Do You Need a Lawyer to Buy a House?

Do You Need a Lawyer to Buy a House?

January 29, 2021

So you just signed a contract to buy a home—congratulations! One question we frequently receive from clients in this situation is whether they need to involve their lawyer to buy a house. Since a house is a large investment with many moving parts. It’s important that this process is handled correctly to avoid more issues down the line. 

Is a Lawyer Necessary?

The short answer is that in a standard home-buying situation you likely do not need to involve your lawyer if you already have a realtor. An experienced real-estate agent can answer most questions about your purchase agreement. They can also keep you on track with deadlines and other details. But your realtor is not qualified to give legal advice, nor are they obligated to explain the details of your purchasing agreement to you.

If you are not using a real-estate agent, you should consult a real-estate attorney.

The Most Important Thing to Know

What’s the most important part of the home-buying process? Making sure you understand the purchase agreement. This contract outlines all the terms of the purchase. As the buyer, you must understand all the details and expectations laid out to avoid future issues. The purchase contract should include:

  • Identification of the parties
  • Description of the property (including its condition)
  • Rights and obligations of the contract 
  • Pricing and financing
  • Amount of the earnest money deposit 
  • Additional purchase details (i.e. what appliances are included and excluded)
  • Contingencies of the sale (i.e. a loan or inspection contingency)
  • Terms of possession
  • Closing costs and responsible parties
  • Closing and possession dates
  • Parties’ signatures

Details to Look Out For

Even if you are an experienced homebuyer, not every purchasing process or contract is the same. Here are five additional items to look for in your purchasing contract:

  1. Home-Inspection Contingency. Your contract should include a home-inspection contingency clause. In essence, this clause states that the contract is only binding if the results of the home inspection fall within the provisions outlined in the clause. This means that you are protected if the home does not meet the inspection standards. You may negotiate repairs or completely cancel the sale and renegotiate term based on these results. Typically, inspection-contingency clauses require that substantial defects be found for you to cancel the sale. Substantial defects include those things that impact the home’s value, or the buyer’s health and safety (think tree roots growing through the plumbing). If such defects are found, a home inspector might recommend that you hire a specialist, like a licensed plumber, for additional advice. You may need a lawyer if a dispute arises between you and the seller about whether a repair need disclosed by the inspection falls within the contingency-clause provision. The contract will also outline the dates that this home inspection and any resulting renegotiations must take place in before the contingency expires. In some states, you must sign a contingency release for the inspection contingency period to close. It’s also worth noting that if the buyer fails to complete the inspection within the contingency period then they may forfeit their earnest money deposit. 
  2. Title commitment/insurance items. Title insurance is critical for homeowners. It protects you incase unknown issues impacting the property at the time the policy was issued affect your title to the property. Obtaining title insurance has two main steps. The first one is a preliminary commitment and happens when the closing agent opens a title order. This reveals tax information, loan payoffs, homeowner/maintenance fees, public utility easements, etc. It also orders a title search. A title search is a search of public records pertaining to the property—like deeds, mortgages, liens, wills, divorce settlements, and other documents—that could affect the title to the property. These documents are then reviewed during a title examination so that the legal owner and debts owed against the property are verified. The closing agent will release a preliminary report and a title commitment, which essentially ensures that the title company will provide the insurance policy for the property after closing. The second step includes the actual closing and receiving the title policy from the title insurer. Your bank (or other mortgage company) will likely also require insurance, called a “lender’s policy.” This protects them from similar issues as a homeowner’s title insurance policy. 
  3. Mortgage-lender-appraisal contingency. When issuing a mortgage, your bank or other lending body will request an appraisal to get an objective estimate of a property’s fair market value. This will help determine if the amount of money you requested during the mortgage loan process is appropriate. The bank may require that the appraisal be performed from an approved list of appraisers. The purchasing contract should include a contingency for you to terminate the sale if the appraisal value is lower than the purchase price outlined in the contract.
  4. Subdivision covenants. If you are buying a home in a subdivision or neighborhood with a homeowner’s association, you should be sure to request a copy of the subdivision’s covenants or equivalent documents.
  5. Closing details. Once it’s finally time to close, you should ask for the closing statement in advance so that you understand what you are agreeing to by signing, and so that you know what the final closing fees will be. You should review the itemized columns for both the buyer and seller to understand where various fees, tax prorations, etc. are coming from.

It’s also worth noting that if there is any reason at all that you feel you cannot or should not follow through on your purchasing contract, it is always best to consult your real-estate attorney first. There are penalties, like losing your earnest money, and other unforeseen risks for failure to follow through on the contract. Talk to your attorney before you take any steps in this direction to be sure you mitigate the risks.

Understanding these details is imperative to understanding your entire contract. Remember, there will be nuances to your home-buying process based on your location and unique purchasing agreement. This is not a one-size-fits-all outline for buying a home, so consult your attorney or trusted realtor for more details.

If you have any questions about the home-buying process, give the real-estate lawyers at Jones Obenchain a call.