Buying real estate is a process that many people seem to know about, but it’s one that’s hard to fully understand until you’ve been through it yourself. And even if you have, it’s not always easy to understand exactly what each step entails. If you’re looking to buy your first home, it’s likely that you’re not sure where to start. Today, we’re going to break down the real estate buying process into ten steps and give you a brief explanation of each one. The following steps may happen at the same time or in a slightly different order in some cases.
The first step is getting a mortgage. It might sound a little strange to get a mortgage before you even buy a house, but there are a number of reasons to get a mortgage first. To get a mortgage, the buyer contacts a lender, such as a bank, who checks the buyer’s credit and finances to determine how much money they can lend. This can be thought of as a “pre-approval” process to see how much money the buyer can borrow. Once they know how much they can borrow, the buyer can focus on the right home and the seller can feel less pressure because they know the buyer can afford it, making the transaction go smoothly.
The second step is to hire a real estate agent. Many people ask me if it’s necessary to hire a real estate agent. The answer is no, but because of the nature of the real estate market, it’s common for sellers to hire an agent. When hiring a real estate agent, it’s important to make sure that they’re registered with the state and that they haven’t received any customer complaints or discipline.
The third step is to check out the homes for sale in your desired neighborhood. It’s important to note that when checking the prices of homes, you want to make sure you’re looking at what they’re actually selling for, not what the seller is asking. You can get this information from your real estate agent, or you can check with your local newspaper or government office.
The fourth step is to decide which house you want to buy, but be careful not to fall in love at first sight when you see a house for sale. The purchase price of a house is determined through negotiation. As a buyer, it’s important to understand the seller’s situation, because you won’t have the upper hand in negotiations if you’re in a hurry or have already made up your mind to buy. For example, if a seller has had their home on the market for a long time, but the only reason they’ve put it on the market is to get a better price, or if they’re in no rush to sell, they might not be willing to negotiate even if you try to lower the price. If the buyer is already buying a home to move to and is selling their existing home, they might be open to negotiating the price. The buyer presents the seller with what they think is a fair price.
The fifth step is for the seller to make a decision about the purchase price that the buyer offered in the previous step. If the buyer’s offer is lower than the seller’s asking price, the seller will make a counter offer that is higher than the asking price. This is often called a “counter offer.” This process may take several rounds to finalize the price.
The sixth step is to decide how much you want to put down as a down payment. It’s common to pay 15-20% of the value of the house as a down payment. Depending on the institution lending you money, you may be able to get a mortgage with 10% or even no down payment, but these mortgages are usually more expensive and riskier.
The seventh step is to hire a trusted attorney. It’s important to choose a lawyer who is experienced, someone you feel comfortable talking to, and a law firm with people who are licensed in real estate transactions, as the lawyer will be involved in everything from negotiating the contract, to negotiating the results of the home inspection, to verifying the title, to communicating with the buyer, seller, and broker throughout the transaction and coordinating their efforts to close the deal. By hiring such a lawyer or law firm, the buyer will have a trusted partner in the transaction.
In the eighth step, based on the finalized purchase price, the seller will require the buyer to pay escrow money to close the deal until the contract expires, usually within 10 to 14 days of signing, which is about 10% of the sale price. During this process, some states will give the buyer a few days to reconsider the deal, while others will legally require you to close right away. This depends on the state laws of the state where the property is located, so it’s important to have a lawyer who understands your state’s laws.
The ninth step is where a lawyer’s legal advice is crucial. First, the lawyer will review the contract. A lot of times, the seller or the agent will give you a contract and say, “This is a standard contract and you can just do it.” But every deal is different, every property is different, every condition is different, and no contract is 100% standard. So it’s very important to have a lawyer review the contract. It’s customary to have a lawyer review the contract within three days. It’s also important for the buyer to make sure that the lawyer understands that the buyer is not an expert and that the lawyer has the integrity to explain things to the buyer, because the legal language in real estate is different from plain English. Once the contract is reviewed, the lawyer will write a rider to the contract to change the contract to reflect the buyer’s position. Next, a home inspection will be conducted to check the condition of the home, and based on the results, the lawyer will negotiate terms with the other seller. The lawyer will also conduct a title search to make sure that the sale is clear and that there are no violations of local zoning laws so that the buyer is not taken advantage of. Once the deal is finalized, a closing date will be set.
Once all the steps are finalized, you’ll enter the tenth step, commonly referred to as the closing. At this point, you’ll pay your lawyer by bank check for the pre-arranged down payment and closing fee, and you’ll close by issuing a check from your trust account for all expenses. If for some reason the deal falls through or the conditions are not met, you may get that money back or a certain amount of money may be paid to the seller as damages, depending on the circumstances. If all goes well, you will finally be accompanied by your attorney to sign the final documents, pay the agreed upon amount, and the purchase of the property is finalized.
We hope this column has been helpful to many of you who are planning to buy a home in the new year. If you have any further questions about real estate law, or if there are any laws that you would like our readers to know about, please don’t hesitate to contact us at mail@songlawfirm.com. I’ll incorporate them into my next column, and have a great week.