For Sale By Owner

Guide to buying and selling real estate in the State of Virginia

This guide explains some of the important aspects of buying or selling real estate with an emphasis on “For Sale by Owner” transactions. It contains general information for both buyers and sellers. If you would like additional information, please call either of our offices 571 765 6210 (Fairfax), 540 785 2122 (Fredericksburg) or go to the CONTACT PAGE and submit the form with your questions.

We have helped hundreds of buyers and sellers with For Sale By Owner transactions and provide a complete package from Contract through closing.  We handle your transaction professionally while buyers and sellers save many thousands of dollars in commissions. 

Written and published by: The Buck Law Firm, PC Attorneys-at-Law. This material may only be copied and published for use by clients and prospective clients of The Buck Law Firm, PC. All information provided is courtesy of The Buck Law Firm, PC who is solely responsible for the content.  All legal services described are performed by the law firm.  Alliance Title & Escrow is a title insurance agency owned by the principals of The Buck Law Firm and does not engage in the practice of law.

Contract Negotiations

Here is a summary of seller and buyer obligations under the contract. This list is not exclusive. There are many other provisions in the contract. The attorney will explain these to you.

For the Seller The Seller is obligated to deliver clear title to the real estate and all personal property listed in the contract. The property may be subject to normal subdivision easements and covenants. The contract provides the structure conveys in its present condition but that appliances, heating, air conditioning, plumbing, electrical and mechanical systems are to be in “normal working order” at the time of settlement. That is not “new” condition. The house must be “broom clean” when the buyer takes possession (usually the day of settlement). The buyer and seller will do a final inspection shortly before closing. You should get estimates and try to resolve any repair issues before coming to settlement. If there is a mandatory Home Owners Association, the Seller must provide the buyer with a disclosure packet. See the section on Home Owners Associations below under the heading “Prior to Settlement.”

For the Buyer The Contract contains a contingency that releases the buyer if the lender denies the loan. The buyer must diligently pursue loan approval and deliver a firm commitment within an agreed time or the seller may cancel the contract. The buyer is obligated to settle on the date specified. Lack of down payment funds is no excuse and will put the buyer in default. The buyer may apply for financing other than as specified in the contract, but must obtain a contract addendum signed by the seller or waive the financing contingency. The lender will provide the buyer with a Good Faith Estimate of closing costs. Often the seller will agree to pay some of the buyer’s closing costs as part of the purchase price. If the buyer needs to sell a house before buying the new one, the contract should be made contingent on the sale. Termite, well, radon, home and septic inspections, may be required.

Prior To Settlement

A lot happens between the time the contract is written and settlement. Here’s a review to help you understand what is going on with your case.

Home Owners Associations Many subdivisions have mandatory homeowner’s associations. All condominiums have a unit owner’s association. The association is responsible for maintaining common area, such as private streets, playgrounds and sidewalks. There will also be restrictions that limit what you can do with your property. There may be restrictions prohibiting an antenna or storing a boat or recreational vehicle. Color changes, fences and improvements may require approval from an architectural control committee. These restrictions are a normal part of association living. Virginia law requires the seller furnish a report from the association explaining the association, its budget, dues and regulations. The seller should comply with and correct any architectural control or maintenance obligations noted in the report. The contract is contingent on the buyer’s acceptance of the disclosure package. Therefore, the Seller must order the disclosure packet from the association and deliver it to the buyer as soon as possible. Buyers have three days to review the package and opt out of the contract if they object to what they see.

Financing There are many sources of mortgage money available. Mortgage companies act as brokers for institutional investors such as the Federal National Mortgage Association (FNMA) and others. There is competition between lenders and buyers should shop for financing, dealing only with reputable, known and recommended lenders. If the lender cannot deliver the loan on time, the entire transaction may fail. We do not recommend out-of-state and Internet lenders – our experience with them has been poor.  Credit Unions are a great source.  If you qualify for membership be sure to check out their offerings. The lender will provide a good faith estimate of all closing costs. Certain charges collected when applying for the loan may be non-refundable.

Other considerations:
• How long will application and approval take?
• What is the interest rate and how long will the lender commit to hold it?
• Will the interest rate or payments vary over the life of the loan? If the loan carries an adjustable rate, does it have a conversion option so you can convert to a fixed rate later, and how? Ask for an explanation of the “Index, Margin and Caps.”
• Will you need private mortgage insurance? What will that cost? Lenders require mortgage insurance when you put less than 20% down. This does not pay the loan off if you die or become disabled. It only serves to protect the lender against your default.
• Will there be a prepayment penalty if you pay the loan early and how much?
• Will the loan be assumable and under what circumstances?
• Does the loan “balloon” or come due before the expiration of its normal pay out?
• If the transaction involves assuming an existing loan, there are usually savings in settlement costs. Be sure that you understand the terms of the loan you assume.

Types of Ownership Most married couples chose “tenants by the entirety with the common law right of survivorship.” If one of the parties dies, the other automatically inherits the property without regard to wills or probate. A creditor of one can not force the sale of the property to collect a debt.

Unmarried persons may choose either “joint tenants” or “tenants in common.” With joint tenants, the survivor inherits. With tenants in common, each owns a portion of the property and may convey that portion independently. Consult with the settlement attorney about any tax and estate planning consequences. We strongly recommend a joint ownership agreement for all purchasers who are not married couples. These agreements document each party’s responsibilities and ownership interest. The typical joint ownership agreement costs $350.

Refer questions about title, joint ownership agreements, partnerships, divorces, the rights of spouses and powers of attorney to our office as soon as possible.

Title Insurance Land is usually subject to real estate taxes, restrictive covenants limiting use of the property, or easements for utilities and other public purposes. Many of these matters are not defects and do not entitle the purchaser to cancel the transaction. The seller must give marketable title, which is title of such quality as to assure its ready acceptance by a future purchaser or lender. The seller must correct title defects such as unreleased mortgages or judgments, unpaid taxes, and sewer and water liens.

We will order a careful search of the public records to identify documents bearing on the title in question. An attorney reviews

an abstract or summary prepared by the title examiner to determine the legal impact of the various documents. The sale must include all parties who have an interest in the property. A title insurance binder, prepared based on information found in the abstract, commits the title insurance company to insure the transaction.

The title insurance binder and the policies issued after settlement represent an insurance company’s obligation to protect the insured’s interest in the property. The insurance company may choose to insure against loss or damage due to known defects. These include slight surveying errors, judgments against persons with similar names or incomplete notary acknowledgments.

The most important benefit of title insurance is protection against matters you cannot discover examining the public records. Examples are fraud, forgery, missing heirs and clerical mistakes in indexing documents or posting taxes.  Newer, enhanced policies also cover building and subdivision code violations as well as post-closing matters such as identity theft. The enhanced policy has an inflation guard feature that increases coverage over time at no additional premium.

The lender will require title insurance to protect the amount of the loan but this does not protect the buyer’s equity. The amount of lender’s title insurance declines as the loan balance pays down. A policy issued to a prior owner does not protect the buyer either. To obtain protection for his growing equity, the buyer can get an owner’s title insurance policy. We recommend the enhanced owner’s title insurance in most situations. The additional premium collected at settlement is usually not significant when compared to the amount of coverage. The buyer pays the premium only once, at settlement, while the coverage continues forever. 

House Location Survey In transactions involving new financing, lenders usually require a house location survey prepared by a licensed professional land surveyor. The purpose of the survey is to verify the legal description of the property and discover encroachments. Encroachments would include a carport or shed built over the property line.  House location surveys for a simple subdivision lot typically cost $350 – $500. Acreage and difficult terrain may increase the price substantially. These prices do not include setting posts at the corners of the lot. Contact the surveyor early to discuss setting corners. The charge is about $50 per corner. You will not need a survey for a condominium. Surveys are not required for every loan, but may be advisable.

SETTLEMENT Settlement is the formal process that accomplishes the transfer of ownership. The practice in Virginia is to have one settlement agent conduct settlement and mediate disputes. If a serious dispute arises, the buyer and seller may need to seek separate attorneys. You should notify us immediately if you desire separate legal counsel so we can discuss how to divide the settlement duties.

Typically the buyer and seller each pay about $700 for settlement and document preparation.  The Seller pays an additional $150 for each loan or lien to be released.  There may also be messenger fees to pick up or deliver documents and payoff checks.  Fees from the lender, recording taxes and title insurance are in addition.  Understand, we can’t quote exact fees until we know the details of your transaction and see the lender’s good faith  estimate.    Anyone who quotes you fees without all the information is just guessing and probably underestimating just to get your business.  The bait and switch comes later.

What Happens at Settlement? At settlement, the parties execute the various documents necessary to meet their obligations under the contract. All parties should be present. Most lenders do not accept a power of attorney for settlement and none will do so without prior notice. Many power of attorney forms are not acceptable for settlement. Some lenders have their own form. Be sure to tell both the settlement attorney and lender as soon as possible if there is any chance either the buyer or seller may not be present.

The documents the buyer executes at closing include: • Note — evidencing the loan and setting forth the terms of repayment. • Deed of Trust — pledging the property as security for the loan. In other states, this document is often called a mortgage. • Disclosure documents and other certifications required by the lender. If the seller is staying in the property after settlement, the parties will execute an occupancy agreement similar to a lease. The seller will execute the Deed and deliver possession of the property.

The Buck Law Firm will handle the financial accounting and mediate the settlement. We will receive and disburse funds among the purchaser, seller, new and old lenders, surveyor, termite inspector, title insurance company, and homeowner’s or condominium association. After settlement, we will record the Deed and Deed of Trust in the city or county land records. The title examiner checks title up to the time of recording to protect the purchaser and lender against intervening liens. The moment of recording is the determining factor when deciding priorities.

WHO TO USE FOR SETTLEMENT?  Be very careful when calling for fee quotes. Many companies quote low settlement fees but more than make up the “savings” by over-charging for other services.  Since non-lawyers cannot practice law, a non-lawyer Settlement Agent cannot answer legal questions. The Buck Law Firm will guarantee to  meet any competitor’s total closing cost package.  We have extensive real estate experience having helped over 35,000 families buy, sell or refinance their homes since 1979 and look forward to helping you.