How to Avoid Litigation When Selling or Buying a Home
Clear, effective communication goes along way toward minimizing or eliminating misunderstandings that turn into disputes, that result in litigation. Here are some other things that a seller and buyer can do to minimize the risk of litigation:
Sellers: Hire an experienced agent. Do not try to sell the property yourself. Hire a real estate agent who has adequate experience selling property like yours. Don't be shy when interviewing the agent. Most agents will prepare a listing presentation which should give you information about their past sales and experience. Ask questions: How do they intend to market the property? What evidence (comparable sales) do they have to support the proposed listing price?
List the property at an attractive price. Avoid the agent who offers to list your property at a high price. Generally speaking, it is better to price your home at or below the market. Listing for much more than the market price will likely devalue your home. You will lose the energy and excitement that a well priced new listing should generate, because buyers' agents will know that it is over priced. You may also lose your target group of prospective buyers. For example, if your home is worth between $375,000 and $400,000 and you list it for $430,000, prospective buyers who are willing to spend up to $400,000 will not find your home when they search for listings.
Disclose what you know about the property. Fill out a Transfer Disclosure Statement ("TDS") at, or shortly after, the time you list the property for sale. Go over the form with your agent and have a candid discussion about any issues that arise as you fill out the form. Disclose any unpermitted work. Never represent that any such work was done "up to code," although a permit was not obtained. If a disclosure causes the buyer to cancel, that is a much better result than being sued later over having failed to disclose some material defect or condition of the property. During escrow, buyers are usually psychologically committed to purchasing the property and they are more likely to accept a defect or other condition if they learn about it from the seller or the seller's agent during escrow than if they discover it themselves after the close of escrow.
Buyers: Hire an experienced agent. Don't use the seller's agent. Although it is legal for real estate agents to represent both the buyer and seller in the same transaction, it is the rare agent who can effectively represent both sides. In a standard transaction, the seller (through the seller's broker) pays the real estate commission earned by the buyer's agent. Although listing agents sometimes reduce their commission if they represent both sides, the reduced commission may not be reflected in a lower sale price. Even if it is, the benefit of the price reduction is seldom worth the cost of not having an independent experienced agent represent you in the transaction.
Know what you can afford: Discuss your income and expenses with a mortgage broker. They should give you an idea of how much you can borrow, as well as what loan programs are currently available.
Choose the property carefully: Have your agent set you up on an internet service that allows you to search current listings. Discuss any listings of interest with your agent. This will give your agent a better understanding of what you are looking for. After you have determined what you can afford and know what is available for sale, spend some time deciding what is really important to you and what you would be willing to sacrifice to stay within your budget.
The offer: When you are ready to make an offer, go over the contract carefully with your agent. Ask questions. Be sure you understand the "contingencies", i.e. the things that give you a right to cancel the contract. Be prepared for the seller to counter your price. Ask (in writing) for any stuff (patio furniture, storage shed, etc.) that you want that is not permanently affixed to the property
The escrow process: After your offer has been accepted, you will open escrow and the clock starts to run on your contingencies. Pay attention to your deadlines. Have a professional home inspector look at the property and give you a report. Be present for the inspection. If the inspection reveals needed repairs or defective conditions, discuss with your agent what you should ask the seller to repair and whether a price adjustment is appropriate. Don't remove any contingency until you are comfortable doing so. Don't remove your financing contingency until your loan has been approved and is ready to fund. In today's lending environment, you shouldn't remove this contingency until your loan has actually funded. Walk through the property with your camera a day or so before closing.
Douglas S. Draper, A Law Corporation