Real estate transactions have returned to the Michigan marketplace. For those involved in the process, there are steps that can be followed to simplify the purchasing and leasing of properties.
Step 1: Finding properties and entering real estate agency relationships. Sellers and buyers benefit from two types of ready-made networks to discover real estate opportunities: One is through online databases such as the search engines hosted by the Alliance of Realtors (carwm.com); the other is a personal network of experienced regional and local real estate professionals.
Three forms of agency relationships are most common: buyer’s agent, seller’s agent and dual agent.
Ask questions about the roles, responsibilities and requirements before entering an agency relationship. What is the primary difference for each type? What information must be kept confidential? What information can be shared, even if it may affect the transaction price? How and when are commissions earned, shared and paid?
An agent’s industry experience and market knowledge provides numerous benefits. Agents connect with listing brokers, arrange showings, obtain disclosures, identify contingencies, price offers and coordinate other aspects of the transaction.
Step 2: Negotiating purchase and lease agreements. Each office, industrial, retail and apartment property is unique and often intertwined with off-site easements and unseen legal interests.
Purchase agreements and leases for each property are no different: Beware of unmodified “standard form agreements” and never accept “it’s boilerplate” as an answer. Every provision has a specific and legally enforceable purpose. Ask an experienced real estate attorney to explain the deal’s terms and conditions in plain language.
Transaction-specific purchase and lease agreements save time and money for all transaction stakeholders by identifying and resolving potential unpleasant surprises prior to closing.
Start with straightforward questions: What does the provision mean? Why is it in the agreement? Who benefits from the provision? When the transaction closes, what legal rights are waived? What is title insurance, and what are the exceptions to coverage?
Well-written purchase and lease agreements also allow potential buyers and lessees to conduct important due diligence and allow the parties to adapt to the potential findings.
Step 3: Conducting due diligence and confirming contingencies. The due diligence period allows the buyer or lessee time and access to resolve important contingencies that are material to the transaction.
For example, the buyers and lessees may conduct certain inspections, surveys, appraisals, environmental and other physical forms of due diligence. Other forms of due diligence involve legal agreements, endorsements for policies of title insurance and forms of property insurance.
Most issues that are discovered early in the process can be resolved between the seller and the buyer so that the closing can occur on schedule and within expectations. If a major issue surfaces, the parties can work together to find a resolution prior to closing.
Step 4: Closing the transaction. Before the closing, purchasers and sellers should request a “closing/attorney packet” for review to ensure the draft closing documents accurately reflect the legal transaction and comply with legal requirements.
The closing/attorney packet includes the coordinated set of financing, mortgage, title insurance, commission, conveyance, releases and related documents. When reviewed in advance, the parties can proactively solve minor issues that could morph into expensive fixes after the deal closes and the conveyance documents are recorded.
Closings are usually coordinated through local title agencies, which gather and distribute closing documents for the parties’ advance review. If approved, the agency obtains the buyer’s and seller’s signatures at closing, records the conveyance documents, and issues the lender’s and owner’s policies of title insurance.
Good communication with banks or other lenders is important throughout the entire process. Due to new lender regulations, it is important to start the loan application process early so that the appraisal, survey and related lender-requirements can be completed on time — lender approvals must be coordinated and are necessary to fund the closing.
For transactions that involve remodeling or new construction, lenders and title insurers have additional specialized requirements. When proactively managed, these construction financing and title insurance requirements can be coordinated and streamlined so additional requirements are met and closing occurs on schedule.
Steven K. Stawski, J.D., owner of Stawski Law in Grand Rapids, specializes in real estate, business and construction law. He chairs the education committee of the Commercial Alliance of Realtors West Michigan.