Buying a Home

You Need to Protect Your Interests

Nothing is simple about buying a home. The buyer not only has to arrange financing, but he also must conduct the extensive due diligence checks necessary to make sure that dream house doesn't become a nightmare later on.

The good news is that there are professionals, including real estate attorneys, who can help you protect yourself when buying a home in California. And, there are also steps you can take on your own to make your home-buying experience the best it can be.

Transfer Disclosure Statement

One of the most important protections you have when Buying A Home in California can be found in state Civil Code§ 1102. The law establishes what is called a real estate Transfer Disclosure Statement requiring sellers to inform potential buyers of any defects or problematic past history with a home.

The disclosure form covers any features that are to be included in the sale - from the kitchen stove to burglar bars on the windows to a hot tub - as well as known problems with walls, ceilings, plumbing, electrical systems and several other specifics.

And it's not just problems with the physical characteristics that a seller must disclose. A California court ruled in Reed v. King that failure to tell a buyer about a multiple murder that had occurred in the home also was grounds to void a sale.

Still, it is never a good idea to rely solely on the seller, or to wait until the disclosure statement to learn about defects when buying a home.

Performing due diligence

Before you proceed with a purchase, hire a property appraiser to give you an idea of the fair market value of the home, and a home inspector to determine any structural or utility problems with the home. The appraisal will help you recognize an overpriced house or a great deal, and the inspection will identify any potential problems that need to be addressed before making the purchase.

You should have a licensed real estate agent - making a commission of 3-4 percent on the purchase price - guiding you through your selection. The agent should be able to recommend reliable professionals, and it should cost less than $500 each to hire an appraiser and an inspector. Remember, they could end up saving you money in the long run when buying a home.

And don't stop with the due diligence examination of the house itself. You also need to check out other factors, including crime statistics for the neighborhood, future nearby development plans, potential noise sources, and any zoning limitations on the property. This usually can be accomplished with just a couple of visits to the police or sheriff's department, and the city or county planning and zoning department.

If you identify any problems that need to be fixed before buying a home, make sure those are included as contingencies in the purchase agreement. A real estate attorney can help draft the agreement, with contingencies included, to protect your interests all the way through the deal.

The seller may choose to include a home warranty as part of the sale. A typical warranty costs about $500 and is good for a year. It covers repairs to the electrical system, plumbing, heating and appliances. About 90 percent of home sales include a warranty and save homebuyers about $100 million a year, according to the Home Warranty Association of California.

You also will need to conduct a title search when buying a home in California. A title search ensures that there are no problems with the ownership of the property - such as disputed property lines, unpaid taxes or liens against the property - so that the ownership can transfer smoothly to you. This is often a condition of mortgage approval and can be handled by a title company.

Escrow and closing

Buyers typically have to put down a deposit, sometimes called "earnest money," to begin the purchase. It might be a good idea to open escrow to hold that money if there are contingencies that need to be addressed before finalizing the purchase.

Escrow funds are held by a third party and pay out only when both sides have reached complete agreement on the deal. If you choose to use escrow when buying a home, you will direct your home loan for the full purchase price to the escrow company, instead of directly to the seller, and the escrow company will release the funds at or near closing.

However, make sure that all the contingencies in the purchase agreement have been met before removing them from the agreement and releasing escrow. If you have any questions or disputes about whether the seller has satisfied his obligations, consult a real estate attorney. Remember, once you remove the contingencies, the seller is no longer under any obligation to make changes.

Once that is done, the money has been paid, and the seller has signed the deed, you will need to take it to the county recorder's office to have the transfer of property made official. The sale will become public record, and you will have finished buying a home in California, properly protecting your interests along the way.