What’s the Difference Between a Quitclaim Deed and a Warranty Deed?
A deed is the official document that conveys ownership of a piece of real estate from one person or entity to another. Whenever you buy a property, whether it’s a turnkey rental or something else, pay close attention to the type of deed that will be transferred to you. There are several different kinds of deeds to be aware of, and each one of them carries certain ramifications as far as your entitlements as the new property owner. Being unaware of the deed type when you purchase real estate can lead to unpleasant surprises down the road. The two most common types of deeds are quitclaim deeds and warranty deeds. Here’s a guide to understanding what these are and what they mean to the buyer.
What is a Quitclaim Deed?
It’s fairly common to see quitclaim deeds in real estate transactions. They’re used in situations where there are no written or implied warranties on the property. The seller bears no responsibility for the condition of the property. In other words, the property is conveyed “as-is.” The buyer has no claim on the seller if defects or problems are discovered after the conveyance. Quitclaim deeds are often used on distressed properties or properties that aren’t eligible for an occupancy permit in their current condition.
Quitclaim deeds may be used if the seller isn’t even sure if they have clear title on the property. This may be the case if there is a lien on the property, possibly from an unpaid debt or something else.
However bad quitclaim deeds sound, they do have a useful purpose in the real estate industry. Quitclaim deeds convey any title, interest and claim on a property without further recourse or requirements. So they can be convenient when transferring property from one family member to another on paper only—when no funds are being exchanged—or when adding or removing someone from a deed. For example, say you own a turnkey rental and you’d like to gift it to your son as a wedding present. You could use a quitclaim deed to easily transfer the property into your son’s name.
Quitclaim deeds come with inherent risks, though. Because no title search is done on quitclaim deed conveyances, there could be complications with future title searches on the same property sold with another deed type. And, of course, there’s the danger of overpaying for a property that’s in worse condition than you thought, or finding out later that there is a lien against the property.
At the end of the day, if you’re looking at investing in a property being sold under a quitclaim deed, buyer beware.
What is a Warranty Deed?
A warranty deed is the best kind of property deed. It’s a traditional deed type that’s most commonly used in the kinds of real estate transactions the general public is familiar with; the buying and selling of private homes. The warranty deed is basically a guarantee that the title on the property is valid – that the current seller has the legal right to convey the property. It also means that if anyone else ever lays claim to the property in the future, the buyer’s claim will prevail. This include liens against the property by individuals, financial institutions and other entities. Subsequently, a thorough title search must be completed before conveyance of the property by warranty deed. This makes the process of buying real estate take both more time and a little more money. But most people would agree that it’s worth it. Warranty deed properties are also preferred by most lenders. When you take ownership of a property under a warranty deed, you’re entitled to take out a title insurance owner’s policy, which is another layer of protection.
Investment grade properties often don’t come with warranty deeds so it’s especially important to look for them when you’re ready to buy. At MartelTurnkey, all the properties we sell are conveyed with warranty deeds.
The deed is just one more detail you need to be aware of before you purchase any piece of property. Hopefully this guide has helped you to better understand exactly what you’re getting into when you buy a property with a quitclaim deed versus a warranty deed. If you have any questions about the deed conveyed with MartelTurnkey rental properties, please don’t hesitate to contact us.