Commercial & Residential Real Estate Transactions
Lawyer in San Francisco and California Bay Area
Buying and selling commercial or residential real estate in California is loaded with potential legal issues. Having a trusted and experienced real estate broker to guide you through the process can help reduce potential problems. Most residential real estate transactions and some commercial real estate transactions are done using standard form agreements that can be customized by filling in the blanks and checking appropriate boxes. The forms are provided by real estate brokers and they work well for many buyers and sellers. However, some prefer to have their attorney draft custom purchase agreements for larger or more complex commercial transactions.
Typically a buyer interested in real estate makes an offer to the owner. The owner can accept or make a counter-offer. Once the purchase terms are agreed upon the buyer will have a fixed period of time to perform due diligence to determine the condition of the real property. During the due diligence period the buyer is also attempting to obtain financing for the transaction. If the buyer is satisfied with the results of the due diligence, the parties prepare to close the transaction. Prior to closing, the buyer and his financing institution place funds equal to the purchase price in escrow, and both the buyer and seller sign various documents necessary to make the transaction happen. Once the escrow company receives and confirms that all of the necessary documents have been signed, it pays all liens and encumbrances on the property and disburses the net proceeds to the seller, while at the same time recording title in the name of the buyer.
Whether the parties use a form or a custom purchase agreement there are various issues to consider when entering into such an agreement:
- Financing: Most people focus on the purchase price which will undeniably drive the sale. However, contingencies associated with financing are important because the more reasonable the parameters the more likely that the buyer will be able to meet the contingency. For example if the sale is made contingent on the buyer obtaining a very low interest rate, low down payment, or an unorthodox financing arrangement, the buyer will likely be able to back out of the sale without any penalties if the buyer cannot obtain financing within these parameters. A seller may often prefer a somewhat lower purchase price with a more flexible financing contingency because the deal is more likely to go through.
- Deposit: After the buyer’s offer is accepted, the buyer typically deposits 3% of the purchase price into escrow to show their seriousness to go through with the transaction. This deposit is typically refundable if the finance contingency is not met or the buyer is not satisfied with the result of his or her due diligence. However, if the buyer withdraws from the sale in breach of the purchase agreement the seller is typically entitled to keep the deposit as damages.
- Disclosures: The seller is not allowed to conceal defects in the real property from the buyer, and in fact he or she has an affirmative duty to disclose information materially affecting the value or desirability of the property. The use of terms such as “as is” do not necessarily shield a seller from potential liability. The seller does not have an affirmative duty to discover defects but must inform the buyer even about suspected defects or so called ‘red flags’. Many sellers do not fully understand their disclosure obligations leading to a multitude of lawsuits based on failure to disclose or inadequate disclosures. Common disclosure items include:
- unstable soil
- zoning violations
- environmental hazards
- water seepage
- structural defects
- foundation defects
- building code violations
- insect damage/infestation
- Due Diligence: Despite the duty to disclose, buyer must always perform their own independent due diligence to check the physical and legal condition of the real property. This allows the buyer to discover any defects that were not disclosed by the seller and to determine the cost of remedying both disclosed and undisclosed defects. Typically a longer due diligence period favors the buyer and allows him or her to discover more about the real property. Typically if the buyer discovers material previously undisclosed defects, the buyer must let the seller know and either renegotiate the purchase price or back out of the purchase. Buyer’s right to back out due to defects in the property during the due diligence period is often unconditional and without any penalty.
Bay Area / San Francisco Real Estate Attorneys
It is advisable to consult an attorney if anything unusual occurs during the sales process, or if the parties desire a custom sales agreement tailored to their unique situation. At the Zuarda Law Firm, we aim to effectively and quickly resolve real estate legal issues in a manner that protects our client’s legal rights. If you have a real estate legal question call our office or fill out our contact form on this page. Your initial consultation with the Zurada Law Firm is always FREE.