Home Inspections, Earnest Money, & Party Walls: 3 Common Issues in Buying Your Colorado Dream Home
This blog discusses three common issues in buying a home: the home inspection, earnest money, and negotiating party wall agreements.
What is the first step in buying a home?
Purchasing a home is often the largest acquisition a person makes in their lifetime, and it involves a complicated process and adherence to a variety of state and federal laws. The process typically begins with a buyer pre-qualifying for a mortgage with a lender. This isn’t a guarantee of the loan, but it allows the buyer to move forward with assurances that they can put an offer on a home with the confidence of being able to finance it.
GLO specializes in simplifying the home buying process and ensuring you are protected at every step. Jerome is an experienced real estate attorney who can review your contract and negotiate any red flags so you can move forward risk-free with the purchase of your Colorado dream home.
What is Earnest Money? Do I need to pay it?
If the seller accepts the buyer’s offer, then the buyer will pay a deposit, or earnest money, to an escrow agent or broker and sign a contract to purchase the home. Earnest money is also known as a good faith deposit. A homebuyer will put down earnest money to show the seller that they are serious about purchasing the home. Earnest money also protects the seller in case the buyer backs out of the sale. When a buyer backs out, the seller has lost time by taking the home off the market, relisting it, and starting the process over again. This could result in a large deficit for the seller if there is no compensation.
The earnest money the buyer puts down is usually 1-3% of the total sale price. It is held in an escrow account until the deal is complete. If the sale goes as planned, the earnest money is applied to the buyer’s down payment or their closing costs. If the sale falls through, however, the buyer usually gets the earnest money back.
Earnest money is not always required. When buying a home in a highly contested market, however, earnest money can be the only way to demonstrate to the seller that the buyer is serious, and that the sale will not fall through. Putting earnest money down can also lower a buyer’s closing costs, as it is applied directly to the buyer’s down payment or closing costs.
What is the Inspection Process?
Next, the seller will disclose to the buyer known flaws, property damage, prior repairs, and potential hazards. A home inspector will perform an inspection of the property and any mandated tests and surveys. Inspections are a hassle, but they are important for the buying process because anything that is revealed gives the buyer more leverage to either negotiate down the price or request that the seller fix the issue.
An important part of purchasing your future home is the inspection objection. The inspection objection is a contingency that protects the buyer when purchasing a home. After the home has been inspected, the buyer describes what they find unsatisfactory about the home. The inspection objection is the official notice to the seller of things the buyer would like corrected. Typically, your real estate agent will fill out the inspection objection notice.
The seller, who usually has a few days to respond, will give the buyer a document that addresses how they will correct the items they have agreed to fix. Typically, a dollar amount will be negotiated between the sellers and buyers’ agents. This will be credited at closing, and many times these amounts are based on quotes or bids from contractors.
What is a Party Wall Agreement?
If you are buying a home with a shared wall, you will also want to consider creating or understanding any existing party wall agreements. A party wall is a shared wall that separates two units. Party walls often occur in apartments and condos, where different tenants or owners share the same structure. A party wall agreement is a contract between shared wall owners that spells out the responsibilities of each party as to how decisions are made, how impasses are resolved, and how repair and maintenance costs are shared. Such agreements often include aesthetic matters such as what colors the exterior can be painted. These agreements can also include when one party has access to the other unit in case repairs are needed.
The builder of a shared property is usually the one who creates the party wall agreement and records it with the county. The agreements run with the land, meaning they will exist on the property no matter who owns it. Party wall agreements can usually be modified upon the mutual agreements of the parties. Therefore, if the home you are buying has a party wall agreement, you want to understand the terms or your ability to modify them.
Finalizing Your Purchase
Once the inspection process is complete and other agreements are made, the buyer will typically finalize the mortgage with the lender. Dealing with lenders and appraisal of the property during this part of the process can be arduous and frustrating, but GLO can help you.
Finally, the buyer and seller meet on the specified closing date to sign all the documents for the mortgage and the sale. Usually, the buyer will have the opportunity to do a final walkthrough, will take the keys from the seller, and will officially take possession of the property.
Buying a home is cumbersome and overwhelming, and navigating the process by yourself can be tricky. GLO can help every step of the way so there are no surprises, whether it is with inspection, earnest money issues, or party wall agreements. GLO has extensive experience in guiding clients through the purchase of residential real estate all along the Front Range. Fill out an interest form today to see if GLO can help you.
GLO has prepared this blog to provide general information on legal issues that may be of interest. This blog does not provide legal advice for any specific situation and this does not create an attorney-client relationship between any reader and GLO or its attorneys. GLO does not guarantee any results. Engagements are subject to specific fee arrangements and signed engagement letters.