The first step in buying a home is deciding how much you can afford. It is only discouraging to find a house you love, only to find out you can’t afford it. It is relatively painless to get pre-approved. I have a lender that has a great track record of helping buyers get themselves pre-approved and ready to buy a house. This can seem like a bit of an annoyance, but it is very important in a competitive market. It really doesn’t even make sense to start looking, until buyers are certain what they can afford, and know what their monthly payment will be.
Find A House
With pre-approval in hand we are now ready to start house shopping. This is the fun part of the process. Most decisions are price driven, that means that the most important search criteria is your desired price. In our current market anything between $190,000 up to $225,000 are not only difficult to find but usually sell with multiple offers. This means your offer will not be the only one made on the house, and you will be competing with other buyers.
In a sellers market (inventory is low) it is hard to get a lower than asking price. This is especially true with houses priced $200,000 or less. In many cases houses are selling for more than the asking price with multiple offers. Multiple offers are similar to an auction. Everyone interested in buying the house is asked to give their “highest and best offer”. On a house priced at $195 for example it would not be unusual for offers to exceed $200,000. One deciding factor for sellers is how the house will be purchased. For example a cash offer will usually trump a financed offer. It will close quicker and maybe without an appraisal. If there is a cash offer in the multiple offers, many times this offer will be accepted even if it is only a little higher than, or even right at the asking price.
Making an Offer
When you have found a house you like, the next step is to write an offer. Many agents recommend that sellers list for a little more than what they believe the house may sell for. This can create the allusion that a little discount is being given to the buyer, since almost everyone likes a deal. Once the offer is written and signed by the buyers it is immediately sent to the sellers agent. The sellers agent then presents the offer to their sellers. Typical offers give sellers a 24 hour time to accept, reject, or counter their offer. On weekends it is usually courteous to give the sellers until Monday to respond. This is generally how things work and not mandatory by any means. Some agents will write and submit an offer, and want an answer back later the same day.
As mentioned above the sellers have three choices with every offer. 1.They can accept, in which case the deal moves forward. 2. Sellers can reject the offer all together. This means the offer is not very close to what they are asking or they didn’t like the something else about the offer. 3. They can also counter the offer. This is the most typical response to an offer that is not quite what the seller is looking for. Offers and counter offers can go back and forth until buyer and seller agree.
Once an offer is “accepted” by the sellers you are “under contract”. The next step is is a home inspection. There are many home inspectors available. I can recommend one or you can find your own. It is a good to idea to find an inspector that is experienced, and familiar with our market. It is important to look at the inspection through the inspectors eyes. If he doesn’t disclose items he finds on the inspection he is not taking care of his client “you the home buyer”. If he creates more urgency than is necessary, it may cause the home buyer to walk away from a house that is really OK to buy. Some home inspectors are more concerned with making sure they don’t get sued than just completing a thorough home inspection. In my opinion the home inspector should identify anything he finds and make a note if the issue is not of major concern. One example would be cracked stucco, or concrete. Most contractors will admit that there are only two types of concrete, cracked concrete, and concrete that is going to crack. If there is a major gap in concrete or elevation on one side over the other, there may be larger issues to investigate. It would seem logical for the inspector to take a picture of cracked stucco and note that there is some cracking in the stucco that is typical for a stucco house. If there is an issue he should make sure the buyer understand the issues associated with large cracks.
Once the inspector has submitted the inspection to you the home buyer, you can share it with your agent. Together you can look through it for any major concerns. In a sellers market it is unlikely that a seller will pay for many repairs. When there are other people waiting to buy the house it may not be a good idea to ask the seller to pay to have the carpets cleaned, replace light bulbs, or other inexpensive items. On the other hand if the inspection reveals mold, or soils issues, it is important to do a little more investigation and cost evaluations. If there is a small amount of mold around a window due to condensation, requests for a huge reduction will probably be rejected. If there is a leaky faucet that has leaked under a cabinet, the mold my be extensive, and a price reduction or request for remediation may be granted. In an ideal world, if something like mold is discovered, and the deal doesn’t go through, the sellers should include the mold discovery and remediation in the SPCD’s for the next buyer to see.
Once the negotiation for repairs is complete the next step is the appraisal. Most offers are written “subject to appraisal”. This means that if the house doesn’t appraise for the agreed upon price the buyer can walk away with their earnest money if they want. The buyer is paying for the appraisal, and it belongs to the buyer. It can be shared with an agent or even the seller if it is desired. If a buyer would like to move forward paying more than the house appraises for it may be possible, but the details will need to be worked out with the lender.
It is more typical for the seller to reduce the price to meet the appraisal, since this is the “true value” for the house. In a sellers market, this may not be the case however. The seller may decide to admit that he or she is charging more than it will appraise for and hope for a cash buyer or a conventional loan that isn’t totally reliant on the appraisal. VA loans can allow a buyer to pay more than an appraised value if buyer has enough down to cover the difference.
The appraisal is the last major hurdle in most transactions. Once this is complete there is a better than average chance that the sale will be finalized. With the appraisal complete, the remaining work is the hands of the title company and the lender. The title company is a 3rd party entity that assures that everything is handled according to the REPC the (Real Estate Purchase Contract). The agents negotiate the deal and the Title company makes sure that everything in the agreement is fulfilled. They assure that funds are transferred from the buyer to the seller.
Settlement, Closing, and Recording
Once the lender has everything they need, they give what is called a “clear to close”. This is accompanied with a CD or Closing Disclosure. This document explains in detail where every penny in the transaction will go and who is paying what. This is issued 3 days in advance of signing so the parties can be assured that everything is what they understood it to be. Settlement is sometimes confused with Closing. Settlement is when title obtains signatures from both buyer and seller. Closing is the same as recording. This happens when the funds are in the sellers account and the house is transferred into the buyers possession and the dead of trust recorded at the county.
This is the last step in a real estate transaction. Once this happens keys are given to the buyers and the home is now officially the theirs. The typical time for settlement and recording can vary, but usually the day after settlement, the funds are transferred, the transaction is recorded and the house changes hands. There are some nuances to this. If documents need to be sent out of state, they are usually overnighted delaying recording and possession by a day or two. If this happens on a weekend or Holiday the delay can be longer than that. It is a good idea to plan any installations cable, carpet, painters, etc. for a few days after scheduled settlement date, as there is no guaranty that possession will be given the day after settlement.