Neighbor-to-Neighbor Property Sales in Maryland

Legal Considerations for Neighbor-to-Neighbor Property Sales in Maryland

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An opportunity to buy the house next door or sell your property to a neighbor you already know can feel like a stroke of luck. The idea of forgoing the traditional real estate market—avoiding showings, agent commissions, and negotiations with strangers—is certainly appealing. A simple handshake deal over the fence seems like a straightforward path to a mutually beneficial outcome. However, in Maryland, a real estate transaction is a significant legal event governed by specific laws and procedures. Relying on goodwill alone can not only jeopardize the sale but also damage the very neighborly relationship you sought to preserve.

How Do You Determine a Fair Price?

One of the first hurdles in a neighbor-to-neighbor sale is setting a fair purchase price. Without real estate agents providing a comparative market analysis (CMA), how can both parties be confident in the number? A seller wants to receive fair market value, while a buyer wants to be sure they are not overpaying out of convenience or friendship.

  • The Need for an Independent Appraisal: The most effective way to establish an objective and defensible price is to hire a licensed, independent appraiser. An appraiser provides an unbiased valuation of the property based on its condition, size, features, and recent sales of comparable properties in the Annapolis area. Agreeing to use a single, mutually trusted appraiser can remove the guesswork and potential for resentment. The appraisal report gives both the buyer and seller a credible, third-party assessment of the home’s worth.
  • Lender Requirements: If the buyer is seeking a mortgage, their lender will require an appraisal regardless. The bank or financial institution will not lend more than the property’s appraised value. Addressing the appraisal early in the process prevents surprises that could derail the financing contingency later on.
  • Avoiding Future Conflict: Agreeing on a price based on a professional appraisal helps ensure transparency. If the seller later hears that a similar home down the street sold for more, or the buyer feels they overpaid, the appraisal serves as a reminder that the price was based on a sound, documented methodology at the time of the sale, not just a casual agreement.

Why is a Formal Written Contract So Important?

A verbal agreement or a simple one-page document is not sufficient to transfer real estate in Maryland. State law, under a principle known as the Statute of Frauds, requires that contracts for the sale of real property be in writing to be legally enforceable. A comprehensive, detailed real estate contract is the roadmap for the entire transaction and the single most important document for protecting both parties.

A proper contract does more than just state the price. It outlines the rights, responsibilities, and obligations of the buyer and seller. Key components of a well-drafted Maryland real estate contract include:

Accurate Identification of Parties and Property: The contract must list the full legal names of all sellers and buyers. It also requires the official legal description of the property, including the lot, block, and subdivision information found on the existing deed, not just the street address.

Financial Terms: This section details the agreed-upon purchase price, the amount of the earnest money deposit, and who will hold that deposit in escrow (typically a title company or attorney). It also specifies how the purchase will be financed.

Contingency Clauses: These are vital safeguards that allow a party to withdraw from the contract without penalty if certain conditions are not met. Even in a friendly sale, contingencies are essential.

  • Home Inspection Contingency: Allows the buyer a specific period to have the property professionally inspected. If the inspection reveals significant defects, the buyer can request repairs, ask for a price reduction, or terminate the contract.
  • Financing Contingency: Protects the buyer if they are unable to secure a mortgage loan within a specified timeframe.
  • Appraisal Contingency: Allows the buyer to exit the deal if the property appraises for less than the sales price, a condition often required by lenders.
  • Title Contingency: Gives the buyer the right to review a title report and terminate the agreement if there are unresolvable issues with the property’s title, such as liens or ownership claims.

Closing Details: The contract must specify the closing date and location. It should also clearly allocate closing costs, such as transfer taxes, recordation taxes, and settlement fees, between the buyer and seller.

Default Provisions: This section explains what happens if either the buyer or seller fails to meet their contractual obligations.

The Necessity of Due Diligence

Knowing your neighbor personally does not mean you know the history or condition of their home. The burden of investigation, or due diligence, falls squarely on the buyer. Trust is not a substitute for a thorough inspection. Skipping these steps can lead to the discovery of expensive problems after the sale is complete, when it is too late to seek recourse from the seller.

  • Professional Home Inspection: This is a non-negotiable step. A licensed home inspector provides an objective evaluation of the home’s major systems, including the roof, foundation, electrical, plumbing, and HVAC. They can identify issues that are not visible to an untrained eye, providing the buyer with a clear picture of the property’s physical health.
  • Specialized Inspections: Depending on the home’s age and location, further inspections may be warranted. These could include tests for radon, searches for mold or pests like termites, or inspections of the chimney and sewer line.
  • Reviewing Association Documents: If the property is part of a homeowners association (HOA) or condominium, the buyer must review all governing documents. These documents contain rules, restrictions, and information about fees and special assessments that will impact the buyer’s ownership.

Maryland’s Seller Disclosure Obligations

Even in an “as-is” or FSBO sale between neighbors, sellers in Maryland have specific disclosure duties. It is a common misconception that selling to a neighbor relieves the seller of these responsibilities. The law is designed to protect buyers from hidden, significant defects.

Sellers of most residential properties must provide the buyer with either a disclosure statement or a disclaimer statement.

  • Disclosure Statement: This form requires the seller to reveal any known defects in the property’s condition.
  • Disclaimer Statement: If the seller chooses this option, they are effectively selling the property “as-is” and making no representations about its condition. However, even with a disclaimer, a seller cannot legally hide “latent defects.”
  • Latent Defects: These are material defects that a buyer could not reasonably discover through a careful visual inspection and which pose a direct threat to health or safety. A seller who knows about a serious mold problem hidden behind a new wall or a cracked foundation cannot conceal it simply because the sale is private.

Clarifying Boundary Lines and Easements

Assumptions about property lines are a frequent source of conflict between neighbors. The fence line, the edge of a driveway, or where the lawn has been mowed for years may not reflect the actual legal boundary.

  • The Importance of a Survey: Before closing, it is highly advisable for the buyer to obtain a new boundary survey from a licensed surveyor. A survey will physically mark the property’s legal boundaries and identify any encroachments—such as a shed, fence, or driveway that crosses the property line. Resolving these issues before the sale is far simpler than dealing with them after ownership has transferred.
  • Identifying Easements: An easement is a legal right for someone else to use a portion of your property for a specific purpose. Common examples include utility easements for power or water lines, or a shared driveway. A title search will typically reveal recorded easements, but sometimes informal, unrecorded easements exist. These need to be identified and formally documented in the deed to avoid future disputes.

The Role of a Title Search and Title Insurance

A title search is an examination of public records to confirm the seller’s legal right to transfer ownership and to uncover any issues with the title. Even if the seller has owned the home for decades, a title search is vital. It can reveal hidden problems such as:

  • Unpaid property taxes
  • Judgments or liens against the property from creditors
  • Unresolved claims from previous owners or heirs
  • Mistakes or forgeries in earlier deeds

Owner’s Title Insurance provides financial protection to the buyer against any title defects that are discovered after closing. A lender will always require a lender’s title insurance policy, but an owner’s policy protects the buyer’s investment and is a key part of any sound real estate purchase.

Can One Attorney Represent Both Parties?

In an effort to save money and simplify the process, a buyer and seller might consider using the same attorney. In Maryland, this is generally discouraged due to the potential for a conflict of interest. An attorney has a duty of loyalty to their client. If a dispute arises over an inspection issue or a contract term, one attorney cannot ethically advise both sides. The best practice is for each party to have their own legal counsel to ensure their individual interests are fully represented.

Preserving Your Relationship with a Professional Process

The best way to ensure a neighbor-to-neighbor property sale is successful—and that the relationship remains intact—is to treat it as a formal, arm’s-length transaction. By putting everything in writing, conducting thorough due diligence, and obtaining independent legal advice, both parties protect themselves from misunderstandings and future disputes. A clear, professional process builds a foundation of trust and transparency that a simple handshake deal can never provide.

Navigating the legal intricacies of a private real estate sale requires careful attention to detail and knowledge of Maryland law. If you are considering buying a property from or selling one to a neighbor, our team can provide the guidance needed to facilitate a smooth and legally sound transaction.