STEPS IN THE SALE OF REAL ESTATE
The following is a list of the typical steps in the sale of a parcel of real estate. These steps are primarily related to the sale of residential real property, but also apply to the sale of commercial property. Often however, in a commercial sale, there will be additional steps in the way of due diligence including environmental studies, surveys and other similar steps which I have condensed at this point to keep the list as simple as possible.
TYPICAL STEPS IN THE SALE OF REAL PROPERTY
1. HIRE A REAL ESTATE BROKER/AGENT. The Seller will sign a listing agreement with the agent. This will give the agent the legal authority to market the property and will set forth the commission that will be paid to the agent upon the sale of the property. Typical listing agreements range from 3 months to a year with 6 months being very common. Real estate commissions range from 1% to 10% with a typical range of between 5% and 6% being common for a residential property sale in Oregon. The Seller should discuss the percentage commission with the real estate agent. Some agents have a range of commissions depending on how much marketing the agent will do.
2. PROPERTY IS LISTED FOR SALE IN MULTIPLE LISTING SERVICE (MLS). If an agent is hired, the agent will typically list the property with the MLS which is a data base of real estate for sale in a particular area.
3. SALE CONTRACT. Once a Buyer has been found a contract for the sale of the property will be drafted. This is usually called an Earnest Money Agreement. The Earnest Money Agreement will provide for the basic details of the sale including the deposit of “earnest money”. Earnest money is a small deposit of money put down by the Buyer to show that the Buyer is earnest in purchasing the property. This is usually between ½ to 1% of the sale price but is negotiable. The Earnest Money Agreement will also provide a period of time between the date of signing and closing to allow the Buyer to perform due diligence and inspections and to make arrangements for financing as described below.
4. DUE DILIGENCE. After the Earnest Money Agreement has been signed there is typically a period of between 30 and 60 days to allow for the Buyer to have inspections performed upon the property. These inspections may include the following:
a. Pest and Dry Rot (P&D)
b. Whole Home Inspection
c. HVAC (Heating, Ventilation, Air Conditioning Inspection)
d. Septic System Inspection and Pump Out
e. Survey of Boundary Lines
f. Environmental Tests (usually for commercial property only)
g. Well Test for Water Quality and Flow
h. Permit Verification if New Construction or Remodel
i. Preliminary Title Search
j. Disclosure Forms. Mandated by Oregon law
h. Lead Paint Disclosure Forms. Mandated by Federal and Oregon law for houses built before 1978.
The inspections set forth above are not a complete list, nor are they performed in every case. The type of inspections that will be performed will vary depending upon the type of property being sold. Costs for the inspection are usually paid by the Buyer but sometimes a Seller will agree to reimburse or pay for some of the costs or have the tests performed themself and provide the results to the Buyer. As used above, the term Whole Home Inspection means inspection by a licensed inspector to look at the total condition of the building, including the roof, electrical, foundation, HVAC, and other major components of the structure. Usually is an inspection reveals some condition or repairs that are needed Buyer and Seller will negotiate the price for having the repairs made prior to closing. Sometimes in an Earnest Money Agreement a dollar limit is placed where if the repairs are less than a certain dollar amount (i.e., $1,000.00) then the Seller will have the repairs made before closing at the Seller’s cost. These issues are negotiable but should be set forth in detail in the Earnest Money Agreement to avoid later disputes. The Earnest Money Agreement should also detail who will be paying for the inspections and how long the Buyer will have to complete the inspection.
5. ESCROW. During the due diligence period described above, the Title Company that is specified in the Earnest Money Agreement will perform a preliminary title search to review the status of the title and look for any liens, encumbrances, mortgages, trust deeds, easements, restrictions, covenants, assessments, or other similar issues involving title or clouds upon the title. The Title Company will issue what is known as a “Preliminary Title Report” which will be distributed to the Seller and Buyer for review. The Buyer will typically have a set number of days to review the title report an to object to any condition of the title. The Seller would then be required to fix any title problems that show up on the title report or the Buyer may cancel the transaction. It is very important to review the title report in detail and to request copies of any of the documents which are referred to in the title report. This is particularly true for easements, liens and other similar title exceptions which may appear.
6. CLOSING. Once the due diligence period has expired and no conditions have occurred which would allow cancellation of the transaction by the Buyer, the parties will proceed to closing. In Oregon this is usually accomplished through a Title Company that performs escrow services. See the links to Title Companies below for more information from the specific Title Companies. At escrow the Title Company closing officer will prepare a Buyer’s Settlement Statement and a Seller’s Settlement Statement for review. This will include a detailed breakdown of costs and the amount of money that the Buyer will need to bring to closing. The Title Company will generally prepare a Deed signed by the Seller and held by the Title Company until the payment of the sale price has been deposited with the Title Company. Usually the funds come from down payment by the Buyer and loan proceeds once a loan has funded. Once the Title Company has received funds and has the signed Deed the Title Company will release the funds to the Seller and record the Deed with the County, along with any loan documents. At this point the transaction is completed and the Title Company will provided a copy of the recorded documents to the parties once they have been received back from the County.