Things every Austin real estate buyer should know
We’ve recently started providing an additional form to all of our buyers. It’s a notice provided by the Texas Association of Realtors called “GENERAL INFORMATION AND NOTICE TO A BUYER“. Though I like to keep paperwork simple and minimal, this form is helpful in bringing to the attention of buyers some of the things that may need further explanation or discussion.
Like anything in life, those of us who do something evey day can sometimes forget or become disconnected from nuances that others may not know about. We assume everyone knows about insurance, inspections, property taxes, etc., but that’s not necessarily the case with many buyers. Providing a buyer with this information brings these important items to their attention so they can ask questions and seek further information if needed.
Here is the content of the TAR Form 1506 (7/15/05)
Be an informed buyer. Make sure that the property you want to purchase meets your needs. The following information may assist you during your purchase.
ANNEXATION. If the property you buy is outside the limits of a municipality, you should be aware that the property may later be annexed by a nearby municipality. You may find information on the boundaries of nearby municipalities by contacting the municipalities directly.
APPRAISAL. An appraisal is a valuation of the property. An appraiser renders an estimate of value as of a certain date under assumptions and conditions stated in the appraisal report. Typically, a buyer’s lender requires an appraisal to verify that the loan is secured by property that is worth a certain amount. An appraisal is not the same as an inspection.
BROKERS. A real estate broker represents a party (buyer or seller) in a real estate transaction or may act as an intermediary between the parties. You may work with the broker or with one of the broker’s agents. You will be provided a form titled “Information About Brokerage Services” (TAR 2501) which defines agency relationships. The agent may help you locate a property and is obligated to negotiate the transaction. The agent may assist you in gathering information and may coordinate many details in the transaction. Brokers and agents are not inspectors. They do not possess the expertise to conduct inspections and therefore do not make any representations, warranties, or guarantees about a property’s condition. Agents are not attorneys. You are encouraged to seek the assistance of an attorney to help you understand any of the legal consequences and provisions of your contract or transaction.
General. Over the years the market has identified environmental conditions that buyers should know may exist. Environmental hazards include, but are not limited to, conditions such as: asbestos, lead-based paint, mold, pesticides, radon gas, toxic waste, underground storage tanks, urea formaldehyde insulation, and other pollutants. Wetlands or endangered species on the property may restrict the use of the property.
Environmental Inspections. If you are concerned that environmental hazards, wetlands, or endangered species may be present on the property you wish to buy, you should hire a qualified expert to inspect the property for such items. You may include a promulgated addendum (TAR 1917) in your contract that may address such matters.
Lead-Based Paint. If you buy a property that was built before 1978, federal law requires that you be provided with: (1) the pamphlet titled “Protect Your Family from Lead in Your Home” (TAR 2511); (2) the records and reports the seller has concerning lead-based paint or hazards; and (3) an opportunity to have the property inspected for lead-based paint or hazards.
Mold. It is not uncommon to find mold spores in a property. The concern about mold increases when there are large amounts of mold found in a property. The Texas Department of Insurance publishes a document titled “Protect Your Home from Mold” (TAR 2507) which discusses mold in more detail.
Oak Wilt and Diseased Trees. There are diseases such as oak wilt and other conditions that may affect trees and other plants. Oak wilt is a fungus that affects certain oak trees. If you are concerned about such matters, have the trees and other plants inspected by a professional of your choice.
FLOOD HAZARD AREAS AND FLOOD INSURANCE. Many properties are in flood hazard areas. Lenders who make loans on properties located in special flood hazard areas typically require the owner to maintain flood insurance. The Texas Association of REALTORS® publishes a form titled, “Information about Special Flood Hazard Areas” (TAR 1414), which discusses flood hazard areas in more detail. You are encouraged to buy flood insurance regardless of whether the property is in a high, moderate, or low risk flood area.
HISTORIC OR CONSERVATION DISTRICTS. If the property you buy is located in a historic or conservation district, restrictions on the use and architecture of the property may apply. Local governments may create historic or conservation districts for the preservation of certain architectural appeal. A property owner may or may not be aware if the property is located in such a district. If you are concerned whether the property you wish to buy is located in such a district, contact the local government for specific information.
INSPECTION, REPAIRS, & WALK-THROUGH.
Inspections. You are encouraged to have the property you want to buy inspected by a licensed inspector of your choice. You should have the inspection completed during any option period. You should accompany the inspector during the inspection and ask the inspector any questions. Brokers and agents do not posses any special skills, knowledge or expertise concerning inspections or repairs. If you request names of inspectors or repairmen from your agent, you should note that the agent is not making any representation or warranty as to the ability or workmanship of the inspector or repairmen.
Repairs. You and the seller should resolve, in writing, any obligation to complete repairs you may request before the option period expires.
Walk-Through. Before you close the sale, you should walk through the property and verify that any repairs are complete. If the condition of the property does not satisfy the contractual provisions, notify your agent before you close.
MANDATORY OWNERS’ ASSOCIATIONS. The property you buy may require you to be a member in one or more owners’ associations. You may obtain copies of any deed restrictions and owners’ association rules from the county clerk, the title company you use in the transaction, or the owners’ association. If membership in an owners’ association is required, you will probably be obligated to pay periodic dues or assessments. Failure to pay such dues could result in a lien on and foreclosure of the property.
MULTIPLE LISTING SERVICE. The Multiple Listing Service (MLS) is a database and cooperative tool between brokers that lists properties for owners for whom the participating brokers have agreed to negotiate the sale. Agents who use the MLS must comply with the MLS’s rules. The listing agent is required to timely report the current status of a listing, including when the property is sold or leased or is no longer available, as well as the sales price. Subscribers (other brokers, agents, appraisers, other real estate professionals, and the appraisal districts) have access to the information for market evaluation purposes. Much of the information in the MLS, such as square footage, assessed value, taxes, school boundaries, and year built is obtained from different sources such as the county appraisal district, an appraiser, or builder. The broker or agent who provides you with print-outs from the MLS does not verify the accuracy of the information. You should independently verify the information in the MLS and not rely on the information.
PROPERTY INSURANCE. Promptly after entering into a contract to buy a property and before any option period expires, contact your insurance agent to determine the availability and affordability of insurance for the property. There are numerous variables that an insurance company will evaluate when offering insurance at certain coverage levels and at certain prices. Most lenders require that the property be insured in an amount not less than the loan amount. The failure to obtain property insurance at or before closing may delay the transaction or cause it to end. The Texas Association of REALTORS® publishes a document titled, “Information about Property Insurance for a Buyer or Seller” (TAR 2508), which discusses property insurance in more detail.
RESIDENTIAL SERVICE CONTRACTS. A residential service contract is a product under which a residential service company, for an annual fee, agrees to repair or replace certain equipment or items in a property (for example, covered appliances, air conditioning and heating systems, and plumbing systems). Co-payments typically apply to most service calls. If you request names of residential service companies from your agent, you should note that the agent is not making any representation or warranty about the service company.
SCHOOL BOUNDARIES. School boundaries may change and are, at times, difficult to determine. The school boundaries that your agent may provide to you or that may be provided through a Multiple Listing Service are only mapped estimates from other sources. You are encouraged to verify with the school district which schools residents in the property will attend.
SEPTIC TANKS AND ON-SITE SEWER FACILITIES. Many properties have septic tanks or other on-site sewer facilities. There are several types of such systems. Special maintenance requirements may apply to certain systems. Please refer to a document titled, “Information about On-Site Sewer Facility” (TAR 1407) for more information. You should also determine if the county requires any registration or other action in order for you to begin using the septic system or on-site sewer facility.
SEX OFFENDERS AND CRIMINAL ACTIVITY. If you are concerned about sex offenders who may reside in the area in which you are buying, access www.txdps.state.tx.us. Contact the local police department to obtain information about any criminal activity in the area.
SQUARE FOOTAGE. If you base your purchase price on the size of the property’s building and structures, you should have any information you receive about the square footage independently verified. Square footage information comes from other sources such as appraisal districts, appraisers, and builders. Such information is only an estimate. The actual square footage may vary.
STATUTORY TAX DISTRICTS. The property you buy may be located in a utility or other statutorily created district providing water, sewer, drainage, or flood control facilities and services (for example a Municipal Utility District, Water Improvement District, or a Public Improvement District). You are likely to receive a prescribed notice when buying property in such a district.
SURVEY. A survey identifies the location of boundaries, major improvements, fence lines, drives, encroachments, easements, and other items on the property. You should obtain a survey early enough in the transaction to help you identify any encroachments, encumbrances to title, or restrictions. Your contract will typically contain a provision under which you may obtain or be provided with a survey and the right to object to encumbrances to title disclosed in the survey.
SYNTHETIC STUCCO. Synthetic stucco (sometimes known as EIFS) is an exterior siding product that was placed on some properties in the recent past. If the product was not properly installed, it has been known to cause damage to the structure (such as wood rot and moisture). If the property you wish to buy has synthetic stucco, ask your inspector to carefully inspect the siding and ask your inspector any questions you may have.
TAX PRORATIONS. Typically, a buyer and seller agree to prorate a property’s taxes through the closing date. Property taxes are due and payable at the end of each calendar year. The escrow agent will estimate, at closing, the taxes for the current year. If the seller is qualified for tax exemptions (for example, homestead, agricultural, or over-65 exemption), such exemptions may or may not apply after closing. After closing the taxes may increase because the exemptions may no longer apply. When buying new construction, the taxes at closing may be prorated based on the land value only and will later increase when the appraisal district includes the value of the new improvements. The actual taxes due, therefore, at the end of the year and in subsequent years may be different from the estimates used at closing.
TERMINATION OPTION. Most contract forms contain an option clause which provides the buyer with an unrestricted right to terminate the contract. Most buyers choose to buy the termination option. You will be required to pay for the termination option in advance. The option fee is negotiable. Most buyers will conduct many of their reviews, inspections, and other due diligence during the option period. You must strictly comply with the time period under the option. The option period is not suspended or extended if you and the seller negotiate repairs or an amendment. If you want to extend the option period you must negotiate an extension separately, obtain the extension in writing, and pay an additional fee for the extension. Do not rely on any oral extensions.
TIDE WATERS. If the property you buy adjoins any of the state’s tidal waters, you will be given a prescribed notice titled, “Addendum for Coastal Area Notice” (TAR 1915) at the time you sign a contract. Boundaries of properties along such waters may change and building restrictions will apply. If the property is located seaward of the Gulf Intracoastal Canal, you will receive a separate notice (TAR 1916).
TITLE INSURANCE OR ABSTRACT OF TITLE. You should obtain a title insurance policy or have an abstract of title covering the property examined by your attorney. If you obtain a title insurance policy, you should have the commitment of title insurance reviewed by your attorney not later than the time required under your contract.
UTILITIES. You should evaluate what utilities you will require and check to be sure that the utilities available in the area suit your needs. Some structures may or may not have utilities and electrical facilities to support many modern appliances or equipment.
WATER WELLS. If the property you buy has a water well, you should have, and the lender may require, the equipment inspected and water tested. You should also determine if the county requires any registration or other action in order for you to begin using the water well.
Investment Property (added by Crossland Team): Broker makes no promise or guaranty with regard to future appreciation or return on investment properties. If purchasing for investment reasons, you are advised to first consult with your accountant and attorney to determine if the financial risks associated with rental property ownership are appropriate for your particular financial picture and risk tolerance levels.