RESIDENTIAL TRANSACTIONS

By: Steven H. Coven, Esq.

For many people, their home is their largest investment. It’s likely the greatest financial risk that a person will take too. As a result, it is extremely important to understand how to protect yourself from the pitfalls of purchasing a residential home. While the home may look like your dream home, if you don’t fully understand all of the terms of the purchase agreement, the transaction could become a nightmare. Buyers and sellers typically have a common goal of consummating the deal, but they typically have competing interests in achieving that goal. The specific attributes that you will want in a purchase agreement will largely depend on your circumstances and I suggest that prospective purchasers meet with an attorney to discuss their situation prior to entering into an agreement. This is because in Ohio your rights and obligations in the purchase of a home will largely be governed by the terms of the written purchase agreement and a knowledgeable attorney can help to ensure that your interests are adequately protected. This article will address a few of the issues facing buyers in these transactions, but there are many more issues that should be explored prior to finalizing any purchase agreement.

One way for a buyer to protect their interests is to have the ability to terminate the agreement should they not be able to obtain financing. This is often called a “Financing Contingency”. This is typically drafted to allow the buyer the ability to terminate the agreement without any liability should they not be able to obtain financing for 80% of the purchase price at prevailing market rates. This is an especially useful tool to use for first time home buyers who may not be completely aware of their ability to obtain a loan for the home they wish to purchase. This can help prevent the seller from having viable claims against the buyer should the buyer be unable to get financing for the transaction and fail to timely close.

A similar contingency may be useful for buyers who are moving from one home to another. In such circumstances, the buyer may want the agreement for the purchase of their new home to be contingent upon selling their current home. In the event the buyer is unable sell their current home within a specified time, they will not be obligated to follow through on the purchase of the new home. Again, this prevents the potential buyer from being declared in default for failing to timely close the transaction and can operate to extinguish the buyer’s liability to the seller for such a failure.

It is also important to understand that in Ohio buyers have a duty to investigate and inspect the property they are purchasing. Should a buyer fail to inspect their property and subsequently discover a defect in the home, they will often be precluded from asserting that the seller is liable to them for such a defect. Accordingly, it is often a good idea to make the transaction contingent upon satisfactory results of specific inspections. Some inspections that buyers may want to request include inspections for: pest/wood boring insects; septic system (if applicable); water potability (if applicable); well flow rate (if applicable); lead based paint; radon and a general home inspection from a licensed home inspection company.

In many cases the sale of a home will be subject to a “Point of Sale Inspection”. Because of the possibility of building code violations, it is often a good idea to include a clause in the purchase agreement requiring the seller to cure all code violations prior to closing, thereby allowing the buyer to take possession of the home violation free. However, living in northeast Ohio, corrections are not always able to be cured prior to closing due to inclement weather conditions. Sometimes a clause in the purchase agreement requiring the seller to put a specific amount of funds in escrow to cure all defects that can’t be cured due to the weather is a good idea. In the alternative, the buyer can request a reduction in the purchase price for the amount it will cost to later remedy the violations and can assume the obligation to cure the violations after closing.

Another inspection to keep in mind is the final walk through inspection. This is especially important in the event the seller has been residing on the premises during the time the you first inspect the home. Flooring and walls may be covered by furniture or pictures thereby hindering the buyer’s ability to fully inspect the property at the time the agreement is reached. Consequently, there may be unseen damages, which the buyer can be stuck with should they fail to have a final walk through inspection. A well drafted provision can potentially allow the buyer to renegotiate the purchase price if defects that were previously not visible are discovered by the inspection.

Another issue that should be addressed is exactly what is staying at the home and what is leaving with the seller. While the law is pretty clear on what constitutes a “Fixture”, it is always best to err on the side of clarity. Thus, if there are specific items that you desire to stay at the property such as window treatments, appliances and lighting fixtures, it is always best to have a clause reciting this expectation in the purchase agreement just to help ensure that there is no ambiguity or debate at a later date.

Finally, the issue of real estate taxes should be considered. Real estate taxes will likely be pro-rated based on the last available tax duplicate. However, the most current tax value may not be known at the time of closing because real estate taxes are generally at least six (6) months behind. To help absorb the possible higher taxes, it can be wise to put a clause in the purchase agreement holding the seller responsible for difference between the last available tax duplicate and the actual taxes imposed on the property at the time of closing.

Needless to say, there is a lot to think about prior to signing a contract to purchase a new home. Consequently, it is always a wise decision to consult a good attorney at the outset, as opposed to after a problem develops.

_____________________

Mr. Coven is an attorney with the law firm of Dworken & Bernstein. He is a graduate of Orange High School, The Ohio State University and Case Western Reserve University School of Law. He is admitted to practice law in all Ohio Courts and the U.S. District Court for the Northern District of Ohio. Mr. Coven is also a member of the Lake County Bar Association and Ohio State Bar Association.

Mr. Coven practices in the areas of Bankruptcy, Real Estate, General Business Litigation, Landlord/Tenant and Collection Law.