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About The Homebuying Process
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Start Shopping!
Shopping for a house is made up of many steps, all of which are covered in this section. From finding a real estate agent to conducting an appraisal, learn about the shopping process before you begin.
Working with a Real Estate Agent
At some point, you’ll probably want to involve a real estate agent. Real estate agents generally work on commission. This is a fee that is based on the selling price and is typically paid by the seller.
Real estate agents can be helpful because they know about the local real estate market. Most agents belong to multiple listing services that publish directories of all properties listed for sale in a particular market. The real estate agent will consult the multiple listing directory for you and determine which properties are available that meet your specifications. The agent will then arrange to show you these properties.
There are other advantages of working with a real estate agent familiar with the area in which you would like to live. The agent will usually have information about such things as school systems, tax rates, water and sewer charges, public transportation, and other concerns that might affect your decision to buy a particular home.
There are a variety of ways to find a real estate agent:
- You can ask for advice from a friend or relative who may be able to recommend a real estate agent.
- You could meet agents by going to open houses.
- You could contact the real estate firms that are advertising properties you’re interested in.
Usually, it’s best to choose one real estate agent --provided you’re comfortable with that person-- and work with that person until you find the home you’d like to buy. Real estate agents typically specialize in particular areas. You may want to find someone who knows the area you’re most interested in to help you in your home search.
Here is how real estate agents typically work: The sellers will "list" their home with an agent and agree to pay a commission if the house is sold within a specified time. While the listing is in effect, the real estate agent will try to sell the property by advertising it and having open houses. If another real estate agent finds the buyer, the two will share the commission.
Deciding to Buy
It’s a good idea for you to look at a wide range of homes before deciding to buy. It is rare and not well advised for a buyer to look at a single home, fall in love with it, and purchase it immediately.
As a homebuyer, it’s especially important not to buy too quickly just because you’ve waited a long time and are eager to own a home. If you’ve found one or more neighborhoods that you like, look at enough homes there to get a feel for real estate values or prices.
Then, once you’ve narrowed down the choices, do your homework. Check out the taxes, the school system, the cost of utilities, the quality of community services (such as fire and police), and any other factors that will affect your life once you own the home. If you’re working with a real estate agent, he or she may already have this information.
When you find a home you really like, take some time to think about it before making an offer. In some markets, you may have to act quickly if there aren’t many homes for sale in the area but there are a lot of buyers. Still, think about your purchase carefully. You’re making a big investment. It’s important to make an informed decision so you will be happy with the home you’ve chosen.
Offer to Purchase
You found the home you want. You’ve checked on taxes, the school system, and the cost of utilities. Now you’re ready to make an offer.
Typically, when homebuyers are ready to make an offer, they meet with the real estate agent and complete the Offer to Purchase form together. You may also want to write your offer with the help of an attorney. Although you can prepare an offer yourself, it is not recommended.
An Offer to Purchase is a legal contract that includes detailed, complex information. If you try to write an offer by yourself, you may make mistakes, omit or include items that would put you at a disadvantage relative to other buyers, or trap yourself into an agreement that is not in your best interest.
When you’re ready to make an offer, get a copy of your state’s form from the real estate agent and look it over carefully. Have either the real estate agent or an attorney thoroughly explain every item on the form to you so you understand exactly what you’re committing to before you actually write an offer.
Making the Offer
How much should you offer? That depends on many things. It’s rare to offer the seller’s asking price, but, then again, if there aren’t many properties on the market, you may be in competition with another buyer and end up offering more than the asking price.
There are many factors that may influence the amount you would offer for a home:
- How much you can afford
- How much you have to spend
- How badly you want the house
- How many other buyers are interested
- How motivated you think the seller is
- How much work might need to be done on the house
- How the property compares with other similar properties
Contingencies
Contingencies will be an important part of your Offer to Purchase. Contingencies are conditions that must be satisfied or you won’t be required to go through with the purchase after your offer is accepted.
Most buyers make an Offer to Purchase contingent upon their ability to obtain satisfactory mortgage financing. Without this contingency, you could risk losing your earnest money if you can’t get a home loan. Some other common contingencies include:
- Getting a satisfactory home inspection within a specified time
- Obtaining satisfactory well and septic tests
- Requiring evidence that the property meets building and safety code requirements
- Obtaining an appraisal with a value that is at least the amount of your offered price
- Getting a satisfactory attorney review of your Offer to Purchase (if your offer was not prepared by an attorney)
Depending on your situation, other contingencies may be appropriate. This is another reason why it’s a good idea to have an attorney look over your offer before you present it to the seller. If any contingencies specified in the Offer to Purchase are not met, you have the option of not going through with the purchase.
Make sure when deciding upon the contingencies that you are adequately protected, but at the same time, be realistic. Consider the situation in your market and make sure your offer terms and price are fair.
Earnest Money
Earnest money is a monetary deposit the buyer gives the seller to bind the conditions of the sale. When you make an offer on a house, you should be prepared to give earnest money as a sign of good faith in your offer. If the sale goes through, the earnest money is deducted from the amount you owe the seller at closing. If your offer is rejected or if the sale does not go through because one or more contingencies are not met, your money should be returned to you.
Counteroffers
Once you make an offer, the seller has the option to accept it as is, reject it, or make a counteroffer. If the sellers want to change some of the terms of the offer, they will make a counteroffer. It then becomes your decision whether the counteroffer is acceptable.
If you receive a counteroffer, you have the option of accepting or rejecting it, or making another counteroffer. This is the negotiation process that leads to a final offer that both parties agree upon.
The Home Inspection
A home inspection should not be confused with a property appraisal. An appraisal is an estimate of value that is prepared by a licensed appraiser. A home inspection is an examination of a property to determine the condition of the structural and mechanical systems. This inspection should be completed by a professional home inspector.
Although home inspections are optional, it’s recommended that you include a home inspection contingency in your Offer to Purchase. By making your offer contingent on an acceptable home inspection, you have the option to withdraw the offer to purchase if the inspection reveals major problems that neither you nor the seller is willing to correct.
Usually, it is your responsibility as the buyer to pay for an independent home inspection, and it is always money well spent. A professional home inspection usually takes only two to three hours, but it gives you valuable information on the home’s structural condition and mechanical systems.
The Appraisal
Your Offer to Purchase has been accepted and you have a purchase agreement in hand. The next step is to have the property appraised. The lender will order the appraisal. The maximum loan amount is determined by the selling price or the appraised value, whichever is less. Upon receipt of an acceptable appraisal, the loan file is given a final review and final approval, and the loan is ready for closing.
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