The purchase or sale of a home is usually the biggest financial endeavor most people will undertake. As with many legal issues and circumstances, the benefit of consulting with a lawyer or tax adviser in advance of, or during, a real estate transaction cannot be overstated. The following will assist parties by highlighting what both buyers and sellers should know or understand as well as the important (and often essential) role a lawyer has in the process.
The process of buying and selling a home consists of multiple steps that can take weeks, even months, to complete. This pamphlet can't begin to cover all aspects of home buying or selling. Rather, it focuses on specific stages in the process when a lawyer's advice would be helpful, even crucial, to get the best results for you.
By law, only an attorney can provide you
legal advice – not a real estate agent, loan officer, or closing agent. Whether you're a buyer or seller, you need your own legal advisor who will look out for your interests. Because the buyer's and seller's interests differ, it's not a good idea for both parties to use the same attorney.
In time of chaotic real estate markets an attorney's assistance is especially important. Buying a foreclosed property, selling when the purchase price does not cover the mortgage amount, and seller financing are examples of situations in which the parties need sound legal advice.
For Buyers and Sellers
The Offer to Purchase states the price the buyer is willing to pay for the house, the date the sale will close, and other important terms of the transaction. There is a state-approved form for Offers used in nearly all home sales. It can be completed by a party to the transaction, a real estate agent, or an attorney. State-approved forms are revised periodically. There often are one or more attachments (or addendums), which add more terms to the Offer.
The Offer will usually include contingencies to protect the parties by setting conditions that must be met. Common contingencies include financing and professional house inspection. Depending on the transaction, the Offer might include other contingencies, such as septic and well inspections, land survey, sale of the buyer's home, and occupancy by the seller after closing. The attorney can advise the buyer or seller about which contingencies are appropriate. In most cases, the seller is required by law to provide a condition report disclosing any known defects in the property, and a disclosure regarding lead-based paint.
The seller can respond to the buyer's Offer by accepting it, rejecting it, or making a Counteroffer presenting different terms for the sale. The Offer/Counteroffer process may go back and forth until both the buyer and seller are satisfied. When the buyer and seller sign the contract, it becomes a legally binding contract, subject to satisfying any contingencies.
If the inspection discloses defects in the property there may be further negotiations on repairs or credits. The lawyer can advise the buyer or seller about the inspection provisions that are best for the client. The lawyer also can prepare an amendment if the parties modify their purchase agreement due to the inspection, or for other reasons.
It's critical that the contract be complete and legally enforceable. If your attorney didn't write the Offer, it's wise to at least have him or her review this document and any Counteroffers. If your attorney can't review the Offer before you submit it to the seller, insert a contingency for attorney approval.
When all contingencies are met and amendments signed, the transaction can close. The Offer provides the date when the closing will occur. At the closing, the buyer and seller must sign numerous, complex legal documents. It's wise to have your attorney there to explain the documents and to answer your questions. Attorneys often spot potential problems that can be cleared before the closing and assist with unanticipated problems that can arise at the closing. After closing, the deed is recorded at the register of deeds office for the county in which the property is located. This puts the buyer's ownership of the property on public record. Once the deed is recorded, it is returned to the buyer. The buyer also will receive his or her title insurance policy. Your attorney can review these documents for legal accuracy.
Real estate agents are frequently involved in real estate transactions and work under various arrangements, including providing limited services for reduced fees. If you see an advertisement for a house for sale, the agent is working for the seller, as you'd expect, under a "listing" contract. That agent has professional obligations to look out for the seller's interests.
In recent years, a new type of agent relationship has become increasingly popular – that is, the buyer's agent. The buyer's agent is professionally bound to represent only the buyer's interests and is paid by the buyer. The agent can tell you information about the seller or the property that might be useful to you. And the agent won't disclose information you prefer the seller not know about you.
Is a buyer required to work with a buyer's agent? No. Many buyers work satisfactorily under the traditional agent arrangements.
Whether the agent is primarily the agent of the seller (under a listing contract) or of the buyer (under a buyer agency contract), the agent owes a duty of "fair dealing" to all parties. Part of that duty is to keep confidential anything that someone wants or would reasonably expect to be kept confidential.
If you decide to work with a real estate agent, have your attorney review the agency agreement before you sign it, to be sure the arrangement is exactly what you believe it to be. For example, although a seller's agent may get paid only when the property is sold, a buyer's agent may get paid even if the property is never purchased. It is critical to understand how the agent will be paid before signing any agreement.
You also can buy and sell a home without working with an agent. Then it's even more critical to seek an attorney's assistance in the buying and selling process.
This arrangement is what’s known as "for sale by owner," or FSBO (pronounced "fizzbo"). By selling your house yourself, you save the commission you would have paid to a real estate agent. But count on investing more of your own time. You'll need to analyze the market, decide on a price, advertise the house and host open houses, handle all negotiations with prospective buyers, and so on.
Buying a FSBO is somewhat different than buying with a broker involved. The buyer will need to become familiar with area values to decide what price to offer for the home. It is wise to have a lawyer prepare the Offer to Purchase. The lawyer can suggest appropriate contingencies, and can guide you through the rest of the transaction.
It's unwise to tackle a FSBO transaction without legal advice. An attorney can review Offers, write Counteroffers, and guide you through the many steps involved in a FSBO transaction.
An attorney can:
- review and advise the buyer about a buyer agency agreement and dealing with real estate brokers;
- draft or review the buyer's Offer to Purchase and help negotiate Counteroffers and amendments to the Offer to Purchase;
- evaluate financing options and resolve problems;
- review the commitment for title insurance;
- help you decide how to hold title to the property;
- answer questions and resolve problems during the course of the transaction;
- review closing documents;
- represent you at the closing; and
- provide advice if you're building a home.
Buyers usually obtain financing from a commercial lender, such as a bank, credit union, or other loan provider. The lender investigates the buyer's finances and credit history to determine eligibility for a home mortgage. An attorney can help evaluate the various mortgage options and check mortgage documents. An attorney can help resolve problems with your application. There are special concerns when the financing is for new construction.
Another financing option is a land contract, in which the seller finances the buyer's purchase of the property. This arrangement involves negotiations between the buyer and seller. Be sure you get sound legal advice to protect your interests.
Under Wisconsin law, sellers are required under Wis. Stat. § 709.02. to provide buyers with a Real Estate Condition Report (“RECR”). The RECR is a standard form which requires the seller to answer many questions regarding wide-ranging aspects and conditions of the property, namely whether the seller is aware of any defects affecting the property.
“Defect” generally means a condition that has a significant adverse effect on the property’s value, significantly impairs the health or safety of the property’s future occupants, or that if not repaired, removed, or replaced would significantly shorten or adversely affect the premises’ expected normal life.
Some of the almost 60 questions focus on structural defects, such as in the roof and foundation. One such question is: “Are you aware of defects in the basement or foundation (including cracks, seepage, and bulges)?” (The report notes that: “Other basement defects may include items such as flooding, defects in drain tiling or sump pumps, or movement, shifting, or deterioration in the foundation”).
Others questions relate to mechanical components (such as plumbing, electrical, and HVAC). Others address possible environmental problems, such as the presence of lead paint, mold, and asbestos or problems with sewers or wells. The remainder deal with things such as special assessments, code violations, easements, and property line disputes.
The final question is a catch-all which asks: “Are you aware of other defects affecting the property?” The form provides that: “Other defects might include items such as drainage easement or grading problems; excessive sliding, settling, earth movements, or upheavals; or any other defect or material condition.”
To the extent the seller answers that they have awareness of a defect, they are required to provide a written explanation.
A completed RECR must be given to a buyer within 10 days after acceptance of the offer to purchase. Some sellers provide the Report before they receive an offer to purchase. A buyer may rescind a contract, without any liability on his or her part, if the Report discloses a defect. In such a case, the buyer is entitled to receive the return of any earnest money deposit.
It is usually recommended that a buyer hire a home inspector to inspect the property and issue a written report identifying observed defects. If the inspection report or RECR disclose certain defects, the potential buyer should recognize that if he or she proceeds to closing without getting them resolved or negotiated, they will most likely be barred from making a claim against the seller for alleged defects following closing.
Those sellers who may be tempted to not disclose certain defects should know that non-disclosure (or false or fraudulent disclosures) could have dire consequences down the road. A buyer who believes that the sale was tainted by such dishonesty has various potential causes of action against the seller, including claims for fraud, with potential recovery for punitive damages or statutory treble damages and attorney’s fees.
Prior to closing, it is important for a buyer to know whether the property is subject to an easement. An easement is a right granted to another to use or access land for a specific purpose. Common examples include that afforded a utility company to install cables or pipes, the right to share a driveway, or allowing a neighbor a right-of-way across the property for ingress or egress. It is important to discover whether the subject property is subject to an easement. While there are various ways to go about this, it will usually necessitate use of a title company.
When you buy a home, you need to be sure the seller has good title to the property. That's where title insurance comes in. It protects you against defects in the seller's title.
The title insurance company checks various records and issues a
title insurance commitment that gives information about the title. For instance, who owns the property? Are there liens (such as unpaid tax bills) the seller should pay off before selling? Are there any easements and restrictions on the property's use? It is important to understand all of these matters, because they can seriously affect your use and enjoyment of the property.
The title insurance commitment is an important and complex legal document that requires legal expertise to understand. Simply receiving a title insurance commitment before the closing does not by itself mean that you are getting "clean title." Ask your lawyer to review the title insurance commitment to be sure the title presents no problems that will surface to haunt you later.
You can hold title to property as an individual, with another person(s), or in the name of an entity, such as a trust, limited liability company, or corporation. If you're married, Wisconsin's Marital Property Act affects how you own property. The law presumes that all property owned by spouses is marital property, belonging to both of you equally, but you may have individual ownership, if you desire.
A lawyer can advise you on your options for holding title. (See also the State Bar's pamphlet,
Marital Property: Answering Your Legal Questions.)
Two or more unmarried people can own property together as tenants in common or joint tenants. It's wise to have an attorney prepare an ownership agreement spelling out the parties' rights and obligations in the property.
Building a new home requires a written contract covering all facets of the process, including scope, timeline, payment, warranties, and more. While construction contracts are not standardized or state-approved as are the real estate documents heretofore mentioned, most builders will utilize their own standard form or that of a builders trade association. It is especially important that the entire contract be reviewed and that any and all owners’ questions be answered.
An attorney’s review of a proposed contract prior to its signing can be invaluable in protecting an owner’s interests. An attorney can suggest and negotiate important revisions. If you’re buying a home that a builder is already building, you'll most likely use the Offer to Purchase to address most of these issues, especially warranties, amenities, and time for completion.
One facet of new home construction contracts that owners should pay specific attention to is whether and to what extent the contract addresses dispute resolution. Oftentimes, contracts will require that in cases of a dispute, the parties must forego circuit court action and proceed with arbitration as their sole procedural recourse. Arbitration clauses are commonplace, and usually enforceable, in the construction context. However, owners must be aware that sometimes the contract will mandate that arbitration be conducted by a particular trade or builders association, most often an entity of which the builder is a member. Unfortunately, some owners are unaware of this until a dispute has arisen, when it is generally too late to consider or negotiate the use of other dispute resolution processes or forums.
Last revised: 4/2022
This is one in a series of consumer information pamphlets sponsored by the State Bar of Wisconsin. This pamphlet, which is based on Wisconsin law, is issued to inform and not to advise. No person should ever apply or interpret any law without the aid of a trained expert who knows the facts, because the facts may change the application of the law.
The State Bar publishes a series of online consumer pamphlets addressing common legal issues that many people face sooner or later in their lives, such as buying a home, going through a divorce or small claims action, and preparing a will or estate plan. Each pamphlet conveys basic legal information and answers frequently asked questions in easy-to-understand language.
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