Real Estate in Tennessee

Prepared as a public service by the Community Relations Committee of the Nashville Bar Association
This pamphlet made possible by a generous grant from the Kroger Company

BUYING AND SELLING REAL ESTATE

Buying a home may be one of the most important events in your life. There are many people who can help you, including real estate brokers, mortgage loan officers and attorneys, and you should be prepared to work with them all. Understanding how things work will help you know where to look for help.

THE CONTRACT

An agreement to purchase or sell real estate must be in writing. A contract is the written document which is the evidence of what the buyer and seller have agreed to do.

While most local real estate boards have a standard contract form, real estate brokers often have their own form. Small differences in the way something is written may make a big difference in who pays, for example, for closing costs or repairs.

A well-drafted contract for sale/purchase will include the following details:

  • the price
  • how the price will be paid (cash, assume a loan, new financing)
  • a statement that if you do not qualify for your loan, you do not have to buy the property
  • earnest money
  • a description of the property
  • closing date
  • that the seller will transfer ownership by warranty deed
  • whether title insurance will be provided and who pays for it
  • what will happen if problems are found when the title is searched
  • the date buyer will get possession of the property
  • termite inspection
  • warranties regarding the condition of the property or a statement that the property is sold "as is"
  • whether the buyer has a right to inspect the property and what will happen in the inspector finds a condition which the buyer will not accept
  • seller’s responsibility to make repairs
  • who will pay what closing costs
  • what happens if either party fails to perform: default provision
  • whether there are commissions to be paid

Buyers and sellers do not always have attorneys represent them during the time that the contract is being written, but it is a good idea to have an attorney look at the contract before you sign it. Once the contract is signed by both parties, it is final. You can have your attorney look at the contract after it is signed and still get out of the contract if you write in the contract that it is not final until your attorney has had a chance to review it.

REAL ESTATE BROKER

If you are buying a home, a real estate broker can save you a great deal of time in finding a home you can afford in the area you like. If you are selling a home, a broker can give you good information about what price to ask for the property and will advertise the property for sale.

The broker who offers the property for sale is called the listing broker and the broker who writes the contract for the buyer to present to the listing broker is called the selling broker. The listing broker represents the seller. An agent from the same company as the listing broker also represents the seller.

The selling broker may represent the buyer or the seller. The selling broker, who is helping you shop for a home, must tell you whether he or she represents you or is the seller’s agent.

MORTGAGES

Most of us cannot pay for a house in cash and need a bank loan to purchase the property. FHA and VA loans are loans which allow you to borrow the greatest portion of the price (FHA: up to 95%, VA: up to 100%). Only people who are now in the military or who are military veterans are eligible for a VA loan. FHA and VA loans can sometimes be assumed.

If you are selling your home to someone who is getting an FHA or VA loan, you must be prepared to pay some closing costs which would usually be paid by the buyer.

Conventional loans are also available. The bank will require that you pay at least five percent (5%), but more often ten (10%), of the price from your own money. If you pay less than twenty (20%) down, you will be required to pay for mortgage insurance. Mortgage insurance is for the benefit of the bank and will pay the loan if you do not repay it.

Many buyers "pre-qualify" with a bank so that they know what price house they can afford.

CLOSING COSTS

When you apply for a loan, you will receive a Good Faith Estimate of Settlement costs. The Good Faith Estimate shows what kind of closing costs to expect. Some costs of closing are:

  • points. A point is one percent of the loan amount and is either prepaid interest (discount) or a fee to the lender (origination)
  • appraisal fee
  • credit report fee
  • underwriting, tax service and express mail charges to the lender
  • mortgage loan inspection (a type of survey required by the bank)
  • attorney’s fees
  • attorney’s and/or lender’s document preparation fee
  • title insurance
  • recording costs

Some of the costs listed above only apply if you are getting a loan. If you pay cash for property, you will not pay points, appraisal, credit report, mortgage loan inspection and other lender costs.

The contract should state whether the buyer or the seller pays certain costs. If the contract does not state who pays, the costs may be charged according to custom in the area. The seller usually pays the attorney’s fees to close the sale and the cost of preparing the deed. The buyer pays the cost of recording the deed.

THE CLOSING

There are two types of closing: the closing of the loan and the closing of the sale. The same attorney or two different attorneys may conduct.

During the loan closing, the borrower/buyer executes documents needed to borrow the money to purchase the property. The most important of those documents are the settlement statement, the note and the deed of trust. The settlement statement shows the loan charges discussed above, the price for the property and any adjustments between the buyer and seller. The note is the borrower’s promise to repay the loan. The deed of trust is the mortgage document. The buyer/borrower transfers ownership to a trustee who holds legal title to the property as security for repayment of the loan. The deed of trust is recorded at the courthouse after the deed. If the borrower does not repay the loan, the trustee can sell the property to repay the mortgage debt.

During the sale closing, ownership of the property is transferred from the seller to the buyer. The deed is the legal document which is used for that purpose. Usually a warranty deed is used. A warranty deed states that title to the property is clear, the seller has the power to transfer ownership and that title to the quit claim deed is just a transfer of the seller’s ownership and provides no warranty of title.

THE ROLE OF THE ATTORNEY

It is recommended that your closings take place in an attorney’s office and are handled by an attorney. It is hard to tell when you might have a question at closing that only an attorney can answer. An attorney will make sure that the closing is conducted according to the terms of the contract and can answer questions about the documents being used at closing.

At a loan closing, the closing attorney’s primary obligation is to close the transaction in accordance with the lender’s instructions. If there is only a sale closing, the closing attorney usually represents the seller. If there is a dispute between the parties at closing, the closing attorney should recommend that each of them get an attorney.

For assistance in finding a lawyer for a real estate transaction or any other legal matter, you may want to contact the Nashville Bar Association Lawyer Referral Service.