Blog :: 10-2020

Why Title is So Important

Whether you are buying or selling, clear title is essential to the purchase or sale of real estate. “Dirty” or “bad” title can be fatal to a deal. Unlike the deed (a legal, physical document recorded in the Registry of Deeds), the title isn’t a piece of paper, but a concept that gives you ownership of the property. Without clear title, you generally cannot purchase, mortgage or sell it in the near future. Some common examples of title defects are improper title transfers, previously unknown heirs, state or local tax liens, estate complications, contractor/mechanic liens, boundary encroachments and liens from creditors, lenders and the IRS.

The GBREB's (Greater Boston Real Estate Board's) standard purchase and sale agreement form provides for what happens in a transaction if defective title is discovered. Clause 10 states the seller has 30 days to use reasonable efforts to clear the title. If the seller cannot deliver clear and marketable title within the 30 day period, the buyer may elect to withdraw from the contract without penalty.  

Sellers benefit by searching the title prior to listing their property for sale to ensure there are no title defects or other title issues. Buyers protect themselves by having their attorney search the title as soon as the purchase and sale agreement is signed, and by purchasing title insurance.

One of the key services that real estate attorneys provide is verifying that the title is good and marketable, thereby providing peace of mind to both buyer and seller. And the bank.

DISCLAIMER: This is provided for informational purposes only and is not offered as legal advice. Please consult an attorney to discuss your specific questions regarding title and other legal matters.

 

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Roadmap to Buying a Home in and around Boston

While the year 2020 has presented some major challenges for many people, there have been some upsides as well. For instance, interest rates have set record lows a few times this year, creating a rare opportunity, especially for first time home buyers. So what does the buying process look like in the Boston area?

Once you have spoken with your real estate agent and identified neighborhoods and types of properties you are interested in, and established a price range through your lender, here is a general overview*:

1. Start viewing homes.  Visiting open houses and viewing properties by appointment with your agent are both great ways to see available options. Our website is a great place to search homes available for sale in the Boston area.

2. Make an offer.  Once you’ve found a property you are interested in, make an offer. This is one of the most important steps in the process. Your real estate agent will provide you with a market analysis to help determine a price to offer, guide you through the various aspects such as timing and contingencies, and help position the offer as strongly as possible. Generally, a $1,000 deposit is due with the offer and the seller is usually given a 24 hour deadline to respond.

3. Home inspection.  When the offer is accepted, a home inspection is typically the next step, and usually takes place within 7-10 days of an accepted offer.

4. Review condominium documents (if applicable) and other items.  This is also the time when you generally review the condominium documents (if you are purchasing a condo). Your attorney should review them as well. The master deed, declaration of trust, rules and regulations, condo budget and recent condo meeting minutes can all provide important context on the building – for instance, is the association budgeting for capital improvements, are there any restrictions on renting out the condominium, are there are pet restrictions, etc. This usually takes place within 7-14 days of an accepted offer.

5. Sign the Purchase and Sale Agreement (P&S).  The P&S sets out, in greater detail than the offer, the terms of the purchase/sale. With the P&S, the deposit also increases – typically, the deposit is increased from the $1,000 deposit made with the offer to 5% of the purchase price (though this can vary greatly). Generally, the P&S is signed within around 14 days of the accepted offer. 

6. Obtain your mortgage commitment letter.  Throughout the process, you will be working with your lender to provide them the information that they need to approve the loan. The lender’s approval is given to you in a “commitment letter”, which they typically issue to you within 30-45 day of the accepted offer. Note that this timeframe varies depending on current processing times, so check with your lender. Commitment letters also typically contain conditions, so they are not a “guarantee” of financing – this is also something you should discuss with your lender. Here is a list of some common mistakes to avoid while your mortgage is in process.   

7. The final walk-through.  Usually done the day before or the morning of the closing, the final walk-through is a short visit to the property (usually 10-15 minutes) to ensure it is in the condition that was expected (e.g. any repairs that were required to be made have been done, furniture has been moved out, appliances are all still in place, etc.).

8. CLOSING!  This is when you sign A LOT of documents. But once the deed is recorded, the home is officially yours! 
 

* Please note that while this is a general outline, there is no one-size-fits-all. The steps, deposit amounts and timeframe will all vary case-by-case. Closings may happen quicker, for instance if you are paying with cash, or slower. For guidance on your particular transaction, have a discussion with your real estate professional. 

 

 

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Cap Rates for Boston Commercial Property

We are frequently asked: “what’s happening with the market?” and “where are cap rates going?”  We’re still in the midst of the pandemic and we expect to continue seeing the effects for several months/quarters, so it is difficult to predict.  However, we wanted to provide an update with the latest data.

A quick overview for those that are unfamiliar, the cap rate - short for capitalization rate - is a quick and easy way of gauging investment opportunities.  Essentially, it is calculated by dividing the annual net operating income by the purchase price.  (It is a little more complicated than that, so please reach out to us if you would like to have a better understanding.)

The lower the cap rate, the more investors value the asset – a lower cap rate means that investors are willing to pay a higher price/accept a lower rate of return to own it.


Source: Based on data compiled from CoStar on 9/29/2020

 

In Boston, investors’ order of preference is projected to remain the same as it has for the past several years: Multifamily, Office, Retail then Industrial.  As the chart illustrates, cap rates for multifamily properties have been substantially lower than the other property types – Boston multifamilies remain highly sought-after by local, national and international investors.

Due to the pandemic, many are predicting cap rates to increase over the next few quarters for all property types, followed by a return to pre-pandemic levels.  The projections depicted in the chart are always subject to change – they are provided by CoStar, one of the main commercial real estate databases.  

Based on what we are seeing/hearing though, it is surprising that the retail and office markets are projected to follow similar paths.  Retail vacancies seem to be spiking more quickly and severely than office vacancies, as we seem to see another business close each day.  On the office side though, even if a company is in “work from home” mode and not in the office, they are likely still paying their rent – accordingly, the vacancy rate for office space is likely to increase more slowly, as companies’ office leases expire and they choose not to renew or to decrease the size of their space.

The projected path of industrial property is also surprising.  While things have been shut down, there has been a substantial increase in online/website ordering.  If sales are not happening in retail stores, grocery stores, shopping malls, etc., then there will likely be an increased demand for industrial space so that businesses can store inventory and fulfill orders.  Accordingly, cap rates for industrial space may not see the sharp increase that is projected - industrial space is seeing greater demand and its an asset that investors are becoming increasingly interested in.

For investors looking for opportunities to capitalize on current market conditions, it is prime time to set up a search plan.  Over the next several months, there are likely to tremendous deals – the key is to have an organized search in place so that you hear about the opportunities as soon as they become available.  

For owners that want/need to sell, it would be best to bring your property to market as soon as possible, since many are projecting that cap rates will continue rising for several quarters (meaning lower sale prices).  We have closed deals in the midst of the pandemic and are happy to offer a free consultation to discuss a proposed marketing strategy.