Real Estate Alphabet Soup: K is for Knowledge

Miles & Stockbridge P.C.

In my last post, “Real Estate Alphabet Soup: J is for Just Compensation” I continued my primer on the “alphabet soup” of real estate. This post continues to stir the “alphabet soup” with the letter “K.”

K is for “knowledge.” In the realm of real estate, just as they say in life, “knowledge is power.” “Knowledge” from a real estate perspective, and particularly for a potential purchaser, is essential to ensuring that the purchaser knows exactly what they are buying in the transaction. Purchasers need to be careful to include rights within the contract to require the seller to provide certain information, and to allow purchaser the right and opportunity to obtain “knowledge” through their own research and due diligence, in order to obtain the information necessary for the purchaser to make an informed decision as to whether they want to purchase the property.

In a residential real estate contract, the purchaser can require various addenda to the contract that allow for, or require, certain inspections to be performed. Those inspections may include, for example, a home inspection, termite inspection, radon inspection, and a well and septic inspection.

Purchaser should have a real estate title search performed to confirm that they are acquiring good and marketable title, free and clear of any liens and, if a lender is involved, the lender will require good and insurable title. The purchaser may also want to have a survey done of the property, or a lender may require that a survey be performed. A boundary survey will reveal any encroachments and the location of easements and other encumbrances.

In commercial real estate transactions, “knowledge” is critical for the purchaser. Commercial real estate contracts generally contain a feasibility study period, during which time the contract purchaser performs its due diligence by way of inspections and studies. Commercial contracts generally require the seller to provide the contract purchaser with certain reports and studies in seller’s possession. In addition, commercial contracts authorize the contract purchaser and its agents, representative and contractors, access to the property to perform certain surveys, tests, inspections, and investigations, such as economic, environmental, zoning and land use, survey, title, and other research, studies and inspections of the property. It is through research, inspections and due diligence that the purchaser will be able to make a determination as to whether the real estate, and any improvements constructed on the property, are in good condition, and that the property is properly zoned for and is feasible for the purchaser’s intended use of the property.

In real estate transactions, as in any transaction, without having the requisite “knowledge” of what you are buying, it is “caveat emptor” or buyer beware! The purchase of real estate is typically the most expensive purchase, or one of the most expensive purchases a person will ever make in his or her life. So a savvy, intelligent, knowledgeable purchaser will do his or her research before closing the deal.

In my next post, I will move on to the letter “L”, the next letter in this real estate “alphabet soup.”

Opinions and conclusions in this post are solely those of the author unless otherwise indicated. The information contained in this blog is general in nature and is not offered and cannot be considered as legal advice for any particular situation. Any federal tax advice provided in this communication is not intended or written by the author to be used, and cannot be used by the recipient, for the purpose of avoiding penalties which may be imposed on the recipient by the IRS. Please contact the author if you would like to receive written advice in a format which complies with IRS rules and may be relied upon to avoid penalties.

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DISCLAIMER: Because of the generality of this update, the information provided herein may not be applicable in all situations and should not be acted upon without specific legal advice based on particular situations.

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