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Buyer’s Guide

A resource for U.S. home buyers.

1. Introduction

The acquisition and disposal of residential real estate constitute a significant financial and legal undertaking for all involved parties. For many individuals, purchasing or selling a home represents one of the most substantial financial transactions of their lives.

This Document has been developed as an educational guide to assist home buyers and sellers in comprehending the processes inherent in residential real estate transactions. This document addresses common inquiries and outlines the fundamental steps of a real estate transaction, with the objective of enhancing the knowledge base of consumers navigating the purchase of a new home or the sale of an existing property. A referral guide is provided at the conclusion of this document to direct readers to appropriate resources for further information on specialized topics.

2. Real Estate Terminology

When selecting a real estate licensee, it is imperative to understand the various terms and representations available within a real estate transaction:

Client: Any individual, including a buyer or seller, who has established an agency relationship with a real estate licensee.
Customer: Any party to a real estate transaction who does not maintain an agency relationship with a licensee.
Agency: A relationship wherein one person acts for or on behalf of a client, subject to the client's reasonable direction and control.
Responsible Broker: The principal manager of a real estate brokerage whose function is to facilitate transactions between parties. The responsible broker typically collects a commission from the seller, though the buyer may occasionally remit this fee.
Real Estate Broker Associate and Salesperson: Professionals who execute duties similar to a broker but must operate under the authority and affiliation of a responsible broker. The responsible broker holds ultimate accountability for the real estate activities conducted by their affiliated licensees.
Single Agent: A real estate licensee who represents exclusively one party (either the buyer or the seller) in a transaction.
Limited Agent: A licensee who maintains a written agency relationship with both the seller and the buyer in the same transaction. In this capacity, fiduciary responsibilities are modified so that both parties are treated equitably, without partiality.
Appointed Agent: A licensee selected by the responsible broker to provide comprehensive representation to a client, even if another licensee within the same firm represents the opposing client in the same transaction.
Transaction Broker Agreement: A written contract wherein the broker does not represent either the seller or the buyer in a fiduciary capacity. Consequently, the parties are classified as customers rather than clients.
Transaction Broker: A broker who assists one or more parties in a real estate transaction without acting as an agent or advocate for any party's interests. This designation encompasses all licensees associated with the broker.
REALTOR® / REALTOR® ASSOCIATE: A real estate licensee who is a member of the NATIONAL ASSOCIATION OF REALTORS®. These designations are distinct from broker, broker associate, or salesperson. In certain regions, local REALTOR® boards operate a Multiple Listing Service (MLS), which compiles and distributes property listings to facilitate consumer service and commission sharing among brokerages.

3. Guidance for the Buyer

Licensee Representation

When engaging with a real estate licensee to purchase property, you are classified as either a client or a customer. If you require representation, you become a client, and the licensee advocates for your interests. Regardless of the relationship structure, a written agreement must be executed.

Duties of a Licensee Representing the Buyer:

Perform the terms of any written agreement.
Exercise reasonable skill and care.
Promote the buyer's interest with utmost good faith, loyalty, and fidelity, which includes:
- Seeking acceptable prices and terms.
- Presenting all written offers promptly.
- Disclosing any known adverse material facts.
- Advising the buyer to obtain expert advice on matters beyond the licensee's expertise.
- Accounting timely for all money and property received.
- Complying with all applicable federal, state, and local laws, including fair housing statutes.

Licensee Representing Both Buyer and Seller (Limited Agency):

When a licensee represents both parties, they act as a limited agent, requiring informed written consent from both. Their duties mirror those of a single agent but are applied equitably to both parties without partiality. If licensees from the same brokerage represent both parties, they must act as limited agents unless appointed agency is offered.

Appointed Agent for the Buyer:

An appointed agent owes the same duties as a standard buyer's agent but is permitted to fully represent the buyer even if the property is listed by another licensee within the same brokerage.

Transaction Broker for the Buyer:

A transaction broker performs the written agreement, exercises reasonable skill and care, presents offers timely, accounts for funds, complies with laws, and discloses adverse material facts. They may not advise any party to the detriment of another.

Buyer Declining Written Representation:

If you choose not to utilize a licensee's services, you must refrain from releasing confidential information, as any disclosures may be communicated to the seller. It is advisable to consult an attorney to draft or interpret legal documents.

Forms and Documentation

Real Estate Relationships Disclosure: Provided at the first substantive contact, this form outlines available agency relationships. It is an acknowledgment, not a contract.
Buyer Agency Agreement: A written contract establishing the client-broker relationship, detailing the scope of the search, geographic area, duration, and compensation. Compensation is often deducted from the seller's proceeds, but the buyer may be responsible if the seller refuses to pay the commission.
Agency Agreement Addendum: Clarifies agency relationships and allows the buyer to instruct the agent to act solely as their agent, a limited agent, or an appointed agent.
Transaction Broker Agreement: Utilized when fiduciary representation is not desired, such as when parties have already reached an agreement and require only administrative execution.

Purchasing a Home

Types of Housing:

Single Family Residence: A standalone dwelling.
Duplex: Two single-family dwellings joined by a common wall, often allowing the owner to occupy one unit and rent the other.
Twin-Home: Two residential units owned by separate parties on a "zero lot line," sharing independent party walls and roofs but potentially sharing footings and foundations as defined by covenants.
Condominium: Exclusive ownership of a specific three-dimensional space within a larger property, coupled with an undivided interest in common areas managed by a condominium association.
Townhouse: Separate ownership of a dwelling and the land beneath it, with joint ownership of surrounding common areas governed by an owner's association.

Location and Price Considerations:

Evaluate the availability and quality of schools, proximity to employment, access to shopping and recreational facilities, neighborhood conditions, property taxes, utility rates, public services, transportation, and the rural or urban nature of the area. Determine a comfortable price range and monthly payment structure with the assistance of a licensee.

Financing a Home

Methods of Financing:

Mortgage: The house serves as security for the loan. The buyer receives the deed and makes monthly payments of principal and interest.
Contract for Deed: The seller retains legal ownership until the contract is fully paid, with the buyer making monthly payments. Often utilized when traditional mortgage loans are unavailable.

Mortgage Considerations:

Interest Rate: Shop for the most favorable rate.
Length of Mortgage: Longer terms yield lower monthly payments but higher total interest. Balloon payments may be structured in some loans.
Acceleration Clauses: Failure to make timely payments may result in the entire debt becoming immediately due.
Prepayment Clauses: Allows early payoff, though some lenders impose penalties.
Due-on-Sale Clause: Requires the mortgage to be paid off upon the sale of the property, preventing assumption without lender consent.
Insurance and Taxes: Lenders typically require property insurance and may require pre-payment of property taxes, often escrowed into monthly payments.
Downpayment: Required by most lenders; amounts vary by loan type.
Fees and Points: Origination fees (1-2% of the loan) cover processing costs. Points (1% of the loan each) are charged to increase the lender's yield, often in exchange for a lower interest rate.
Adjustable Rate Mortgages (ARMs): Interest rates fluctuate based on economic conditions, typically with annual adjustment limits and lifetime caps.

Types of Loans:

Veterans Administration (VA) Loan: Assists veterans in financing reasonably priced, owner-occupied homes with minimal or no down payment.
Federal Housing Administration (FHA) Loan: Insured mortgages requiring specific criteria and an insurance premium to protect the lender. Requires an FHA appraisal.
Conventional Loan: Not government-insured, carrying higher risk for the lender, which may result in higher interest rates and larger down payment requirements.
The State you reside in’s Housing Development Authority : Administers programs to assist low- and moderate-income families, including special incentives for first-time homebuyers.

Pre-Purchase Due Diligence

Before finalizing a purchase, conduct thorough inspections and inquiries:

Disclosures: Review the seller's property condition disclosure and the federal lead-based paint disclosure (required for homes built before 1978).
Inspections and Surveys: Engage professional inspectors to identify defects. Obtain a survey, as most lenders require it.
Zoning and Covenants: Verify local zoning regulations and private restrictive covenants via the Register of Deeds.
Taxes and Easements: Inquire about property taxes, special assessments, and existing easements for utilities or access.
Homeowner’s Association (HOA): Review HOA fees, rules, and maintenance responsibilities for common elements.
Insurance and Flood Status: Secure homeowner's insurance. If the property is in a flood zone, flood hazard insurance may be mandated.
Health and Environmental Issues: Investigate potential indoor air quality issues, mold, radon, or historical methamphetamine manufacturing. Note that the presence of registered sex offenders is not legally required to be disclosed by the agent; buyers must contact local law enforcement for this information.

Making the Offer

Purchase Agreement: A legally binding written contract detailing the price, financing, earnest money, personal property inclusions, legal description, closing dates, and contingencies.
Contingencies: Provisions requiring specific events (e.g., securing financing, selling a current home) before the contract becomes binding. Time clauses may be inserted to allow the seller to accept backup offers if contingencies are not met within a specified period.
Earnest Money: A cash deposit demonstrating the buyer's sincerity, held in the broker's trust account. It is applied to the purchase price at closing.
Counteroffers: Modifying an offer constitutes a rejection of the original offer. All offers and counteroffers must be in writing and signed to be enforceable.

Closing the Deal

Closing may occur at the broker's office, title company, or lending agency. Under the Real Estate Settlement Procedures Act (RESPA), buyers receive a settlement statement detailing receipts and disbursements. Buyers typically pay transfer taxes, their agent's commission, attorney fees, prorated taxes/utilities, and a share of title insurance. Settlement agents must report the transaction to the IRS using Form 1099-B.

4. Guidance for the Seller

Licensee Representation

The representation structures for sellers mirror those for buyers. A seller may engage a licensee as a single agent, a limited agent, an appointed agent, or a transaction broker.

Duties of a Licensee Representing the Seller:

Perform the written agreement terms.
Exercise reasonable skill and care.
Promote the seller's interest with good faith and loyalty, seeking acceptable prices and terms, presenting all offers promptly, disclosing adverse material facts, advising on expert consultation, accounting for funds, and complying with all laws.

Seller Declining Written Representation:

If you opt not to use a licensee, do not disclose confidential information. Consult an attorney for legal document preparation.

Forms and Documentation

Real Estate Relationships Disclosure: Provided at the first substantive contact (e.g., discussing reasons for selling).
Listing Agreement: A written contract employing the broker to sell the property, detailing the duration, terms, and compensation.
Agency Agreement Addendum: Allows the seller to dictate whether the agent acts solely as their agent, a limited agent, or an appointed agent.
Transaction Broker Agreement: Used when fiduciary representation is unnecessary.

Pricing and Marketing

Determining the Listing Price: Rely on the agent's market expertise to establish a marketable price. The agent should provide an estimated closing statement projecting net proceeds.
Marketing: The agent will utilize media, publications, and open houses. Enrolling in the Multiple Listing Service (MLS) expands exposure to potential buyers represented by other brokerages.

Seller Disclosures

Property Condition Disclosure: Must be completed and signed by the seller, verifying the truthfulness of the property's condition to the best of their knowledge.
Lead-Based Paint Disclosure: Federally mandated for homes constructed before 1978.
Legal Ramifications: Falsifying or omitting information on disclosure forms can result in severe legal action from the buyer or HUD.

The Offer to Purchase

When an offer is received, review it meticulously. The offer will detail the buyers' names, price, payment method, earnest money, personal property, legal description, financing timeline, title insurance, closing dates, and contingencies.

Options Upon Receiving an Offer:

Accept: Creates a legally binding contract. Ensure complete understanding of all terms before signing.
Counteroffer: Alters the terms. This rejects the original offer. If the buyer rejects the counteroffer, the seller cannot revert to the original offer.
Reject: The seller is under no obligation to accept. However, rejecting an offer that exactly meets the listing agreement terms may obligate the seller to pay the broker's commission.

Financing Considerations for Sellers:

Cash Offers: Ideal, but may require the seller to pay off an existing mortgage, potentially incurring interest penalties.
Assumption: If the buyer assumes the mortgage, ensure the lender releases the seller from future liability.
Seller Financing: If the buyer requests to pay over time, the seller becomes the lender. Verify the buyer's credit and income, and seek financial counsel regarding the risks of collecting payments over an extended period.

Seller Beware:

Exercise extreme caution with unconventional financing arrangements. Be wary of offers demanding: no down payment, no earnest money, promissory notes as earnest money, cash back to the buyer, equity sharing, unregistered mortgages, concealed information from lenders, certain lease-purchase plans, early possession, or the seller paying the buyer's closing costs. Always secure competent legal or real estate advice before finalizing contracts.

Earnest Money Disputes:

If a transaction fails, earnest money is typically refunded. If the buyer defaults, the seller may claim the earnest money. Brokers cannot disburse trust funds without written mutual consent or a court order. Disputes over earnest money are civil matters, often resolved in Small Claims Court if under $8,000.

Closing the Deal (Seller's Perspective)

The seller receives a closing statement from the listing agent. Review it for accuracy. The deed must be recorded in the county promptly after closing. The seller is typically responsible for the real estate commission, sales tax on the commission, transfer taxes, prorated taxes/utilities, and attorney fees. The transaction must be reported to the IRS via Form 1099-B.

5. Complaints and Problems

Your States Real Estate Commission investigates complaints alleging misconduct by real estate licensees. The Commission's jurisdiction is limited to disciplinary action against licenses; it cannot enforce specific contract performance or award civil damages. Such disputes must be resolved in civil court or Small Claims Court (for disputes of $8,000 or less).

Complaint Procedure:

Complaints must be submitted in writing with a concise statement of facts and supporting documentation. The licensee has 20 days to submit a written, certified affidavit response. The Commission staff investigates, and the Commission may take one of three actions:

Dismissal: If the complaint lacks merit, is frivolous, or does not constitute grounds for discipline.
Informal Consultation: To resolve serious matters informally with the affected parties.
Formal Hearing: A court-like proceeding presided over by an administrative hearing examiner. Parties may have legal counsel, subpoena witnesses, and present evidence. The examiner recommends a decision to the Commission, which may issue a reprimand, suspend or revoke the license, impose monetary penalties, or a combination thereof.

6. Discrimination

Your States Human Relations Act, the Federal Fair Housing Act, and the Fair Housing Act Amendments prohibit housing discrimination based on race, sex, religion, color, creed, ancestry, disability, familial status, or national origin.

Prohibited Acts:

Refusing to sell, rent, or negotiate, or making a dwelling unavailable.
Changing terms, conditions, or services to discriminate.
Advertising or making statements that discourage applicants, or inducing sales based on potential neighborhood integration (blockbusting).
Representing a dwelling is unavailable when it is not.
Refusing to allow reasonable alterations for the disabled when an escrow for restoration is established.
Altering home loan terms or denying loans discriminatorily.
Denying membership or limiting participation in multiple listing services or real estate organizations.

Exemptions:

Most State law exempts dwellings with no more than two families if the owner occupies one unit. Federal law applies to dwellings with four or more units. Familial status exemptions apply to housing specifically designed for the elderly (100% of occupants over 62, or 80% of units having at least one person over 55). Post-1991 apartment units must be constructed to accommodate disabled access, unless terrain prohibits it. Complaints regarding discrimination should be directed to your States Division of Human Rights.

Referral Guide

Environmental Protection Agency (EPA)

Telephone (Toll-Free): 800-227-8917 | Website: www.epa.gov (http://www.epa.gov)

Federal Emergency Management Agency (FEMA)

500 C Street, SW, Washington, D.C. 20472
Telephone: 202-566-1600 | Website: www.fema.gov (http://www.fema.gov)

Legislative Research Council (Your States Codified Laws and Administrative Rules)

Scorecard (Environmental Information Services by the Environmental Defense Fund)

Website: www.scorecard.org (http://www.scorecard.org)

Conclusion

Navigating the residential real estate market requires a comprehensive understanding of legal obligations, financial implications, and procedural standards. This guide serves as an educational foundation for both buyers and sellers in the state you reside in, elucidating the complexities of agency relationships, contractual agreements, financing mechanisms, and statutory protections. By adhering to the principles of due diligence, transparent disclosure, and informed decision-making, consumers can mitigate risks and facilitate successful real estate transactions. For further clarification or to address specific legal and regulatory inquiries, individuals are encouraged to consult with qualified real estate professionals, legal counsel, or the appropriate state and federal agencies outlined in this resource.

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