A survey is one of the primary tools for conducting due diligence in a residential real estate transaction. Surveys are crucial in locating and marking the true boundaries of a given property, along with encroachments, easements, title defects, and the location of improvements relative to the property boundaries. However, in the absence of an express agreement, a seller is under no obligation to furnish a survey. As a result, buyers may want to forego a survey to reduce closing costs, but this can lead to even greater expenses, and headaches, down the road. Before closing a residential real estate transaction, a buyer should strongly consider obtaining a survey.
The primary reason to obtain a survey prior to closing on residential real estate is to confirm that the closing documents describe the correct property. It is possible that the closing documents, while technically correct, fail to accurately describe the property the buyer is attempting to acquire. Having the property surveyed and depicted on a survey map should uncover any discrepancies between the property described in the closing documents and the property the buyer intends to purchase.
A survey is also crucial in identifying third-party interests in the property. Unrecorded interests, such as prescriptive easements, and encroachments are more likely to be revealed with a survey. It is also important to have a visual understanding of how recorded third-party interests affect the property. Even where these interests are described in the property’s legal description, it can be difficult to understand how they affect the buyer’s use of the property without knowing where these interests are located relative to the property boundaries and existing improvements. For instance, a survey will help a buyer discern whether an access or utility easement is likely to restrict the buyer’s ability to construct improvements or otherwise use the property.
A survey also allows a buyer to eliminate the categorical exception to title insurance. The categorical exception excepts from the title policy any matter that an accurate survey and inspection of the property would disclose. A buyer can eliminate this exception by furnishing a survey to the title company. The categorical exception will then be replaced by specific exceptions for any encroachments, boundary issues, or other problematic matters that are shown on the survey. A few specific exceptions for known issues are better than a categorical exception for anything that might later be revealed by a survey. Moreover, by eliminating the categorical exception, the title company will agree to insure over problems that the surveyor should have, but failed, to identify on the survey. If the surveyor misses something important and the buyer suffers damages, the buyer can seek redress from the title company rather than the surveyor, which is generally preferable.
If the property was previously surveyed, a buyer must decide whether to rely on the prior survey or obtain a new survey. When making this decision, the buyer should consider the following: a new survey may disclose unrecorded interests or encroachments that formed after the prior survey was obtained, the physical evidence of a property boundary may change over time, and modern surveyors can measure directions and distances far more accurately than surveyors could in the past. Before relying on a prior survey, the buyer should also find out the requirements of the title company and lender involved in the transaction.
After deciding to obtain a survey, a buyer must then decide which type of survey to order. There are various types of surveys that serve different purposes, but a buyer of residential property will likely want a boundary survey. A buyer must also decide whether an American Land Title Association (ALTA) survey is required. An ALTA survey is a uniform boundary survey that meets specific standards set by national trade associations. In contrast, non-ALTA surveys vary depending on state and local regulations and customs. ALTA surveys, while more expensive, are generally preferred. However, as title companies and lenders tend to dictate which type of survey is required, the buyer should find out the requirements of the title company and lender before deciding which type of survey to order.
While a buyer may be tempted to forego a survey to reduce closing costs, this decision should not be made without understanding the risks involved. A survey can uncover errors in the property’s legal description, identify third-party interests, and eliminate the categorical exception to title insurance. The purchase of residential real estate is a big investment, and a survey is one of the best tools a buyer can use to examine this investment prior to closing.
Joseph Heck is an attorney at Fryberger Law Firm. He can be reached at Fryberger’s Duluth office at (218) 722-0861.
The material in this article is for informational purposes only and not for the purpose of providing legal advice. You should contact your attorney to obtain advice with respect to any particular issue or problem.
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