FOR SALE BY OWNER -
GUIDE TO BUYING OR SELLING VIRGINIA REAL ESTATE

This guide explains some of the important aspects of buying or 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 & SOMERVILLE, PC Attorneys-at-Law
Copyright 2007, Craig E. Buck.  This material may only be copied and published for use by clients and prospective clients of the law firm of Buck, Anderson & Somerville PC.

All information provided is courtesy of the law firm of Buck, Anderson & Somerville PC who is solely responsible for the content.  All legal services described are performed by the law firm.  Alliance Title & Escrow does not engage in the practice of law.

6088D Franconia Rd. Alexandria. Va. 22310 (703) 921-0816 Fax (703) 921-0829
1109 Heatherstone Dr., Fredericksburg, Va. 22407 (540) 785-6575 Fax (540) 785-5075

Visit our Website at: www.VirginiaClosings.com
E Mail to ReaLawBuck@aol.com


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:
• 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.
1.  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.

2.  Mandatory Seller Disclosure. Virginia has a statute that requires Sellers must either: 1) disclose property condition by answering 19 questions or 2) disclaim and sell "as is," without representations or warranties except as otherwise provided in the sales contract. The Virginia Real Estate Board, part of the Department of Commerce, designed forms for both disclosure and disclaimer. Buyers should receive one of these forms. Our office will supply the appropriate form as part of the contract process.

In the vast majority of transactions, the sellers disclaim and make no representation.  They are not necessarily hiding a defect. They may not know what occurred during previous ownership. They may be reluctant to certify or express an opinion on conditions that are not in their field of expertise. Even if the seller discloses, it is only to the best of his knowledge and belief. If there is a defect, the seller is not liable for an error, inaccuracy or omission in the disclosure statement unless he knew about it. Honest errors do not give the buyer a right to complain.

Therefore, buyers should investigate and not rely on what the well-intentioned seller disclosed. A professional home inspection will cover more than the 19 questions on the disclosure form. It may also reveal defects the seller did not know. Buyers may also want a home warranty. These warranties cost between $375 and $450a 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.

Caveat emptor also applies to neighborhoods, schools, zoning and other issues. 

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.”

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 the buyer and seller agree on a Letter of Intent.
Step 2 they meet with an attorney to 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. 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 and provide a detailed "to do" list to guide you through to closing.

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 and do not contain required protective disclosures.  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. 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. 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. 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 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 Land is usually 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.

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. 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 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. 

You can learn more about title insurance by visiting First American Title Insurance Company's website at www.titlecentral.com

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. Alliance Title 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 may 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.
Typically the buyer and seller each pay about $300 for these services. There may also be messenger fees to pick up or deliver documents and payoff checks.

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.

Alliance Title 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?  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. Alliance Title will guarantee to  beat any competitor's total closing cost package by $50.  They have extensive real estate experience having helped over 35,000 families buy, sell or refinance their homes since 1979 and look forward to helping you.

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: $__________________ . 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 & Somerville, 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