People buy and sell real estate every day. This is not to say, however, that it is a simple procedure. This month’s article briefly describes five significant documents that are present in most real estate transactions. This article is the first in a series of articles aimed at better explaining the real estate process and the roles of buyers, sellers, and their attorneys.
Offer to Purchase
Once the buyer finds a property for which to make an offer, an offer to purchase is created and given to the seller, which is usually accompanied by earnest money. The buyer’s attorney or real estate agent drafts the offer in accordance with the buyer’s desires. The seller or his agent may draft the offer, but this is rarely done. The traditional offer to purchase will be written, and will have, at a minimum, the contact information of both the buyer and the seller, the identification of the property, the proposed price and terms of payment, and how the transaction is to be completed. The offer is then received by the seller, who may review such document with his attorney. Once signed by all parties, the offer is accepted and becomes a binding contract. The offer to purchase can be amended through counter-offers during the course of negotiating price, contingencies, and issues arising after title evidence is received.
Deed and Real Estate Transfer Tax Return
The seller’s attorney traditionally drafts the deed and the real estate transfer tax return. The deed is the document used to convey a current owner’s interest in property to the new owner. There are several different types of deeds, and the one used depends greatly on the nature of the transaction, the requirements of the parties, and the parties themselves. The deed will include the names of the parties, a description of the property (known as the ‘legal description’), any restrictions that go along with the conveyance of the property, and signature blocks for the sellers. The deed, once finalized and signed, is then filed and recorded with the county’s register of deeds.
A real estate transfer tax return must also be filed with the deed in the majority or real estate transactions. The primary reason for the existence of this form is to provide information to provide local assessors and the Department of Revenue with a means of obtaining market value data to set values to properties for assessment purposes. This document is also necessary to alert the county treasurer of the change in the property’s owner. A transfer fee of .3% ($3.00 per $1,000.00 of the sale price) of the property’s value usually must be paid upon filing the transfer return and the deed.
The buyer in a real estate transaction will receive “title” to the property, and by gaining title, he has the right to control and dispose of such property. In the vast majority of real estate transactions, the offer to purchase will state that the seller will convey the title to the property “free and clear of all liens and encumbrances”. In addition to the seller’s obligation to convey the property free and clear, the offer to purchase usually requires the seller to provide evidence to show that title is free and clear. This “evidence of title” used to be provided in the form of an attorney’s opinion of title given after reviewing an abstract. However, title insurance has generally replaced this today. Title insurance is a contract in which the title insurance company provides protection against specified losses if a defect is found in the property’s title. Because this document is fairly complicated, it is important that the buyer’s attorney review it carefully.
The closing statement gives all parties an opportunity to check the computations made in arriving at the balance of money due to the seller at the completion of the real estate transaction. It contains a detailed itemization of the purchase price plus additional charges or credits to the buyer or the seller for things such as earnest money paid down, unused fuel, and prorated real estate taxes. Its main purpose is to memorialize what occurs at a closing. Either the title insurance company or an attorney usually drafts this document.
This article presents only a very simple overview of some of the typical documents that are part of an ordinary real estate transaction. Every transaction is unique and exceptions to the above summary can certainly exist. If you are contemplating entering a real estate transaction, it is recommended that you work with both a licensed real estate agent and an attorney experienced in handling real estate matters.
Alex Seifert is an associate with the law firm of Sommer, Olk, & Payant in the firms’ Antigo office. his practice focuses mainly in criminal defense, civil litigation, real estate, and probate law.