"The SECRET" ........to working efficiently with Buyers. Part 7 "THE HOME BUYING PROCESS"
By Greg Perry, Kirkland Realtor
Part 7 of Series
Part 6 - My expectations of my clients.
Part 5 - Buyer's expectations of thier agent.
Part 4 - What to look for in an agent.
Part 3 - Discover Buyer desires and needs
Part 2 - The real estate market
Overview
Buyers today have more ways to research information than ever before. Have a question? All we need to do is to Google it! Despite this access to information, Buyers still don't know what questions to ask! As soon as Buyers get enough information, they'll start moving toward making a purchase. My goal is to give give Buyers enough information so that they have confidence as they move through the process. This segment, "THE PROCESS", is the information Buyers need. Here is how I break it down:
MORTGAGE APPLICATION - Before we can really start the process, you (Buyer) must go through the mortgage application and pre-approval process. Before considering our offer, the Seller needs to know that you have the financial ability to close the transaction and we need a target price before we go looking. We don't want to look at $500,000 properties when your top qualification number is $350,000. A pre-approval means that the lender has reviewed income statements, tax returns and debt. A credit check is run and the lender has a loan underwriter review all the information. Based on this information, the mortgage company will give you a "conditional" pre-approval. What they're saying is that you are approved for your loan, but typical conditions are 1. a suitable property must be under contract, 2. The property must appraise for value and 3. The information must remain the same (for example, you must remain employed).
LOOKING FOR A HOME - Here is where we organize the home search. What I find is that all Buyers at this point are looking for houses somewhere......most of them on the Internet. I find out how you are currently searching and give you pointers on the most efficient way to search on-line. Typically I do a computer search and pick the homes in the area that meets your basic criterea and send them to you via email. Then we set a date to go look at the homes. I don't like looking at more than 7 or 8 homes in one buying trip. Any more than that and everyone starts getting confused as to which houses have what. We use a check list to help the you keep everything straight. If we exhaust current inventory, I check every day--- many times each day, to find the NEW, REDUCED and BACK ON MARKET listings. We try to be ready at a moment's notice to check out the new hot listings.
WHEN YOU FIND A HOME - We may find the home in the first trip ----or your search may take months. The important thing is that when the house is identified, it is time to act! Many houses are lost because while a Buyer is thinking about the house, another Buyer may have already thought about the house and buys it.
OFFERS - All real estate offers must be in writing on a full contract. The contract includes all basic terms and conditions including price, closing date, inclusions, exclusions, financing, inspections, title reviews and other conditions. I will provide you with a blank copy of the basic contract so you can pre-read the contract language befre we make an offer.
EARNEST MONEY - The Buyer must bring their checkbook because the contract must be accompanied by EARNEST MONEY. Earnest money is a deposit that shows the Seller that you have more than a passing interest in the property. The concept of earnest money confuses some Buyers. Earnest money is not extra.....it's a portion of the your down payment or closing costs. If the earnest money exceeds the down payment or closing costs, it is refunded back to you at closing. The earnest money is protected by contract conditions, for instance the inspection. If the property does not inspect to your satisfaction, then the you may elect to rescind the transaction and the earnest money will be refunded to you. However, if the all of the contract conditions have been solved, and you elect at this point walk away, the earnest money may be claimed by the Seller as liquid damages. Earnest money deposits are cashed and held in an escrow account. The amount of earnest money is somewhat market and area dependant.
COUNTER OFFERS - If the Seller does not agree with any detail of a contract, then he may elect to counter offer. The Seller does this by changing the detail on the contract, (such as the price), and sending it back to you. At this point we still do not have a deal and could actually go look at another property. If you agree to the Seller modifications, we enter into a phase called "mutual acceptance". This means that both you (Buyer) and Seller agree on every term and condition on the contract.
INSPECTIONS - I recommend professional building inspections. This would be one of the "conditions" on the contract. In my mind it is critically important for you to know everything there is to know about the house you are purchasing, so you can make good decisions. Every house has things wrong with it. In fact, much of what will be found on the inspection will become a work list after you move in. However, if there are major issues in the house structural integrity, systems (heating, electrical, plumbing), or a safety issue, we may elect to ask the Seller to repair the item before closing. If we disapprove the inspection and ask the Seller to remedy a defect, and the Seller agrees, the inspection condition is waived and we move forward to closing. If the Seller declines to remedy a defect, then you have a choice, to proceed anyway (understand the property condition), or to rescind and get an earnest money refund. Negotiations can also include agreeing on a price reduction or a Seller credit for you at closing. You'll want to budget around $400 for this inspection to be paid at the time of inspection.
APPRAISAL - Your lender will wants to know a couple of critical things. First and most basic, does the property exist and in reasonable condition, and, second is it worth market value? The lender sends out an appraiser to make sure they are making a good investment by loaning you money on the house you selected. Most houses appraise just fine, however occasionally one does not. If a house does not appraise, there is language in your contract to protect you and your earnest money.
CLOSING - Closing is the day that the house becomes yours! In our state, the definition of closing is: The Seller has availability to the funds (the lender has released their funds, starting your loan) and the property is recorded in your name at the county courthouse.
POSSESSION- This is the day you actually take possession of your property. This date is negotiated between you and Seller, just like the closing date. Most often, possession is the same day as closing, but not always. The Buyer or Seller may have special needs that both parties agree to. For instance, the Seller may remain in the home after closing for a specified period. We would create a rental term agreement between both parties. Perhaps the Buyer moves in before closing (this is not encouraged and is rare). The possession date can be one of the toughest and most interesting negotiation in a real estate contract.
This is the basic flow of how the real estate process works. This article is an overview. We did not cover all contingencies and conditions. For instance a condo buyer would need to see a resale certificate or public offering statement. There is a lot more detail that I could write about each of these sections. We do cover each section in depth in our first Buyer interview and as we're out finding your home. By the time it's time to write your contract, you will have comfort in your knowledge and have confidence in your decisions.
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