What to Expect when Buying, Know “The REAL DEAL”
The intent of this page is to provide buyer clients with more knowledge and a clear understanding of how things really work in today’s Real Estate transaction. What follows is a breakdown of the most important steps in a buyer transaction:
1. Obtain a Mortgage Pre-Approval Letter from a Mortgage Broker/Lender
If the buyer is planning to obtain a mortgage to finance their purchase, they need to consult with a reputable lender before even looking at properties. It is important for the buyer to know how much they can afford to help narrow their focus and save them time in the long run. A pre-approval is a “preliminary” approval letter provided from a lender once a thorough analysis of their income and expenses is conducted and the buyer submits all required documentation. The buyer should have a current (issued within 30 days) pre-approval at the time of offer. This letter can be submitted as a part of the offer package to provide assurance to the seller that they are financially qualified to purchase the home.
2. Submit an Offer to Purchase
The buyer’s agent prepares the Agreement of Purchase and Sale, which outlines the main terms the buyer is offering to the seller to purchase their property. This includes price, deposit amount(s), additional provisions, and conditions. The seller will either accept, reject, or counter offer. Once both parties come to an agreement, the offer is signed. Acceptance must be communicated to make it a legally binding and enforceable agreement. Delivery of the deposit check occurs at this time.
Possible scenario: Multiple Offers
A multiple offer situation occurs when a seller receives two or more simultaneous written Agreement of Purchase and Sale on their property. If the seller’s agent knows that several offers are forthcoming, an “offer deadline” is typically set- meaning all offers must be submitted by a particular date and time. Without seller permission, the seller’s agent is not allowed to disclose the offer price and terms of the other offers to the other bidders. Once the seller has reviewed all offers typically they will: accept the offer with the best price and terms, select one of the offers and negotiate in order to come to an agreement, or ask for a “highest and best” from all the bidders to see if any buyer will sweeten their offer. In most cases the seller accepts one of the offers without negotiation so it is important for a buyer to make their best offer at the time of the offer deadline.
3. Offer to Purchase Accepted
An offer is considered ‘accepted’ once the buyer and seller come to an agreement, both parties sign the offer and acceptance is conveyed. This creates binding and enforceable obligations of the buyer and seller.
4. Amounts & Dates of Deposits
The deposit is generally due at the time acceptance by all parties of the Agreement of Purchase the Offer to Purchase. The buyer’s agent will deliver the deposit check to the listing brokerage in the agreed upon manner once the offer is executed by both parties.
Deposits may be made by personal check, unless a certified check is specified. The deposits are typically held in the Listing Brokerage’s trust account, so the check should be made payable to the Listing Brokerage unless otherwise specified. If a buyer utilizes a condition or defaults on an obligation outlined in the offer, a mutually agreeable release must be executed by all parties before any funds can be released.
5. Schedule Your Home Inspection (if applicable)
The deadline for inspection(s) and type(s) of inspection(s) is/are outlined in the Agreement of Purchase and Sales and is typically within 5 business days of offer acceptance. The inspection(s) should be scheduled immediately to have enough time to conduct and review the inspection(s) results.
6. Conduct the Home Inspection (if applicable)
If the home inspection reveals any unknown or undisclosed material problems, the buyer may attempt to renegotiate their offer terms or back out of the sale based on the results of the inspection. If parties are unable to come to an agreement, buyers are entitled to the return of their deposit as long as they provide notice prior to their conditional date and once a release has been signed by both parties.
7. Hire a REAL ESTATE Attorney
It is critical for the buyer to hire a real estate attorney when purchasing a property, one whose primary focus is on real estate and will protect the buyer’s best interest every step of the way. A real estate attorney will prepare all legal documents, ensure there aren’t any liens, easements or covenants on the property, and make sure the property has clear title.
8. Continue Mortgage Application Process
The mortgage application process starts when the buyer applies for pre-approval and the lender does an initial evaluation of the borrower’s buying power. As mentioned, it is based on the analysis of the borrower’s income, assets, and creditworthiness. The lender will outline all of the items they need from a buyer at the forefront of the process. It is without question in the buyer’s best interest to provide timely and accurate information to the lender.
9. Lender Orders Appraisal
An appraisal is an evaluation of a home’s value conducted by a licensed appraiser that is hired by the buyer’s mortgage company. The appraiser is an unbiased 3rd party and the purpose of an appraisal is to allow the lender to ensure that the home’s value is enough to warrant a mortgage in the amount that the buyer is seeking. Buyers/sellers/agents/lenders have no control over the amount of the appraisal outcome. The appraiser has specific guidelines to adhere to in order to determine the appraised value. If the appraisal were to come in low, there are options that depend on the circumstances and the buyer’s agent will explain them.
10. Schedule & Conduct Final-Walk-Through of Property
Before the buyer closes on a property, a final walk-through at the property is usually conducted. The goal is to ensure that the property’s condition hasn’t changed since the buyer’s last visit, any agreed upon repairs have been made and the agreed upon terms of the contract have been met. Ideally, the walk-through should be conducted within a couple days prior to the scheduled closing date.
11. Time To Close
The closing date is the date on which the deed is executed and transferred to the buyers, and buyers officially take ownership. The date itself is usually a firm date that is not easily changed. Sometimes mortgage delays from the buyer or title delays from the seller can cause a closing to be delayed. If a delay does occur, an extension may be granted and both parties would have to agree to a new date. The property does not officially transfer to the buyer until funds have been dispersed and the property goes on record at the Registry of Deeds.