance obligations noted in the report. Copyright ©2009 Buck, Anderson & Associates Page 5 Permission granted to copy and distribute this Guide in its entirety The contract is contingent on the buyer’s acceptance of the disclosure package. Therefore, the seller must order the disclosure packet from the association and deliver it to the buyer as soon as possible. Buyers have three days to review the package and opt out of the contract if they object to what they see. Financing There are many sources of mortgage money available. Mortgage companies act as brokers for institutional investors such as the Federal National Mortgage Association (FNMA) and others. There is competition between lenders and buyers should shop for financing, dealing only with reputable, known and recommended lenders. If the lender cannot deliver the loan on time, the entire transaction may fail. We do not recommend out-of-state and Internet lenders – our experience with them has been poor. Buyers must be sure they understand the terms of the loan and fees the lender will charge. These may include service charges, points, appraisal fees, escrow fees, tax service fees, document preparation or lender's attorney fees. The lender will provide a good faith estimate of all closing costs. Certain charges collected when applying for the loan may be non-refundable. Other considerations:         How long will application and approval take? What is the interest rate and how long will the lender commit to hold it? Will the interest rate or payments vary over the life of the loan? If the loan carries an adjustable rate, does it have a conversion option so you can convert to a fixed rate later, and how? Ask for an explanation of the "Index, Margin and Caps." Will you need private mortgage insurance? What will that cost? Lenders require mortgage insurance when you put less than 20% down. This does not pay the loan off if you die or become disabled. It only serves to protect the lender against your default. Will there be a prepayment penalty if you pay the loan early and how much will it be? Will the loan be assumable and under what circumstances? Does the loan "balloon" or come due before the expiration of its normal pay out? If so, will the lender agree to refinance, and at what terms? If the transaction involves assuming an existing loan, there are usually savings in settlement costs. Be sure that you understand the terms of the loan you assume. Types of Ownership Most married couples chose "tenants by the entirety with the common law right of survivorship." If one of the parties dies, the other automatically inherits the property Copyright ©2009 Buck, Anderson & Associates Page 6 Permission granted to copy and distribute this Guide in its entirety without regard to wills or probate. A creditor of one can not force the sale of the property to collect a debt. Unmarried persons may choose either “joint tenants” or "tenants in common." With joint tenants, the survivor inherits. With tenants in common, each owns a portion of the property and may convey that portion independently. Consult with the settlement attorney about any tax and estate planning consequences. We strongly recommend a joint ownership agreement for all purchasers who are not married couples. These agreements document each party's responsibilities and ownership interest. The typical joint ownership agreement costs $175. Refer questions about title, joint ownership agreements, partnerships, divorces, the rights of spouses and powers of attorney to our office as soon as possible. Title Insurance Most land is subject to real estate taxes, restrictive covenants limiting use of the property, or easements for utilities and other public purposes. Many of these matters are not defects and do not entitle the purchaser to cancel the transaction. The seller must give marketable title, which is title of such quality as to assure its ready acceptance by a future purchaser or lender. The seller must correct title defects such as unreleased mortgages or judgments, unpaid taxes, and sewer and water liens. The settlement attorney will order a careful search of the public records to identify documents bearing on the title in question. The attorney reviews an abstract or summary prepared by the title examiner to determine the legal impact of the various documents. The sale must include all parties who have an interest in the property. A title insurance binder, prepared based on information found in the abstract, commits the title insurance company to insure the transaction. The title insurance binder and the policies issued after settlement represent an insurance company's obligation to protect the insured's interest in the property. The insurance company may choose to insure against loss or damage due to known defects. These include slight surveying errors, judgments against persons with similar names or incomplete notary acknowledgments. An independent settlement attorney will protect the buyer by making sure the protection is as broad as possible. An attorney working for the title company will only have his employer’s interest at heart (more about this later). The most important benefit of title insurance is protection against matters you cannot discover examining the public records. Examples are fraud, forgery, missing heirs and clerical mistakes in indexing documents or posting taxes. Newer, enhanced policies (The First American Title Insurance Company “Eagle” Policy, for example), also cover Copyright ©2009 Buck, Anderson & Associates Page 7 Permission granted to copy and distribute this Guide in its entirety building and subdivision code violations as well as post-closing matters such as identity theft. The Eagle policy has an inflation guard feature that increases coverage over time at no additional premium. The lender will require title insurance to protect the amount of the loan but this does not protect the buyer's equity. The amount of lender's title insurance declines as the loan balance pays down. A policy issued to a prior owner does not protect the buyer either. To obtain protection for his growing equity, the buyer can get an owner's title insurance policy. We recommend the enhanced owner's title insurance in most situations. The additional premium collected at settlement is usually not significant when compared to the amount of coverage. The buyer pays the premium only once, at settlement, while the coverage continues forever House Location Survey In transactions involving new financing, lenders require a house location survey prepared by a licensed professional land surveyor. The purpose of the survey is to verify the legal description of the property and discover encroachments. Encroachments would include a carport or shed built over the property line. Our firm will order the survey. House location surveys for a simple subdivision lot typically cost $250 to $350. Acreage and difficult terrain may increase the price substantially. These prices do not include setting posts at the corners of the lot. Contact the surveyor early to discuss setting corners. The charge is about $50 per corner. You will not need a survey for a condominium. Surveys are not required, but may be advisable if you are assuming a loan. SETTLEMENT Settlement is the formal process that accomplishes the transfer of ownership. The practice in Northern Virginia is to have one settlement agent conduct settlement and mediate disputes. If a serious dispute arises, the buyer and seller need to seek separate attorneys. You should notify us immediately if you desire separate legal counsel so we can discuss how to divide the settlement duties. Our Services The services normally provided by a settlement attorney include: review of the sales contract, assemble necessary information and documentation, review title, arrange for a house location survey and issuance of title insurance, review loan instructions, prepare, explain and record documents, and receive and disburse funds. Typically the buyer and seller each pay about $400 for these services. There may also be messenger fees to pick up or deliver documents and payoff checks. Copyright ©2009 Buck, Anderson & Associates Page 8 Permission granted to copy and distribute this Guide in its entirety What Happens at Settlement? At settlement, the parties execute the various documents necessary to meet their obligations under the contract. All parties should be present. Most lenders do not accept a power of attorney for settlement and none will do so without prior notice. Many power of attorney forms are not acceptable for settlement. Some lenders have their own form. Be sure to tell both the settlement attorney and lender as soon as possible if there is any chance either the buyer or seller may not be present The documents the buyer executes at closing include:  Note -- evidencing the loan and setting forth the terms of repayment.  Deed of Trust -- pledging the property as security for the loan. In other states, this document is often called a mortgage.  Disclosure documents and other certifications required by the lender. If the seller is staying in the property after settlement, the parties will execute an occupancy agreement similar to a lease. The seller will execute the Deed and deliver possession of the property. Our office will handle the financial accounting and mediate the settlement. We will receive and disburse funds among the purchaser, seller, new and old lenders, surveyor, termite inspector, title insurance company, and homeowner's or condominium association. After settlement, we will record the Deed and Deed of Trust in the city or county land records. The title examiner checks title up to the time of recording to protect the purchaser and lender against intervening liens. The moment of recording is the determining factor when deciding priorities. WHO TO USE FOR SETTLEMENT? Our law firm acts as counsel to Alliance Title & Escrow, Inc., a full–service title insurance agency and settlement agent. All our settlements are conducted or supervised by an attorney licensed to practice law in Virginia. Settlement fees are very competitive and it usually costs very little more to have a licensed professional attorney conduct the closing. Be very careful when calling for fee quotes. Many companies quote low settlement fees but more than make up the “savings” by over-charging for other services. The largest single transaction most of us make is the purchase or sale of a home. This is neither the time nor place to save $25. Our firm has extensive real estate experience. Since 1979, we have helped over 30,000 families buy, sell or refinance their homes. We look forward to helping you. Copyright ©2009 Buck, Anderson & Associates Page 9 Permission granted to copy and distribute this Guide in its entirety LETTER OF INTENT TO BUY AND SELL REAL ESTATE This letter of intent is between: Buyers) ____________________________________________________ and (Sellers) _________________________________________________ for the Property known as: ______________________________________ to include those fixtures, appliances and items determined in the final agreement. It is the intent of the parties to negotiate in good faith a contract for the purchase and sale of the Property. If they do not reach agreement on a contract by ____________, either party may declare negotiations ended and this letter of intent shall be of no further force and effect. The general terms of the agreement are as follows: Price: $_________________ Contingent on buyer obtaining a loan of: $__________________ and subject to seller's acceptance of buyer's credit and financial information. Seller's contribution toward buyer's closing costs: _____________ Deposit: $________________ Closing date: ______________ Seller will grant buyer or buyer's home inspector access to the property during negotiations and the final contract is contingent on the results of buyer's home inspection and such other inquiries as buyer may make. Other Terms: ____________________________________________________ _______________________________________________________________ _______________________________________________________________ The parties agree to meet with the law firm of Buck, Anderson & Associates, P.C. to prepare a Sales Contract and conduct closing on their mutual behalf. Either party may elect to have their own attorney represent their individual interests. Date: __________________ Buyer: Seller: _____________________________ ______________________________ _____________________________ ______________________________ Call our closest office to register this Letter of Intent and arrange an appointment to prepare the contract. Alexandria (703) 921-0809, Fredericksburg (540) 785-2122 Copyright ©2009 Buck, Anderson & Associates Page 10 Permission granted to copy and distribute this Guide in its entirety BUYER'S CLOSING CHECKLIST TO DO NOW: Notify this office immediately if any of the purchasers may not be able to attend closing. Most lenders will not accept a power of attorney, except under unusual circumstances and never without prior notice. Call your lender, then call us, as soon as possible if all parties may not be at settlement. Unless you are buying a condominium, if you are getting a new loan, your lender will require and we will order a physical improvement survey. The survey checks for encroachments or other physical defects of title but does not include setting new corner markers. You can get new corner markers for an additional $50 per corner but you must call our office and request the service. Also let us know if you are assuming a loan or paying all cash and would like a survey done. SEVERAL DAYS BEFORE SETTLEMENT YOU SHOULD: Arrange for transfer of utilities. Check with your lender to see if they need any additional documentation. Be sure you have transferred sufficient funds to be able to obtain the certified check required for closing. You won’t know the exact amount, and neither will we, so use your lender’s or agent’s estimate as a guide. Obtain and deliver to your lender a Homeowner's Insurance policy and paid receipt covering the first year's premium. The policy must be for replacement costs or at least the amount of the loan. If you have any questions, please contact your lender, as we cannot close the loan unless you satisfy all the lender's insurance requirements. If you are purchasing a condominium, your condominium fee includes insurance and you will not need a policy at settlement. For your own protection, you should obtain a policy to cover your personal property and liability. ITEMS TO BRING TO SETTLEMENT: Bring a certified or cashier's check for the down payment. Calculate the amount by taking the total purchase price and subtracting the loan amount and the amount of your deposit. The check should be payable Alliance Title & Escrow, Inc. Bring your personal checkbook to pay closing costs. NOTE: We do not receive loan instructions from the lender until shortly before settlement and are not able to quote exact figures in advance. Please use your lender's estimates as a guide. Bring any documents required by your lender. Copyright ©2009 Buck, Anderson & Associates Page 11 Permission granted to copy and distribute this Guide in its entirety SELLER'S CLOSING CHECKLIST TO DO NOW: Notify this office immediately if any of the sellers may not be able to attend closing or if you plan to use a power of attorney. A power of attorney allows one person to sign for another. It is an important legal instrument and the laws governing its use are very technical. Most power of attorney forms prepared out of state are not acceptable in Virginia. We must review the form in advance and obtain an original signature on the Deed of Conveyance. There are no exceptions. We also need to know if there have been any deaths, divorces or marriages since you acquired title to the property. Provide us with the name, address and account number for any loans not listed on the Multiple Listing card prepared by your real estate agent. Provide us with a letter from your homeowner's or condominium association stating the status of your dues so that we may properly prorate those charges. If you will be paying off an FHA loan, immediately notify your lender and us in order to avoid additional interest charges. SEVERAL DAYS BEFORE SETTLEMENT YOU SHOULD: Arrange for final reading of utilities. Be certain that the house will pass the final walk-through inspection. All appliances, heating, air conditioning, electrical and plumbing systems are to be in working order. Arrange for removal of those items that you will not be moving with you. ITEMS TO BRING TO SETTLEMENT: Bring your keys. Leave garage door openers, equipment and appliance warranties at the house. Bring your forwarding address, social security number and special instructions regarding disbursement of your proceeds. In compliance with the requirements of Virginia law, we disburse funds two business days following the completion of settlement. This allows time for recording of the settlement documents and clearance of the Purchaser's funds in our account. It is extremely difficult to disburse any sooner. Please keep this in mind when you are planning settlement on your purchase. If you need the proceeds forwarded directly to another settlement office, we will be glad to handle this for you. All sellers must be present to sign the documents at closing. Copyright ©2009 Buck, Anderson & Associates Page 12 Permission granted to copy and distribute this Guide in its entirety