Last time we talked about preparation and what to expect as a first time home buyer entering the market. If you missed the last AMAZING post, you can find it HERE. This week, we will continue with the buying process.
The buying process goes like this:
- Select a Real Estate Agent
- Secure Financing
- Find Your Home
- Make an Offer
- Perform Due Diligence
As discussed in the previous post, you should have your finances in line before you proceed with this step.
Your journey will most likely start on some online real estate site. Zillow, Trulia, ReadyForTheKeys.com, all excellent sources for starting your search. However, there are limitations to searching for homes on sites like Zillow and Trulia. Mainly: they do not have current inventories. If you are in a market where real estate moves as fast as characters are killed off in Game of Thrones, then you’re in for a rude awakening when you inquire about a property you like on Zillow or Trulia. These sites are generally two to three weeks behind on updating their listings. Odds are, if you find something you really like on these sites, at best, the property is already in escrow with another buyer or, at worst, the new owners have had their first fight on how much closet space each one gets. “Dammit Jessica, do you really need three quarters of our closet for dresses you’ll only wear once?!? Half of these are a year old and still have tags, for crying out loud!” Let me emphasize that this is completely ok if you are not in a position to buy and are merely window shopping. On the other hand, if you are serious and intend on making a purchase, then you should start looking for a real estate agent to assist with this process.
1. Select a Real Estate Agent
There are several benefits to working with an agent when you are looking for a house. First, well, it’s their job to help people find a house! Second, they have access to the Multiple Listing Service (MLS), where realtors are required to enter a property that is for sale within two business days of the owner’s approval. And last, but certainly not least, a real estate agent has extensive knowledge about the industry and processes involved in buying and selling a house. One of their primary responsibilities is to legally protect their clients throughout the transaction process. If buying or selling real estate was a court case, the real estate agent would be your lawyer. They are the Doc Holliday to your Wyatt Earp; life savers! But how do you find and choose an agent?
Finding a real estate agent can be done in several different ways. You can attend an open house and connect with the agent hosting the property, visit a real estate office, or even look for one online. Real estate agents come in all sorts of personalities so it’s just depends what type you feel most comfortable working with. I know some agents that are very specific on the types of people they work with; you should be the same way. Once you have found a potential agent, they will typically try to schedule a Buyer’s Consultation Meeting with you. If you are comfortable, schedule the meeting but be sure to do some research on the agent for reassurance. Check to see if they have a website or a yelp page; anything that will give you an idea on how they operate and what their reputation is in the industry. Some agents will promise you the Wynn in Las Vegas and deliver Motel 8 off the strip. Attend the meeting only if the results of your search are satisfactory.
In the Buyer’s Consultation Meeting, you will get to know how the agent works and they will get to know your needs in a home. The goal of the agent is to help determine what you are looking for in a home so they can effectively find potential properties that are in your price range. It helps tremendously to have an idea of what you are looking for, so be sure to have something in mind. Don’t show up like Rachel McAdams in The Notebook. A good agent will let you know up front what you can expect from them and what they expect from you. Things such as method of communication, times of availability, and other relevant pieces of information that will affect your relationship should be discussed here. This meeting typically takes place at a Real Estate office and lasts around an hour or so.
Towards the end of the meeting, the agent will often ask you to sign what is called a Buyer Representation Agreement (B.R.A). This agreement is a contract stating that you will work exclusively with that particular agent for a specified period of time. The agreement is not required, but will provide you with a written contract of what the agent is responsible for during the relationship. This essentially creates a commitment from both parties to ensure that what is promised is delivered. Some agents have two sets of clients, their “A-list”, whom they are extremely attentive with, and the “B-list”, who they attend when they’re done with the “A-list”. “A-list” clients usually are loyal customers who have signed a B.R.A. It is entirely up to you as a buyer to decide whether or not you want to sign the agreement.
After you have selected an agent, the next step is to secure financing. There is some debate on whether buyers should get financing prior to working with an agent. It is really a matter of how comfortable you feel in regards of finding a lender and applying for a loan. Agents will refer lenders, and lenders will refer agents, on the grounds of how smoothly their transactions play out. At the end of the day, you have the liberty of choosing the lender of your choice.
Securing financing can be an intimidating experience because you will be applying for your biggest loan yet, often several years worth of your salary. But don’t let all of this go to your head, all you are doing is finding out how much you can get from the bank to finance your purchase. The loan, or mortgage, begins when you close on a property. This process with the lender is known as getting ‘Pre-Approved’. It is required in order to put an offer on a property, which brings us to our next step: Finding Your Home!
Now comes the fun part. Actually searching for your home! Your agent should provide you with a list of properties that meet your criteria. This is usually sent via email, where you have the ability to see pictures, technical specs, features, location, amenities, etc. This is the tire kicking period, aka window shopping. From this list you will narrow down the properties to a select few, usually five or less, then let the agent know you would like to see them in person. You should only view properties in person if you are ready to make an offer on them. Otherwise, someone else may put in an offer and you will most likely be viewing houses that will be owned by those who submitted an offer; especially in fast moving markets!
Viewing properties typically takes the better half of a day. Your agent will tour the properties with you and ask how much you like each property. After viewing each property, the agent will likely ask “Are you ready to make an offer on this property?”. This may come off as being pushy, and sometimes it might be, but remember that viewing properties in person with your agent means that you should be ready to make an offer, so try not to take offense! If you are not ready to make an offer, make sure you tell your agent why. It will help him further understand what you are looking for. Once you find a property you really like, it is time to make an offer!
4. Make an Offer
“…wut? Make an offer? Already?!”. Some people see submitting an offer as turning in a Final Exam in a class where you did half the homework and got 69% on the midterm. However, a good agent will reassure you that submitting an offer more closely resembles placing a car on hold at the dealer. Submitting an offer simply lets the seller know you are serious about the property.
An important aspect of making an attractive offer is the Earnest Deposit, which is a ‘good faith’ deposit towards the purchase of the property. If your offer is rejected, the deposit is returned to you and it’s on to the next one. On the other hand, if your offer is selected, this deposit will go towards your down payment. Upon being notified that your offer has been selected, you will have up to 17 days, unless otherwise stated, to conduct inspections and contingencies. This brings us to the second to last step: Due Diligence.
5. Perform Due Diligence
Contingencies are conditions that are outlined in your offer that must be met for you to purchase the home. They can be things such as home inspections, appraisals, and even selling your current home if you have one. You definitely want to make sure you know what you are buying, so performing due diligence is a must! Structural integrity, condition of the roof, plumbing, electrical, encumbrances on the property, all of these things should be inspected so you are aware of what comes with the property. Your agent will be familiar with this process.
There are often negotiations between buyer and seller depending on what comes up during contingencies. These type of things is why sometimes it’s better to let Doc Holliday take your place in a gun fight. “I’m your Huckleberry”. This all happens while in Escrow; a neutral third party that ensures all contingencies are met. Note that if you decide to back out of the deal for an invalid reason, whether it’s cold feet or finding another property you want, you will lose your earnest deposit! Once negotiations are finalized, it’s time to close the deal!
After the contract is signed and all contingencies are met and/or negotiated, escrow will release the funds to the seller, at which point you will receive and record title. The final step is taking possession of your new home. BAM! You just bought your first home!
As long of a journey as this seems, some properties don’t last longer than 7 days on the market! It is extremely important to know what you are looking for in a home as well as what you can afford. Remember from part one, don’t buy more than you can afford and risk being house poor! You will know your house when you see it. It will match up with what you are looking for at the price you can afford. Some home buyers take months to find their home, while others can do it in as fast as a week! The more prepared you are, the faster you’ll be in a new home.
Next time we will discuss what responsibilities come with home ownership as well as tips for first time home buyers to protect their investment to ensure an easy sell when it’s time to upgrade to a new home!