The Process of Purchasing Real Estate

01 Dec The Process of Purchasing Real Estate

Robert Hollis sitting down in Van Matre Law Firm

If anyone is interested in purchasing land on which a business is operating or purchasing land on which they intend to develop a business or land on which a significant commercial or residential exists, they need a real estate attorney. There are many common mistakes made during the purchasing process that can cost the buyer all or a portion of the value of their investment. Real estate attorneys can play a vital role in helping a buyer avoid such mistakes.


How are real estate attorneys different from realtors and do you need both?

Yes, a buyer of such property should hire both a realtor and a real estate attorney; they perform completely different functions. In general, real estate agents help facilitate the agreement between a buyer and seller. They have virtually no responsibility to help a buyer avoid the mistakes mentioned above and are prohibited from practicing law. Whereas a real estate attorney solely represents the interests of the buyer. This includes the avoidance of costly mistakes that are often made with such purchases.


General Advice When Making a Substantial Real Estate Purchase 

For most people, real estate purchases are major investments. In many cases, any such purchase may be the largest investment a person makes in their lifetime. Substantial real estate purchases should only be made with the benefit of competent legal advice.


Substantial purchases should always include an attorney.

Whether one is a first-time buyer or a seasoned veteran with respect to substantial real estate transactions, a buyer should engage an attorney early in the process. This is a practice that virtually all successful purchasers employ. The process involved with such purchases is always complicated and the issues are unique with regard to each transaction.


Buyers should understand the purchase contract. 

Prior to signing a purchase contract, a buyer should understand all of the terms in the contract.  Many buyers may misunderstand the terms of real estate contracts due to inexperience, lack of time, or the existence of “legalese,” which can be difficult to interpret. Disputes related to real estate contracts often happen because buyers fail to understand the terms of the contract. For example, there are often requirements that notice be given following very specific actions that must be taken by buyers. If notice is not provided according to the terms of the contract or the specific action is not taken prior to such notice, the buyer may have inadvertently waived its rights under the contract, such as the right to cancel or terminate the contract or to make counter offers.


Contract Example
A contract may state that the buyer has 20 days to inspect the property and to provide notice of any issues that the buyer will not accept. Buyers are often unaware of such a deadline or they fail to understand that a third party inspector is required to inspect the property and provide a report. Failing to meet these contractual requirements could eliminate the buyer’s ability to object to the issues identified during the inspection. As a result, the contract may require the buyer to either close the purchase of the property against the buyer’s will or lose whatever deposit the buyer may have made when they signed the contract.


Casey Elliot, Karen Hajicek, and Thomas Harrison looking over legal documents

Review Zoning Ordinances and Restrictive Covenants Governing Land Use

When purchasing property to use for any purpose, but especially for business or commercial purposes, one must be familiar with the area’s regulations and any applicable restrictive covenants governing land use. For example, if someone wishes to purchase a developed property that has an operating business, one must be certain that the business may be operated legally under the municipality’s zoning ordinances as well as any restrictive covenants that may apply to the property containing the business. One cannot assume that just because a business may be operating currently that it is doing so in accordance with the applicable zoning regulations and restrictive covenants. At any time, a municipality or those enforcing restrictive covenants may intervene and prohibit the operation of a business that is not in compliance. The same risks exist with respect to changes of use on a property already owned or leased. In other words, prior to engaging in the process of renovating a property to permit a changed use, one should seek legal advice as the newly intended use may not be permitted within the municipality or by the applicable restrictive covenants.


Restaurant/Bar Example
For example, one may intend to purchase a property that has an operating restaurant and a bar. There are often zoning and restrictive covenants applicable to the operation of bars and restaurants with bars. If the buyer does not conduct a proper investigation with regard to the existing zoning ordinances and restrictive covenants, the buyer cannot be certain that the bar portion of the business may be shut down subsequent to the purchase. A real estate attorney is responsible for reviewing the applicable regulations and restrictive covenants and for verifying whether the intended use of the property is permitted. It is important to understand that just because the business operated a certain way before the purchase, does not mean it will be permitted to do so after the purchase due to zoning regulations and restrictive covenants.


Purchasing real estate includes purchasing an insurance policy you should understand.

Many people are unaware that when a person purchases real estate, they are (or should be) also purchasing an insurance policy that applies to the title of that real estate. This type of policy is unlike other related policies such as a homeowner’s policy that provides coverage in the event of a fire, earthquake, theft, etc. This is a title insurance policy that insures that you purchased the property described in the policy for so long as you own the property.

What that policy covers is determined by the documentation that is signed and approved at the closing of the purchase. With regard to a title policy, a title commitment is the relevant document that is obtained at closing. The title commitment is typically part of the large packet presented to a buyer at closing and is often ignored by inexperienced buyers. It is vital that all buyers review the title commitment and all accompanying exception documents prior to closing. The description of the property being purchased is within the commitment and the insurance you receive is only as broad as the description with the commitment.


Title Policy Examples
What if, after a purchase, someone else approaches the buyer, presents a recorded deed showing that they own the property the buyer just purchased? How would you, as the buyer, prove that you are the actual owner and protect yourself from the party claiming ownership?  You would rely upon your title policy that was issued from the title commitment approved at closing. If the party claiming ownership has a valid claim, you would be protected under your policy for up to the amount you paid for the property. What if a neighboring property owner claims that they own a portion of the property that you believed that you purchased? A common cause of such disputes is the location of a fence or other physical boundary. The property you purchased is not defined by the location of such physical boundaries, rather it is defined by the legal description found in your title policy, SUBJECT TO whatever exceptions are listed in the title policy. It is vital that you understand the description as well as any exceptions that may exist. In some cases, exceptions to title may be removed if they are properly understood and brought to the attention of the title company involved in the closing.   


Buyers are solely responsible for avoiding mistakes. 

A common misunderstanding is that real estate agents or title agents are responsible for notifying buyers or even protecting buyers from mistakes such as those described above. However, none of the issues mentioned above are the responsibility of a real estate or title agent. It is the buyer’s responsibility alone to take all measures necessary to avoid these mistakes. In fact, even if a buyer is actually unaware of the existence of zoning regulations or restrictive covenants applicable to the purchased property, the law deems that buyers are aware and are subject to whatever consequences may exist as a result of such regulations or covenants. As such, buyers should engage competent legal counsel for such purchases as do most experienced purchasers of real estate.

Van Matre attorneys Real Estate