Do You Have The Right Paperwork To Complete Your Real Estate Deal?

 

It has been stated that the world runs on paperwork and the real estate industry is a fine example. A typical transaction may involve dozens of documents, all of which are necessary for the deal to go through. However if you miss a document, use the wrong form, or fail to fill out some paperwork properly the whole process comes to a screeching halt. For a real estate investor time is of the essence and a slowed or halted real estate deal eats away at the precious profit. This article will cover the basic paperwork needed to successfully complete a real estate transaction, a brief description of each one.

What Documentation Is Used In A Typical Real Estate Transaction and How Should It Be Completed?

In real estate the type of transaction being processed determines the paperwork needed. These deals run from the fairly simple and straightforward such as the purchase of a single-family home from a bank or lender, to highly complex transactions that may involve multiple properties, several parties, and cash changing hands. For the sake of simplicity I intend to use a simple real estate transaction for my example. The forms typically included in this include:

Purchase and Sale Agreement – Probably the most important document in the entire process, this agreement is a legally binding document between the seller and the buyer. Taken another way the Purchase and Sale agreement can be viewed as a checklist. It contains the legal description of the property, agreed upon purchase price, any money put into escrow (commonly referred to as the down payment), inspections that have been done, buyer financing information including the timeframe given to the buyer to obtain financing, the closing date, and a list of all appliances and household fixtures that may be included. Other important aspects of the Purchase and Sale agreement include:

• Contingencies – Certain conditions must be met by both parties in order for the transaction to be complete as well as legally binding. Typical contingencies include the mortgage the buyer must obtain within a agreed upon time frame, home inspection (these generally cover termite, mold and mildew, vermin, plumbing, electrical, roof, structural soundness, as well as the presence of toxic materials such as asbestos or lead based paints), and whether the sale of another property is involved. There can be any number of contingencies involved depending on the complexities of the deal.

Deeds – No real estate deal could happen without all the required deeds being in order. There are several types of real estate deeds involved in a sale, most of which are designed to protect the buyer.

• General warranty deed - A general warranty deed is a type of deed where the grantor (seller) guarantees that he or she holds clear title to a piece of real estate and has a right to sell it to you.
• Special warranty deed – Designed to help the seller transfer ownership of real property, and giving assurance that nothing was done during the sellers' period of ownership will affect the new owner’s title to the property.
• Bargain and sale deed – A deed in which the Grantor (Seller) implies to have or have had an interest in the property but offers no warranties of title to the grantee. This type of deed is typically used in many states to transfer title.
• Quitclaim deed – A deed where a person disclaims any interest in a piece and passes that claim to another person.

There are other deeds used, some depending on the state and type of real estate transaction, and others which depend on the complexities of the deal. It is recommended that you use an experienced real estate attorney to help you review all deeds.

Letter of Authorization – This gives the buyer permission to obtain information about the sellers' current loan status. This information includes the current loan status, If a default exists, the nature and extend of said default, amount to cure any default, payoff amount as of date requested, status of any legal proceedings to execute on the loan or foreclose on the property, as well as name and contact information for any trustee assigned to handle a trustee sale on the property. Again there may be more information included on the Letter of Authorization depending on the state and complexity of the transaction.

By now you have come to realize the nature of the typical real estate transaction and the paperwork involved. For a real estate investor to be successful and make a profit on a sale it is imperative they understand the documentation required.