Let’s examine the possibilities, then take them one at a time:
- Title Company
- Mortgage Company/Bank
Let me say at the outset that all of these interested parties have one thing in common: If there is no closing, they do not get paid. Therefore their primary interest will typically be to see that a closing happens as easily and as quickly as possible. This causes an automatic conflict of interest with the buyer of real estate. Buying real estate is a huge investment that should entail the utmost care and performance of due diligence on the part of the buyer. Rushing the process may lead to mistakes. The buyer owes it to himself to obtain as much information as possible prior to closing. If something is missed, it is the buyer who will be harmed and the only one left holding the bag after everyone else has moved on down the road. I cannot stress this enough. I have seen example after example. If problems are uncovered prior to closing by a surveyor or home inspector for instance, the buyer still has negotiating leverage. If problems remain hidden until after closing the buyer has relinquished any leverage he or she may have had.
Real estate agents are subject to something called the ‘laws of agency.” The prevailing practice, at the time a buyer and seller come together, is for the real estate agent to become a ‘dual agent‘ representing both buyer and seller. The agent is then bound to remain neutral. Exceptions occur if the real estate agent is a close friend or has some special relationship with one party. In such a case the agent may only represent the party with whom they have the preexisting relationship. Another exception occurs if a buyer has retained a real estate agent specifically as a ‘buyer’s agent.’ Having a buyer’s agent is obviously the best case scenario for the purchaser. Many people are completely unaware of the laws of agency and choose to ‘coast’ through the process. As with any profession, some agents are better than others. It is important to choose an agent whom you trust. A responsible buyer’s agent will recommend getting a land survey, home inspection, environmental assessment, or other acts of due diligence. It is still worth remembering that, if there is no closing, neither buying nor listing agent gets paid. This fact may tend to influence partiality. Ultimately you must rely on the personal integrity of the agent. Choose wisely.
Unfortunately I have experienced countless incidents where a homeowner was upset about the actual location of property boundaries (found by survey after closing, sometimes years later) because the “Realtor told them” that the boundaries were elsewhere. This happens so often that it is a running joke among surveyors. Bluntly, if a real estate agent starts explaining to you the property boundary locations without benefit of a professional surveyor, find another agent.
2. Title Company
The title company does the deed research or ‘abstract of title’ necessary to warrant ‘good and clear title’ and to enable the title insurance company to insure against defects in the title. Remember that there are lender’s policies and buyer’s policies. You may want to consult with a title attorney to see if it is in your best interests to obtain a buyer’s policy. Otherwise it is likely that only a lender’s policy will be written.
Note that any defects found in the title are written as ‘exceptions’ to the policy. This means that those items that are defective are specifically excluded from the policy, unless they are cleared up. Also note that title insurance will not protect the buyer against adverse claims that could have been discovered as the result of a land survey. This is called the ‘survey exception.’ You are dealing with the collective knowledge of thousands of attorneys with years of experience. They are very good at protecting themselves through the use of disclaimers. The liability for these exceptions passes to THE BUYER.
I like this line: “Title insurance companies don’t assume risk; rather, they are in the risk elimination business…”
Years ago surveys were required as a part of every real estate transaction. This is no longer the case. The closing process is now ‘streamlined’ to make it easier and faster for banks and mortgage companies to maximize profits. Surveys tend to uncover problems. Problems cause delays and perhaps even kill the closing. It is far more convenient (for them) to kill the survey requirement instead.
3. Mortgage Company/Bank
See number two above. The bank or mortgage company are in the business of getting you on the hook for a long term loan. Your best interests are not the primary objective. They protect themselves by getting title insurance and using disclaimers. They too are attorney-rich.
There is not a lot to say here. Buyers instinctively know that they are in an adversarial relationship with the seller in any transaction. The seller wants to maximize his profits and the buyer wants to minimize them. This is a fact of life in the most amicable transactions.
A brief word about property lines is in order. Sellers many times advise buyers about the extents of the property they are selling. The seller is often wrong. A wise buyer will not rely on the word of the seller regarding the property boundaries. It is not that they are intentionally deceptive, rather they may be incorrectly convinced in their own minds about the boundary locations. Don’t let the seller’s incorrect assumptions become your loss.
Even the best builders make mistakes. We recently encountered a situation where a very good contractor built a wood fence with nice brick columns spaced every ten feet or so around the back yard. He make a faulty judgment about the boundaries and built part of the fence four feet over the line. We discovered it when a buyer ordered a survey after the house was completed.
The nature of the fence meant that moving even a portion of it was quite expensive. Several brick columns had to be destroyed and rebuilt. I recall the cost was about $5,000. The buyer was able to force the seller to correct the problem. Had the buyer not spent a few hundred dollars on a survey, he would have been stuck with a $5,000 liability.
It is up to the informed buyer to protect his or her own interests. Getting a survey should be considered essential due diligence. Don’t be blindsided by these problems. In most cases, if you are short on cash, the cost of the survey can be financed into the loan.
Don’t just take my word, here are some related third-party articles:
Property Survey: Why All Buyers Should Have One
Financial Adviser Dave Ramsey says get a survey
As always, this writing expresses my opinion and does not constitute legal advice. Those seeking legal advise need to get an attorney.