SELLING YOUR HOME

Selling a home can be a very complicated process. This is a summary of some of the things that may be required for the completion of the sale of your property. If you work through a real-estate broker, the broker will be able to help you in making some of these arrangements. Understanding the procedures will avoid unnecessary delays and help complete your sale as smoothly as possible.

Contracting with a Broker

Some people choose to advertise and sell their homes themselves. Most prefer to use a broker. With today's multi-listing services, a broker can give your home the wide exposure needed for a faster sale. The fine print in a broker's agreement is a binding contract and is important. Make sure that you understand what you sign. If necessary, have your attorney look over the agreement before signing it.

Brokers' contracts come in various types. If you sign an contract for an exclusive listing, you agree to sell your home only through that broker for the duration of the contract. If you try to sell your home in any other way during the term of the exclusive listing, the broker with the exclusive contract may claim a commission on the sale.

It is usually not a good idea to give a broker an exclusive listing for a long term. You could be stuck in a long-term exclusive agreement with a broker with whom you are unhappy. If you are going to give a broker an exclusive listing, a shorter-term, say for 30 to 90 days, may be more satisfactory. You can always renew the exclusive if you are satisfied with the broker's efforts.

In Massachusetts, unless the contract specifies otherwise, a broker is entitled to his or her commission if s/he produces a buyer and the sale actually goes through. A broker is not entitled to a commission if the sale doesn't go through, unless the failure was your fault. Some broker's contracts provide in the fine print that the broker gets a commission even if the sale doesn't go through for no fault of yours. You need to check the fine print and make sure the printed agreement reflects your wishes. Just because something is printed doesn't mean it can't be negotiated.

The Offer

When a prospective buyer wants to buy your property, they generally sign a document called an "offer to purchase" form. This is a standardized form usually prepared by the broker. If you don't accept the offer, the deposit will be returned to the prospective buyer, unless they decide to make a new, higher, offer. If you accept the offer, it is a binding contract unless the document explicitly states otherwise. This means that you must go through with the sale, under the terms of the accepted offer, and you cannot accept a better offer from anyone else.

The Deposit

Along with the offer, the buyer usually puts down a sum of money to bind the offer. When the Purchase and Sale agreement is signed, the buyer deposits more money, and the total amount is held in escrow either by the broker or by your attorney. If the buyer breaks the agreement, you will be able to retain that deposit as damages.

The Purchase and Sale Agreement

The next step will be to sign a completed Purchase and Sale agreement. This will take place after your lawyer and the lawyer for the buyer have negotiated its terms. It is more detailed than the accepted offer, and when it has been signed by all parties, it replaces the accepted offer as the contract between the parties. It is important to have your own lawyer at this stage to see that the terms of the agreement protect your interest. The P&S Agreement will probably be signed in multiple copies. With the signing of an agreement, the buyer will usually put down additional money. The deposits are usually held either by your broker or your attorney.

Contingency Clauses

The offer and the Purchase and Sale Agreement usually contain several contingencies which permit the buyer to withdraw from the deal without penalty if certain things happen. The most common is a Mortgage Contingency Clause, which allows the buyer to get out of the deal if s/he cannot obtain financing. Since buyers are often pre-qualified for a mortgage, this is not as much of a risk for the seller as it once was.

However, the sale may still be lost if the lending institution's appraiser finds that the price that you and the buyer have agreed to is greater than what they think is the property's fair market value. The lender may refuse to write a mortgage for that much, and you may have to reconsider how much you want to get for your property if you want to sell it. A qualified broker may be the best person to advise you on this.

Other contingency clauses may depend on the satisfactory completion of a structural inspection, a pest inspection, a radon inspection, or other inspections performed to assure the buyer that the property is sound.

The sale is also contingent on a title examination which shows that you have and can convey good title to the property.

The Closing

The Purchase and Sale agreement will specify a date on which the title transfer will take place. By that day, the financing and other contingencies should have been satisfied and the title examination completed. At the closing, the money is transferred, the paperwork of the sale is completed, and the buyer receives the keys to the property.

Before the closing, you will need to have the local fire department inspect the smoke and CO detectors to make sure they work and are in compliance with the law. If you are selling a condominium, there are other requirements, which are listed below.

You will need to bring a driver s license or other photo ID with you to the closing, so that the closing attorney can be assured that you are who you say you are. This is particularly required if you are going to sign anything which needs to be notarized.

Walk-Through

The Purchase and Sale agreement often provides for a walk-through of the property by the buyer on the morning of the closing, in order to verify that the property is now in essentially the same condition as it was when the buyer agreed to buy it. It is usually arranged through the broker.

Real Estate Taxes

You and the buyer must apportion responsibility for real estate taxes. If you have received the tax bill from your city or town, you should bring it with you to the closing, whether or not you have paid it. If you pay the tax bill, bring to the closing a stamped receipt and inform your attorney prior to closing that you have paid the bill.

Cities and towns in Massachusetts operate on a fiscal year that begins each year on the first of July. By law, they are required to send tax bills to the person who was the assessed owner as of the first of January preceding the start of the fiscal year. That means that, depending on when your closing takes place, tax bills will continue to be sent to you, possibly for more than a year after the closing. While there is no legal requirement that you do so, it is very helpful if you send the tax bills for the property to your buyer so long as you continue to receive them.

Fuel and Other Adjustments

If the property has oil heat, there is usually an adjustment made, by which the buyer pays you for the amount of oil in the tank. In order to do this, you must provide a reading of the tank and a recent oil bill. Another way this is done is to have your oil company top off the tank just before the closing and bring the bill to the closing. It is necessary to know the size of the tank to calculate this adjustment. Please notify your attorney in advance of the closing of any other adjustments which are not reflected in the Purchase and Sale agreement or closing adjustments.

Smoke Detectors

You must have a Certificate of Compliance with the Massachusetts laws regarding smoke detectors and CO detectors. To do this, make arrangements a couple of weeks in advance with the local fire department to have the premises inspected, install whatever detectors are necessary, and obtain from the fire department a Certificate of Compliance.

Keys

Be sure to bring to the closing all keys to all locks on the premises, all garage-door openers, and similar equipment.

Urea Formaldehyde Foam Insulation

You will be required at closing to sign an affidavit certifying that the premises either contain no Urea Formaldehyde Foam Insulation or, if the premises do contain such insulation, that an EPA-approved test has been performed to determine that the level of formaldehyde gas in the premises is less than 10 parts per million. Since UFFI was used for only a short time in the 1970s, this is an obsolete requirement, but until all regulations on the subject have been updated, it remains required.

Lead Paint

Under state and federal law, if the property was built before 1978, you must provide the buyer with a disclosure of potential lead-based paint hazards, including an informational pamphlet from the U.S. Environmental Protection Agency, and the buyer must sign off on having received it. If you are using a broker, they will have the necessary materials. If not, or for more information, contact the Childhood Lead Poisoning Prevention Program at 617.284.8400 or 1.800.532.9571.

The Deed

You and all of your co-owners must sign a new deed and have your signatures notarized in order to convey your title to the buyer. If you have an attorney to represent you in the transaction, s/he can prepare the deed for you. It will help if you have your old deed, the one by which the title was conveyed to you, and forward it to your attorney as soon as possible.

Disbursement of Sale Proceeds and Location of Closing

Usually, the closing takes place at the office of the attorney for the mortgage lender. Sometimes the closing takes place at the office of the lender itself or at the Registry of Deeds. The deed will be recorded at the Registry of Deeds, either the same day or on the next business day after the closing. Before the deed and other documents are recorded, the records in the Registry of Deeds will be checked up to the moment, in order to be certain that nothing has happened since the title search to impair the title you are conveying.

The sale proceeds are not disbursed until after the recording. If you need the disbursement of proceeds on a same-day basis, or if you need the closing to take place at any specific location, you should notify your attorney as far in advance as possible, so that they can try to make special arrangements.

SPECIAL MATTERS

The following requirements do not apply to all sales, but some may apply to yours.

Utility Charges

Unless the property has a septic system and/or a private well, you will have to provide a final water and sewer use bill. You should order a final reading of your water meter and bring with you to the closing the water and sewer use bill, whether paid (and stamped paid) or unpaid. Preferably, the bill should be paid.

If your electric service is provided by a Municipal Light Company, you need to provide a final bill or receipt of payment for all outstanding electrical services as of the date of the closing. If electrical service is provided by a private utility company, such as Boston Edison or Mass. Electric, you need only make arrangements for your final payments with the utility company.

Septic System Inspection

Effective 31 March 1995, under regulations of the Massachusetts Department of Environmental Protection, most septic systems in Massachusetts must be inspected prior to any transfer of title. These regulations, generally referred to as "Title 5," are designed to prevent septic systems from contaminating drinking water. Title 5 initially caused a lot of problems for people selling homes which had septic systems. At this point, after some revisions to the regulations and greater experience in their use, Title 5 is no longer a serious problem for most home sales.

It is generally recommended that you have your system inspected before you put your home on the market, so that you can learn as soon as possible of any problems in the septic system.

Registered Land

Registered land is property which has gone through an exhaustive verification process in the Massachusetts Land Court. If your property is registered land, you must bring to the closing the owner's duplicate original Certificate of Title issued by the appropriate Registry District of the Land Court. It will not be possible to record your deed to the buyer or to complete the transaction without this Certificate of Title. If you cannot locate the Certificate of Title, you should notify your attorney as soon as possible.

Outstanding Mortgages on your Property

If you have executed a mortgage on the property to an individual (as opposed to a bank or other lending institution), you or your attorney must obtain the discharge of the mortgage, with written verification of the amount due to pay off the mortgage, from your lender, and bring it to the closing. Your attorney will have to notify the other attorneys prior to the closing of the amount due to pay off the mortgage.

If you have given a mortgage on the property to a bank or other lending institution, the attorney conducting the closing will contact the lender to obtain the payoff information and will disburse the necessary amount to obtain the mortgage discharge after the closing. They will most likely need to know your mortgage loan account number to obtain your payoff. You should provide this information to your attorney as soon as possible.

If you have an outstanding mortgage securing payment of a revolving credit line loan agreement and you have not used your entire line of credit, you will have to arrange for a termination or freezing of the credit line account, so that the closing attorney can obtain a reliable figure to pay off the revolving loan. If you cannot arrange to terminate the revolving credit line loan, the buyer's lender may require adequate security to obtain the discharge of the mortgage securing the revolving credit line. In most cases, this means that the closing attorney will have to hold back from the proceeds of your sale an amount equal to the maximum credit line on the revolving credit line until the credit line has been paid off.

If your outstanding mortgage secures an FHA loan, you may be subject to a charge of extra interest if you do not notify your mortgage lender of your intent to pay off the loan 30 days prior to the date the loan will be paid off in connection with the sale. You may also be required to pay additional FHA insurance premiums. It is best to inquire about such insurance premium charges when notifying your FHA mortgage lender about your intent to pay off your loan.

Property Owned by a Corporation

If title to the property is in the name of a corporation, and if this property represents all or substantially all of the corporation's assets, you will need a corporate tax lien waiver from the Massachusetts Department of Revenue. It is preferable to have the deed signed by both the corporation's president and treasurer. Otherwise, a clerk's certificate of a vote authorizing the sale, in recordable form, will also be needed.

Property Owned by a Trust

If title is held by a trust, you must provide a copy of the recorded trust prior to closing.

Condominium Unit

If the property you are selling is a condominium unit, you will need to provide the following additional items:

New Construction or Substantial Renovation

If the property is new construction or if you have performed substantial renovations requiring municipal building department approval and permit(s), you will have to obtain a certificate of occupancy issued by the building department of the city or town where the property is located.

Inability to Attend Closing

If you cannot attend the closing, many mortgage lenders will require you to execute a formal power of attorney in order to authorize your attorney or other agent to sign the settlement statements and other documents required of you as seller at a real estate closing. If there is any question that you or any of your co-owners may not be able to personally attend the closing, you should let your attorney know as soon as possible, so that he or she can find out whether written authorization will be necessary for someone to sign documents at closing on your behalf.

Also, if you cannot attend the closing, your attorney will need your Social Security number to provide to the closing attorney, because the closing attorney must report the sales proceeds to the IRS.

Income Taxes

The sale of your property may require you to file a Declaration of Estimated Taxes with the IRS and/or with the Massachusetts Department of Revenue. If you normally file such a Declaration, you may be required to file an Amended Declaration to take account of the income from this sale. There are penalties for failure to file.

Under current Federal tax law, the sale of your home will probably not result in a capital gains tax liability. For all home sales after 7 May 1997, the first $500,000 for married couples, and the first $250,000 for singles, in gain from the sale of a principal residence is exempt from the capital gains tax. But you can only use this exemption once every two years.

You should check with your tax adviser regarding the tax consequences of the transaction.

This information sheet is not a substitute for individual legal advice.It is based on the law in Massachusetts and may not be correct in any other jurisdiction. Copyright 1997-2009 A. Joseph Ross

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