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The Buying Process
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For many people, particularly for first-time homebuyers, the decision to purchase a home can create an enormous amount of stress and confusion. Face it, the purchase of a home is often the largest single investment an individual or couple will ever make. If you have never bought a home, the process involved can seem overwhelming. Because of this, we have documented the process that will unfold in the coming weeks. This information is designed to help those wishing to purchase a home to understand the process of home buying. Knowing what to expect can relieve some of the stress one may experience as a result of the decision to buy.
The fact that you are reading this indicates that your first decision in the process of buying was a good one – you have consulted a licensed Realtor to assist you. Through the years, the business of buying and selling a home has become extremely complicated. The necessary forms, real estate laws, and potential pitfalls can make the process overwhelming, especially if you have never bought a property or have not bought one for many years. Having a Realtor work hand in hand with you and for you can make the process much less stressful and remove much of the burden from your shoulders. Realtors are professionals and must adhere to a strict code of ethics. They will work for you with your best interest in mind.
No two transactions are the same in the real estate business. Some transactions flow from beginning to end without a hitch. Others seem doomed to failure. There are many factors in the process that can potentially cause a seemingly smooth process to become unhinged. This is where the experience and skill of a Realtor become invaluable. Much of the information you are about to read will explain the process of buying a home on today’s market and the role that each stakeholder has. We want your experience to be a positive one. When you enter your home for the first time, we do not want it spoiled with a bad experience in purchasing the property. A bad experience in this purchase can be hurtful and costly, and must be avoided. To that end, let us begin.
Mandatory Licensee - Consumer Relationship Disclosure
In the first step of the process, your Realtor will present you with a mandatory llcensee - consumer disclosure. This is not a contract. Rather, it is a form that explains the type of relationship you and your realtor have. Because you are the buyer, your realtor will be working as a buyer’s agent. What that means will be spelled out on the form. It is not mandatory for you to sign this paper. It is mandatory for the realtor to present it to you and explain your relationship.
Buyer’s Agency
Buyer’s Agency is a relatively new concept in the real estate business. In past years, realtors have always represented the seller. After all, the seller was the one making the business possible. Without sellers, we would be out of business. When a buyer was introduced to a property, all the agents involved essentially worked for the sellers either as agents or sub-agents. They owed the seller everything, but owed the buyer honesty and fair dealing. That’s nice, but they are not comparable to the services the seller received.
No one was truly looking out for the best interest of the buyer. Times have changed. Realtors realized that yes, sellers were important, but half of our business had to do with the buyers. After all, where would we be without buyers? There had to be a major shift in our thinking. We wanted to offer the buyers the same types of services we offered the sellers. That is how buyer agency came about. Merely working with a realtor in the buying process makes you a buyer customer. This means that the realtor owes you honesty and fair dealing. The one thing that gives the seller greater service in terms of care, obedience, confidentiality, accountability, disclosure etc. is a contract. Sellers sign a contract with the agents when they place their house on the market. For buyers to obtain the same type of service from their agents, we are offering you a contract. What this contract guarantees is that your agent will not only be working with you, he or she will be working for you. You will be the agent’s client, not just a customer and he or she will owe you the same types of services as seller’s agents owe sellers. We owe you care, obedience, confidentiality, accountability, and disclosure. The length of the contract can be negotiated. The main issue is that the buyer will work with one agent exclusively for the term of the contract, and, if a property is purchased while under contract with the agent, the agent will receive a commission. We charge the buyer nothing in terms of upfront money or a retainer. We generally receive the commission from the seller when our client purchases a property.
Searching For Just the Right Home
When searching for a home, one of the first steps is to contact a bank or mortgage company to obtain a pre-approval letter. This letter can be obtained quickly – usually within twenty-four hours. The bank is not committing to fund your mortgage. It is simply giving you an idea of how much you can expect for a mortgage based on the financial information you provide. It is good to shop around. The mortgage industry is extremely competitive. It is not unusual to have a lending institution offer incentives such as no closing costs to first time homebuyers. Realtors generally like to work with local lenders. If problems arise, it is easier to work with bankers and lenders we know. It can make the process a bit less complicated.
The second step is to give the agent as much information as you can about the type of home and property for which you are looking. There are literally thousands of homes available at any one time, and to search through all of them would be impossible. Keep in mind that the broader the search, the more homes will match. If the search is extremely specific, it is possible that no homes will match. Buyers have to make a list of “musts have’s” and “it would be nice if’s.” Providing a list of items a house must have will help narrow the search.
Some of the information that would be helpful to the realtor is the following:
In what cities or towns would you like to live?
What is your price range?
How much land would provide you with the space you feel you need?
How large a living area inside the house would you like?
What type or style of home appeals to your most?
How many rooms would you like?
How many bedrooms would be ideal?
How many bathrooms would you like your home to have?
Do you have any special requirements?
Garage
Parking
Fireplace
Handicapped Access
Pantry
Formal Dining Room
Porch
Pool
Deck
Sunroom
Hot Tub or Jacuzzi
Patio
Professional landscaping
Your agent will take the information and construct a search on the Multiple Listing Service that lists all available property. MLS is an enormous database for which realtors pay fees to access.
One of the most effective technological features of MLS is that it is possible to match your search with your e-mail address. As matching properties become available, they will be sent to you in your e-mail. You can then notify your agent that there is a property you would like to see. One caveat here -- visiting properties can be an extremely time consuming affair, particularly if you have many properties in different locations that match what you want most. It is always a good idea to drive by the property before having your agent set up an appointment. Seeing a property in person is different from seeing a picture of it. You may decide on a drive-by that it is not what you expected. This simple act can save valuable time and effort.
One situation that can cause a relationship between buyers and agents to sour is that buyers will want to seen many properties, which is fine, but they don’t seem willing to act on a property when an ideal one is found. To insure that this process works well for both sides, buyers must be serious about buying.
Another situation that can negatively impact the buying process is having a property to sell. If you are looking to buy, how close are you to selling the property you currently have? Some sellers do not want to show their property to buyers who have not sold their own property or are not well on their way through the selling process.
A third situation is the difficulty of setting up appointments. Your agent will be happy to set up appointments for you. Getting an appointment for a single-family home is generally easy. Setting up an appointment for a multifamily house is much more taxing. In order to view the property, current residents usually want to be elsewhere. It is more difficult to coordinate this when dealing with more than one family.
When an appointment is made, please show up on time. If for some reason, you are unable to meet at the appointed time, please call the agent and let him or her know. They must inform the homeowner. If you arrive at a home that you find you don’t like, it is usually not a bad idea to go through the house to see what it has to offer. Some buyers have been pleasantly surprised to find the inside of the home to be just what they wanted. Sometimes minor changes to the outside could make the home ideal.
When listing properties, realtors ask the seller to fill out a form about the condition of the property. They will also ask the seller to fill out a lead paint form. Sellers are required to fill out these forms honestly. Caveat Emptor (let the buyer beware) is no longer acceptable. Homeowners and realtors are required to give full disclosure about the property. In filling out these forms, it is totally acceptable for the homeowner to say, “I don’t know” if indeed he or she does not know. It is impossible to know about a problem that existed years before the seller owned the property and has never reappeared or one that is lurking around the corner. As a buyer, it is in your best interest when visiting a property to look through these forms. This knowledge will help you decide which homes are to be considered serious contenders.
The Offer To Purchase
Eventually the day will arrive when you find just the right home at the right price. Remember that if you find the right home with the "wrong price," it is acceptable to make a reasonable offer. When houses are placed on the market, the selling agent completes a comparative market analysis (CMA) which is an estimation of the value of the property on today’s market. Ultimately the seller sets the asking price. Often when a house comes with an unusually high price tag, our advice is to make an offer. A seller may just be testing the waters and is willing to accept an offer in a price range that they know reflects the marketable price of the property. Never underestimate the buyer’s role in the selling of homes. Sellers don’t set the market prices of property. The buyers do. A property will only sell if a buyer is willing to pay the price.
Once a decision is made to purchase a home, the buyer’s agent prepares the Offer to Purchase. This document indicates the price you are willing to pay, how much money you are willing to put down with the offer – usually $500 to $1000 depending on the value of the property, how much of an earnest money deposit will be put down at the purchase and sale – usually 3% to 5% of the price, and the duration of the offer – usually 24 hours. If you do not receive an answer from the seller in the allotted time, the offer is considered void. The offer to purchase also indicates proposed dates for the P & S, the commitment letter from the bank for the mortgage, and closing. These dates are subject to change and are not etched in stone. Also on the offer to purchase are any contingencies, conditions, or items of personal property the buyer would like to have included in the offer.
This offer is then faxed to the seller’s agent. The buyer’s agent must deliver all offers to the seller. The agent cannot choose which offers to pass along.
The sellers can do one of three things once the offer has been presented. They can accept the offer, reject the offer outright, or they can counteroffer. Those who counteroffer are generally giving the buyer some sense of where they all are in the negotiating process. This is where having a Realtor working in your best interest is so important. A qualified agent will be able to interpret the possible scenarios that may play out. They will negotiate with the sellers on your behalf. It is your agent’s job to help you purchase the home you want for the least amount of money or with contingencies that are in your favor. Negotiations, at this point, are generally completed over the phone.
Once an agreement is made, the process of purchasing a home actually begins.
This is a good time to clarify a very important point. Realtors are not appraisers, lawyers, accountants, lenders, bankers, or home inspectors. We encourage you to enlist the services of these professionals if the necessity arises or if you feel their assistance is in your best interest.
The Home Inspection
In the Offer to Purchase, the date for the Purchase and Sale, is set usually two weeks after the offer is accepted. It is in the time between these two events that the buyer schedules a home inspection. It is highly recommended that you hire a reputable home inspector to go through the house. Your agent can provide you with a list of all the licensed home inspectors in the state. It is up to you to select one. A licensed inspector will examine the outside and inside of your new home thoroughly, commenting on the positive aspects as well as what he perceives as problem areas. He will inspect the foundation, exterior surfaces of the house, inspecting all systems and services including electrical, plumbing, heating, and air conditioning. He will inspect the from basement to the attic for signs of any or all of the following: structural damage or weakness, water damage, insect infestation, mold, mildew, lead paint, asbestos, radon, underground fuel storage tanks, and wood rot. When the inspection is finished, you will know the good and the bad.
Buyers have to make a decision about purchasing the property based on the inspection report. You may decide to go ahead with the purchase, back out of the offer, or modify the offer and continue with the transaction. A negative inspection may not necessarily void a deal. Some buyers will offer to fix any number of deficiencies before continuing with the offer to purchase. Some are willing to split the cost with the seller. Sellers are sometimes willing to bear the entire cost of repairs themselves.
Working together, realtors, buyers, and sellers are usually able to come to an agreement acceptable to both sides.
The Purchase and Sale
If we have reached this point successfully, the next step is to sign the purchase and sale agreement heretofore known as the P & S. This is another contract. The P & S spells out the entire time schedule and financial basis of the agreement leading to the closing and is usually signed approximately two weeks after the offer has been accepted. It indicates the time and place of the closing and essentially sets up the rules by which everyone has to play. It is advisable to have the P & S reviewed by an attorney specializing in real estate law if you choose. All the items that are to convey will be listed in this document. It spells out the fact that smoke detectors have to be inspected and approved by the city or town. Fitchburg requires all homes sold be equipped with hardwired smoke detectors. Other cities and towns only require battery-operated devices. The fire department has to come to the home to inspect and approve the detectors and issue a certificate. If the seller does not have acceptable smoke detectors in the house, it is extremely important that they be installed The lead paint forms must also be available. Buyers must understand that the removal of lead paint is not the responsibility of the owner. This is not an apartment. Buyers have the ultimately responsibility of testing for lead paint and removing it if it is an issue. Effective March 31, 2006 Massachusetts new law required that carbon monoxide (CO) alarms be installed in all residences that contain fossil-fuel burning equipment or incorporate enclosed parking in its structure. This new ordinance is known as Nicole's Law.
The Bank Commitment
Generally, the last hurdle to overcome is the bank commitment. It is always good to have the commitment as early as possible but one week before the scheduled closing is not unusual. The mortgage underwriters have to gather all the information about the purchase and take a close look at the applicant’s ability to pay. They will also send a licensed appraiser to the property to determine the actual value. If the appraisal for the property is approximately the same as the price the buyer has offered, there is no problem. However, if the appraised value is significantly lower than the price offered, the bank will most likely decide not to commit to that price. The buyers themselves will most likely have to increase their downpayment by the difference in order to continue with the transaction. Again, this is where the negotiating process comes into play. Many factors too numerous to mention also come into play here. Suffice it to say that lenders will not move hastily at this time. They want to be sure the mortgage will be paid. Once the bank commits to the mortgage, the closing can take place.
The Insurance Binder
No lender will give hundreds of thousands of dollars to a buyer for a mortgage unless the property and its contents are insured. Before closing the buyer must obtain a binder from his or her insurance company. The binder must be available at the closing, or the closing will not take place. Generally speaking, it does not take long to obtain a binder, particularly for a single-family home, but that is not always the case. Getting a binder for a multi-family house can take a considerable amount of time because of the age and condition of the property. Unless the insurance company is contacted early, and several weeks is not necessarily considered early, you may not be able to close on the property. This not only impacts your current transaction, but may also impact any closings that are dependent on your closing to occur.
The Closing
The actual closing can take place anywhere and at just about any time as long as all parties mutually agree. The lawyer for the lender is the closing attorney. This attorney will prepare the closing documents and conduct the title search. It is important that the title is clean. If there are problems, it is more than likely that if they cannot be resolved quickly, the closing will not take place. Otherwise, if everything is clear, the entire process should take about 45 minutes to an hour.
The time frame put forth here is generally accurate, but extensions on dates can be made provided both parties agree. The point is to come to a successful conclusion for both buyer and seller. Everyone should try to be as flexible as possible. There are times when one party just cannot be as cooperative as it would like. Job restrictions may make certain time constraints mandatory.
The entire process from accepted offer to closing should take approximately four weeks.
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