As a buyer’s agent, I will guide you through the maze of home buying and be with you through all of the steps below. Never forget that a buyer’s agent is there to work represent your best interests, to answer your questions, to give you sound advice and to make things as smooth as possible. Home buying, while fun, can be stressful, but a good buyer’s agent will get you through it with as little worries as possible. Here are the basic steps:
Get an Agent
The first thing that you need to do is to find a real estate agent and decide you want to work together. Buyer’s agents (me) are nice to have, because we work for you and represent you, yet you do not usually pay us. The seller has decided on a commission to pay the listing agent’s broker, and this fee is split between the listing agent’s broker and the buyer’s representative’s broker (those fees are then split again and given to the agent). However, we do have agency agreements that we are required to fill out, so that it is not assumed that the agent you work with will represent the sellers’ interests.
The real estate agent interviews you to determine what it is you want, how much you want to spend, etc.
You work on getting financing. Make sure you have a pre-approval (not pre-qualifying) letter from a bank/mortgage broker. Your real estate agent can and should help you with this if necessary. Your agent should get the number of your lending institution and their representative. Talk to your lender and agent about how much you will be putting down, what kind of a loan you will probably want (fixed, adjustable, interest only etc.), what your closing costs will be (3% of the purchase price is a good rule of thumb) and what loan amount you qualify for.
Go out and look at houses. Usually, we start with a wider range of homes and begin to narrow down geographical location and type of house.
Find a House
Find a house you would like to put an offer on. Go back to the office and fill out the offer forms. Determine pricing and contingencies. Generally, in hot markets, buyers may consider striking contingencies to appear more competitive and to make their offer more appealing to the seller. Of course, every contingency removed removes a layer of protection for the buyer. These include:
- Inspection – do you want to make the offer contingent on a type of home inspection? Unless you offer to purchase the home “as is,” all “mechanical” guts of the house (plumbing, electric, heating, air conditioning etc.) must be working when you receive the house, whether you have an inspection or not. However, there are no guarantees that the roof is in great shape or that the heating or a/c is in good shape, though it may be working. For these reasons, most people buying a home want to have it inspected. If you remove this contingency, you run the risk of having to pay for unforeseen repairs out of your own pocket.
- As-is clause – If you decide to take a home “as is,” this means that the property owner does not have to repair any mechanical or electrical problems in the home. You are essentially saying that you will pay for any repairs to these items out of pocket (if something breaks after your offer is accepted though, the seller will still bear responsibility for it).
- Financing – do you want to make the offer contingent on getting financing? Your pre-approval letter will help you determine how much you can afford. It is also to inform you of how much the bank will lend you, given a positive appraisal of the house. If you are sure that your financing offer is solid, then you could consider striking a contingency like this. However, if the financing does NOT come through for any reason, you are still responsible for coming up with the money and cannot get out of the offer (if accepted) without penalty. For this reason, it is very important to think this through thoroughly.
- Appraisal – the bank giving you the loan will appraise the house to determine what it deems the home to be worth. If it is not valued at what you offered, and you strike this contingency, you will have to come up with the difference between the amount at which the bank valued it and the amount you are offering in cash (in addition to your down payment and closing costs).
- Determine how much money you want to put into escrow to ‘guarantee’ your offer and show you are a serious buyer. From the sellers’ point of view, the more the better because this shows how serious you are about the buying the house. The purpose of this money is to make your offer financially binding so that you will have incentive not to back out of the deal before closing. If your offer is not accepted by the seller, the check is returned to you uncashed. However, if it is, this money is put into a bank account at Long and Foster or your settlement company (in an escrow account) and cannot be touched by any party to the contract until the sale is complete. This money is transferred to the settlement company at closing and used towards the down payment and closing costs. Any overage is returned to you. If you try to get out of the deal after it has been ratified and after all contingencies have passed, you may have to forfeit this escrow money to the seller.
- Escalation clause. In a seller’ market where there is a lot of competition for a home, prospective buyers often offer more money than what the sellers are asking.
Example: The sellers are asking $400,000. You offer $400,000 but you think that there may be a lot of interest in the house and are willing to pay more to get it. You decide the maximum you want to pay is $475,000. The cap on your escalation clause will be $475,000, and you decide to beat anyone else’s offer by “x” amount – in this case, $2,100. The highest cap on other competing offers is $450,000, so if the sellers like all other terms of your offer, your offer will automatically escalate to $452,100. If there are no competing offers, your offer could stand at $400,000. Of course, if another person’s offer has a higher cap, the sellers will usually choose this one. The sellers’ agent then counters your original offer at $452,000, providing proof of the competing contract.
- Settlement date and location. You have to decide how fast you want to and are able to settle and how fast your bank and title company can work to get to settlement. This period is usually at least one month. You also choose your title/settlement company.
Make an Offer
Your real estate agent delivers the offer to the sellers and their agent, with a photocopy of the escrow check. The seller determines if they want to accept it or not. They are under no obligation to accept any offer, even if yours is the only one, and they do not have to accept the highest offer. It is totally their choice, but they are bound by law not to discriminate by federally and state-protected classes of people.
Negotiate. If the seller is interested in your offer and decides that they want to accept it, but want you to change something, they can ask you to do so. They will change the contract, send it back, and you will decide if you want to approve the change(s) or not. If you do, you initial it, and then you have a ratified contract. You can renegotiate, accept or decline.
Set up settlement. Your offer has been accepted and ratified. Now, you set up the settlement with they chosen settlement company. You inform the bank that your offer was accepted, and they send their appraiser out to determine whether the house appraises for the value of your offer. If you have any other contingencies, such as an inspection, you have to do this in the determined contingency period. If the contingency time passes and it has not been done, and if the seller will not extend this period, the contingency will be dropped before it is carried out. It is for this reason that it is very important to make sure that the financing, bank appraisal and inspections are completed as quickly as possible. The title company you select begins working to make sure the title is clear.
Go to Settlement
By now, everything has been done (the bank has sent all papers to the settlement company and all title work has been completed), and we go through one final walk-through of the house, usually the day before or the morning before settlement. We make sure that all of the sellers’ belongings have been removed from the house and that the appliances, heating, a/c etc. are all in working order. If so, you go to settlement, which usually takes 1-2 hours and sign all the papers. If there are any problems or issues with the house that the seller should pay for (for instance, they took the refrigerator with them and it should have conveyed with the house or the roof has leaked since you agreed to buy the home), then this is negotiated before the papers are signed.
You get the keys to the house and move in!