In Monopoly, prospective properties on Park Place and Illinois Avenue are purchased “as is.” The money used to purchase them isn’t real. There are no negotiated purchase agreements. The highest negative stake is losing face to fellow competitors by going belly-up in debt and forfeiting conquered properties.
“But here in the real world,” to borrow a line from Country-Western singer Alan Jackson, buying real estate is “not that easy at all.” Buyers, when making what in most cases will be the single most important purchase of their lives, need to have a solid handle on the ins-and-outs of the transaction to avoid headaches down the road. The terms of a real estate deal are set forth in a written purchase agreement.
If you plan on buying residential real estate, here are three key things that you should understand about purchase agreements:
(1) Property Condition Disclosure
Sellers of residential property are required under Minnesota law to disclose all material facts of which they are aware that could adversely and significantly affect an ordinary buyer’s use or enjoyment of the property or any intended use of the property. A buyer can waive this requirement, but it would be foolhardy in most cases to do so given the risk of exposure from potentially serious defects. Buyers should understand that sellers are only required to disclose defects of which they have personal knowledge, so if mold is discovered in the attic after the purchase, a seller isn’t on the hook financially unless he/she knew about the fungal infestation and chose not to disclose it. Therefore, it is still critical to have an independent professional inspection performed, in conjunction with seller disclosure, to catch these hidden condition.
(2) Earnest Money
Earnest money is a deposit made by the buyer to show a good-faith intention to purchase the property. Most purchase agreements will spell-out what happens to this money should the transaction not go through. For example, the agreement may contain a financing contingency where the agreement is automatically cancelled, and the earnest money fully refunded, if the buyer cannot secure adequate financing to make the purchase. It is very important to understand this contingency and others, as well as what happens in the event of default under the purchase agreement, because this will impact who ultimately walks with the earnest money.
(3) Arbitration Provision
The majority of purchase agreements will give the buyer the option of resolving any disputes that might arise from the sale exclusively through arbitration. Both seller and buyer have to agree to this provision. Arbitration is a form of alternative dispute resolution where the conflict is conclusively resolved by a third-party neutral. Although arbitration has some advantages (i.e. sometimes cheaper and quicker than litigation), buyers need to understand that by binding themselves to this process they forfeit certain benefits of having the dispute heard in open court by a judge or jury. Every situation is unique and needs to be thoroughly thought through before signing on the dotted line.
Purchasing real property isn’t a game. Knowing the legal lay-of-the-land when it comes to the obligations of buyers and sellers under a purchase agreement is of paramount importance because an oversight or mistake can have long-lasting consequences. Whereas a “Get Out of Jail Free” card will get you out of a pinch in Monopoly, they will be of no use should your real estate transaction fall apart.
If you’re looking for a qualified and trusted Minneapolis/St. Paul real estate attorney, please call the Plymouth office at 763-398-1676 or fill out this quick form to schedule a consultation.
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