The purchase and sale of a home may be the most significant financial
decision of your life. This brochure discusses some of the more
important aspects of that decision.
Purchase Agreement
The purchase agreement is the contract between a buyer and seller of a
home. The agreement must be in writing and signed by the buyer and
seller. Before you sign the agreement, make sure that it includes
everything that is important to you. If the agreement is not in
writing, it is not enforceable.
What You Are Buying
When you buy a home, you are also buying the land and other
structures on the land. The sale may also include household
appliances or other personal property.
Offer and Acceptance
In most home purchases, the buyer makes an offer by signing the
agreement and giving it to the seller. The seller can then accept or
reject the buyer's offer, or propose changes to the offer. If the
parties agree upon all terms of an offer, and both sign the agreement,
then the parties have a binding contract.
Deposit
If the buyer makes a deposit, it is usually held by a real estate
agent, title company, lawyer, or the seller. The deposit usually
should be returned to the buyer if the seller cannot transfer good
title to the property, the home inspection is not satisfactory,
the buyer cannot obtain mortgage financing, or another condition
is not satisfied.
Financing
Many buyers go to a bank or mortgage broker to obtain a loan.
Sometimes the seller sells the home to the buyer on land contact.
With a land contact, the buyer makes a substantial down payment,
and pays the seller the balance of the purchase price over time.
A third option is for the buyer to sign a lease with a purchase
option. This permits the buyer to rent the home for a period of
time before deciding whether to buy it. The lease should state
if any portion of rental payment would be applied to the purchase price.
Condition of Home and Personal Property
Inspections
The purchase agreement should give the buyer an opportunity to
inspect the property thoroughly before deciding whether to complete
the sale. Often a buyer employs a professional inspector to examine
the property for structural defects, roof and basement leaks, heating,
mechanical, electrical and plumbing problems, and environmental
matters such as the presence of asbestos, radon or nearby contaminated
property. Any well or septic system should be checked to make sure
it is in good working order. Some cities require a government
inspection of the home for well, septic or possible code violations.
A city inspection, however, is not a good substitute for a private inspection.
As Is
Many purchase agreements provide that a used home will be sold in
"as is" condition. What this means is that, with certain exceptions,
the buyer is liable for any problems with the home after closing.
Seller's Disclosure Statement
Michigan law now requires the seller of an existing home to furnish
the buyer with a Seller's Disclosure Statement before the parties
execute a binding purchase agreement. Disclosure statements tell
what the seller knows about the condition of the property. If the
seller provides a disclosure statement after the parties sign the
purchase agreement and before closing, the buyer has the right to
cancel the agreement.
Lead Based Paint Disclosure
If the sale involves a home built before 1978, federal law requires
the seller to furnish the buyer with a lead based paint disclosure form,
stating whether the seller is aware of the presence of any lead based
paint in the home. The seller must also provide the buyer with the EPA
pamphlet, "Protect Your Family From Lead in Your Home," and allow the buyer
an opportunity to inspect the home for the presence of lead based paint
and/or lead based paint hazards.
Title To Property And Home
Definition of Title.
"Title" is the legal term for ownership of property.
When you buy a home, you are acquiring title to the home.
Reasons for Title Concerns
When you buy a home, you want to make sure that you own clear
title to the property. Examples of title problems include rights of
tenants, unpaid taxes, existing mortgages and land contacts, or dower.
Title to the property may also be affected by easements or building
and use restrictions which limit how the property can be used.
Deed
A deed is the legal document used to transfer title to the
property. By using a warranty deed, the seller guarantees
certain things regarding title to the property. A warranty deed
is generally used when selling a home.
Title Commitment
Before closing, the buyer should receive a title insurance
commitment that lists recorded easements, building and use
restrictions and liens on the property. If there are any
problems with title, the seller should correct those problems
before closing.
Survey
A survey confirms the general location of the land and improvements.
Better surveys will show the amount of land and exact boundaries, as well
as roads, easements and encroachments onto or off of the property.
Land Division
A land division is the right to lawfully partition or split land
into 2 or more separate parcels. If the home is not part of a
subdivision or condominium, the purchase agreement and deed should
state the number of land divisions the seller is giving the buyer.
IV. Closing
The closing occurs when the buyer pays the seller, and the seller
transfers title to the property to the buyer by delivery of a deed or
land contact. When the land contract is paid in full, the seller should
deliver a deed to the buyer. Most closings are handled by a title
company, lender or lawyer.
Closing Statement
The closing statement is a summary of the amounts paid and received
by the buyer, seller and third parties at closing. The closing statement
contains the purchase price, adjustments for real property taxes and
utilities, broker commissions, transfer taxes, title insurance premiums,
mortgage and lien payoffs and other closing adjustments. Buyers and
sellers should review the closing statement with particular care to make
sure that all dollar amounts are correct, and all charges are included.
Transfer Taxes
Michigan imposes two transfer taxes upon the seller of real estate,
payable when the deed is recorded. The county transfer tax is $.05 per $500
of value. The state transfer tax is $3.75 per $500 of value.
Real Property Taxes and Assessments
The purchase price is usually adjusted to give the seller credit for
prepaid real estate taxes, and give the buyer credit for unpaid taxes.
Special assessments are either paid in full by the seller or assumed by
the buyer. These adjustments should be contained in the closing
statement.
Rent for Delayed Possession
Many times the buyer receives possession of the home at closing.
Other times, the seller may remain in the home for a period of time
after closing. When this happens, the seller generally pays the buyer
rent. Monthly rent usually equals the amount of the buyer's monthly
mortgage payment, real property taxes and insurance premiums.
Recording of Deed or Land Contact
The buyer should make sure that the deed or land contact is
recorded with the local county Register of Deed office promptly
after closing.
Bill of Sale
Just like a deed transfers title to the home, a bill of sale transfers
title to appliances and other personal property. Unlike a deed, a bill
of sale is not recorded.
Ordering Title Policy
At closing, the seller usually pays the title insurance premium and
orders an owner's policy of title insurance. The policy insures that
the buyer owns the property.
Property Transfer Affidavit
The buyer must file a property transfer affidavit with the local
assessor's office within 45 days after closing. This affidavit
discloses the identity of the seller and buyer, as well as the date
of transfer and the purchase price.
Homestead Affidavit
If you own and occupy the property as your principal residence you
can claim it as your homestead and pay lower real property taxes.
However, to do so, you must file a homestead affidavit with your local
assessor.
Insurance
Everyone should have insurance on their home. The insurance policy
should cover liability matters if someone gets hurt on the property
and property damage in the event of a fire or other casualty.
Escrow
Occasionally the buyer and/or seller cannot perform all their
obligations at the closing. Documents or money
(including rent or water charges) may be placed "in escrow" (which
means held by a title company, broker or lawyer and not given to the
other party) until all conditions are satisfied.
