There are three stages in the buying and selling of residential properties.  They are:

• The Negotiation Period leading up to the signing of a Contract
• The Period between the signing of the Contract and Settlement
• The Settlement or Closing

The Negotiation Period

     In the first period, the parties engage in negotiations which, if successful, lead to a contract containing terms everyone has agreed to.

     Points to remember:

• Only a written contract can bind a person as to the transfer of real property (land).  Mere spoken words, no matter how many witnesses there are to the conversation, convey no interest in land.

• A contract is the result of negotiations.  These negotiations are usually oral in nature at the beginning but at some point one of the parties has to put what they believe is the contract onto paper in order for the agreement to be binding.

• Usually, the buyer has a real estate agent who prepares a proposed contract on preprinted forms.  The contract is usually contained in four or five closely printed pages.  Addendums are then added to cover other issues.

• Preprinted forms benefit both parties because they use standard language.  With a computer printout, every word must be reviewed carefully to make sure there are no hidden words or omissions.

• If the parties do not have a real estate agent, it is imperative that they consult with an attorney to develop the written contract.  Once a contract is signed, there is nothing an attorney can do to modify the contract if the other party does not agree to change it.

• If a real estate agent prepares the contract (usually the buyer's agent), the seller should have the contract reviewed by an attorney before signing it.  This is an additional expense but well-worth the review fee because there may be customs and practices of which the party seeking the review is unaware.

• An offer is made when one of the parties prepares a contract, signs it, and gives it to the other party or their agent.  If the other party signs off on the contract with no changes of any kind, the parties have a binding contract.  If the other party makes the slightest change to any term of the offered contract, the other party initials those changes, signs the contract and returns it to the first party.  This constitutes a counter-offer and is not binding on the first party unless the changes are initialed by the first party.  If the first party decides not to accept the changes, the counter-offer is rejected and there is no contract.

• If the buyer does not want to buy the seller's house until the buyer's house has been sold, or if the seller doesn't want to sell until the seller has obtained another house to move into, the parties put a "contingency" into the contract which allows one of the parties to get out of the contract unless that contingency is satisifed.  There can be contingencies on any number of matters, from financing to home inspection to sale of another home.  The parties need to carefully consider what needs to be done to complete the sale and put in contingencies that give them an out if something they need is not satisfied.  Otherwise, you may be stuck with a house you cannot buy do not want.

• Once a modified contract is accepted by the other party by initialing the changes, the parties have a binding contract.

The following customs and practices regarding costs are important to know about while negotiating a contract:

• The real estate agent commissions (usually 5%-7% of the selling price) are paid by the seller. In other words, if the selling price is $100,000.00, the commissions will be $5,000.00 to $7,000.00.
• There are three taxes (two transfer taxes and one recordation tax) that must be paid when the property is sold and the deed is recorded.  They total 2.2% of the selling price (1%, .5% and .7%).  In other words, if the selling price is $100,000.00, the total transfer and recordation taxes will amount to $2,200.00.
• The transfer and recordation taxes are customarily split between buyer and seller.  For example, if the selling price is $100,000.00, each party will have to pay an additional $1,100.00. (The seller has this amount deducted from the proceeds the seller will receive at settlement; the buyer has to come to settlement with an additional 1.1% of the selling price.)
• Therefore, the buyer should always figure that the actual cost of the house he or she is buying is more than 1% greater than the selling price.
• The annual real property taxes, water bills, and other recurring expenses of the property will be prorated at settlement.  For example, if the seller has paid the real estate taxes through June 30, and settlement occurs two months before that date, the seller will get back (and the buyer will have to pay) those remaining two months because the buyer will get the benefit of that prepaid item.
• If the buyer is borrowing money from a bank, the expenses connected with the loan (points, loan fees, appraisal fees, etc.) are paid by the buyer.  Points (an additional cost of the loan computed as percentage points of the loan amount) can be divided between the buyer and seller but are usually paid by the buyer.

The following points are important to take into consideration when negotiating a contract:

• The buyer selects the title company to conduct settlement.  This is an insured settlement agent (not always an attorney) who will handle the funds involved, conduct a title search of the title to the property, prepare the deed to the property, conduct settlement, pay off existing liens on the property, and issue a title insurance policy to the lender and to the owner.
• Real estate agents and lenders will push a buyer toward 'their' settlement companies.  Some real estate brokerages have a network of 'affiliated' (read co-owned) companies that provide a number of settlement services, such as loans, title insurance and closing services.  You need an independent settlement company such as Arundel Title Company which is not affiliated with any lender or real estate broker. Arundel Title Company is an insured title company where attorneys review title and arrange for settlement.  We recommend that you use our services for this important event.
• A home inspection is very important - this should be a condition in each contract and is usually contained in a pre-printed addendum to the contract.  See our Service Providers for recommendations as to who should perform this service.  This is usually paid for by the buyer.
• A termite inspection is standard and contained in the main contract.  The cost of the inspection can be borne by either party but usually the buyer pays for this service.  The buyer should arrange for and pay for this service because the buyer wants to retain the same firm to provide an annual inspection and guarantee.  If the seller pays for the inspection and there are termites discovered after the sale, the termite company may claim that it owes an obligation only to the seller so it is always better for the buyer to pay for the termite inspection.  See our Service Providers for recommendations as to who should perform this service.
• Lead paint is an issue with homes constructed before 1978.  If the home being sold is that old, there are forms that must be filled out and information provided by the seller to the buyer.  An inspection should also be conducted for the buyer (although this is not required by law) since the presence of lead paint could not only affect the health of the people living in the house but the resale value of the house.  See our Service Providers for recommendations as to who should perform this service.  This is usually paid for by the buyer.
• Most homes are in communities with covenants and restrictions that can limit what you can do with your new home.  Covenants and restrictions will be provided by the title search conducted before settlement but you should find out what covenants and restrictions bind the property before you sign the contract.  Afterwards, you may not want to move there and then it's too late.

The Period Between The Signing Of The Contract And Settlement

     During this period, which can range from 30 to 60 days, the buyer obtains financing, the lender prepares a package for the settlement company, the settlement company conducts a title search. In addition, the buyer arranges for the inspections that must be conducted such as the home inspection, lead paint inspection, termite inspection, and any other events required by the contract.

     The settlement company will arrange for the title search and report any problems in the title to ensure that good title is conveyed to the buyer.

      The settlement company will arrange for the survey of the property (the lenders nearly always require this) to make sure there are no structures on the property that extend over the property lines or violate setback requirements.

     The settlement company will deal with the lender in preparing for settlement and provide the lender with a commitment that tells the lender that if the title search is favorable, title insurance will be issued to the lender.

The Closing or Settlement

     Once all the contingencies have been met, the title search done, the financing in place, and whatever else needs to be completed in order for the sale to be finalized, the parties go to a settlement company where the documents are signed.  Some points to keep in mind about settlement:

• Title insurance will be issued by the title insurance company to the lender.  This is a requirement of all lenders.  This cost is paid for by the buyer.
• Title insurance does not have to be issued by the title insurance company to the buyer. However, this one-time cost is something the buyer should not decline since the purchase of a home is the most important decision buyer will make.  Title defects may come up after the sale when the buyer goes to resell the home.  When that occurs, title insurance steps in to protect the buyer.  These defects can be missed judgments, tax liens of prior owners, prior mortgages that have not been released, and property description problems.  Many of these defects typically occur before the seller bought the property. Declining to take owner's title insurance is a penny-wise, pound-foolish decision.  With all the other costs the buyer is paying at settlement, owner's title insurance is the one expense that should be paid for willingly.
• Aside from the loan documents from the lender, the most important piece of paper at the settlement table is the settlement sheet, or HUD-1.  This is a two-page long form required to be filled out at all settlements.  Page two contains two columns on the right for the buyer and the seller.  In those columns go the amounts being paid by each of them.  The totals at the bottom of page two are carried over to page one as the settlement costs to be borne by each party.  Page one contains, among other things, the sales contract, the deposit, the pro-rated annual expenses of the property, the new loan, the payoff of the old loan, and similar items. The bottom of page one shows how much the buyer owes and how much the seller gets. 
• The settlement company disburses funds at the settlement and insures that the deed and lender's documents are recorded in the land records and pays off existing loans on the property.  
• If you do not have an attorney at settlement, you may miss something.  This is less important to a seller, whose focus is on making sure that the money disbursed to him or her is the right amount, but an attorney can be an important asset for a buyer to have at settlement because there are many things that can go wrong or be credited against the buyer inaccurately. Therefore, buyers should consider taking an attorney with you to settlement.

THE BOTTOM LINE - USE ARUNDEL TITLE COMPANY TO MAKE SURE YOUR SETTLEMENT GOES THROUGH WITH AS FEW PROBLEMS AS POSSIBLE

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