What Home Buyers Need To Know

DECIDE TO BUY

So, you have decided to buy a home. Purchasing a property is one of the biggest financial decisions you will ever make. Whether this is your first home, or you are an experience buyer, this decision must be made carefully. Before anything else, it is a good idea to sit down and clarify you motivation and draw up a basic time frame for the buying process. I think the most important motivation factor in buying a home as your primary residence is an improvement in the quality of life for you and your family.

WHY BUY

Are you tired of paying rent, and owning is a better financial option than paying rent, have you outgrown your current home, are you relocating, are you scaling down? There are lots of reason why you have decided to buy and you might think your reasons are obvious, but it would do you well to consider the implications of each option for your lifestyle, opportunities, and finances. Certainly, owning real estate as your primary home is one of the least risky ways to build equity. Being clear about your intentions will make easier for us to determine the most appropriate option for your financial, lifestyle, and real estate goals.

WHEN SHOULD I BUY

You should immediately establish your time frame for buying. If you need to buy quickly, I can speed up the process by working with you to develop an action plan to accomplish all of your goals. If there is no pressing need to buy immediately, we can sit down to thoroughly review the current market conditions, and determine the most favorable time to purchase your home.

WHAT IS THE MARKET LIKE

When you work with me you can be sure that you will have my knowledge, expertise and negotiating skills working for you during your home search. I will keep you up-to-date on what is happening in the marketplace in terms of pricing, financing, terms and conditions of various properties. With me you will know exactly how to price your offer, and to include non-financial terms to make your offer more attractive.

I have an undergraduate degree in accounting, and an MBA in finance. Prior to becoming a real estate agent, I was a Corporate Controller and Director of Corporate Planning and budgets. I have very strong analytical skills, and I enjoy analyzing trend data, which is very important in understanding the market which will help us to make the right decisions in making offers for a home.

SELECT AN AGENT WHO YOU WOULD LIKE TO WORK WITH

You could buy a home without a real estate agent, and use whoever is listing the home that you may want to purchase. However, working with an agent who understands your objectives and interest will benefit you. When I know my buyers’ objectives, I can really help them determine whether a particular home might work for them. Additionally, I can preview homes and let them know if it is even worth their time to view the home. It is important to me to ensure my clients are purchasing a home that really works for them.

HOW DO I OPTIMIZE MY FINANCES

Deciding to purchase a home demands serious consideration of your current financial situation and future possibilities. Either with my help, or your own financial advisor, you need to effectively assess the cumulative financial impact, both short term and long term, of home ownership.

To proceed you will need to build your green file. A green file contains all your important financial information and should include – bank accounts statements, current investment summaries, all credit card information including maximum borrowing limits, auto loans and balances, recent pay stubs, 2 years of tax returns, 401k statements, life insurance and check your credit score. If your credit score is low you may need to make some changes to improve your credit rating. It is important that you do not do anything that could adversely impact your credit score (ie late payments on any bill, open up a new credit card or increase the debt ceiling on a new card etc).

FINANCING THE PURCHASE

When purchasing a home there are really only 2 options in securing funds for the purchase.

The first, and most desirable, for a seller is cash. This means there will not be a third-party lender who is part of the transaction. It is possible that the buyer will borrow funds from someone who is not part of the transaction – like a parent who could gift the buyer. If you are a cash buyer you will be require to provide to the seller “proof of funds”. This will show the seller that funds are available for the purchase.

If you will be borrowing funds from a 3rd party lender (getting a mortgage) you will probably be require to provide a “mortgage pre-approval” to the seller. In order to obtain a mortgage pre-approval, you will need to contact a lending institution and provide them with whatever documentation they require in order for them to be comfortable in providing you with the pre-approval. The amount of information require varies significantly from the different lending institutions.

I recommend that buyers should get a certified pre-approval which has been approved through underwriting. This means that the buyer has provided the bank all the personal information they need to approved the loan. The only additional information needed is the address of the home being purchase and the appraisal. This type of pre-approval significantly improves the strength of the offer vs. the normal pre-approval. I will talk about this more in the section discussing the offer.

VIEWING HOMES

Even before you start viewing homes you should prepare a list of what you like in a home. The more details you are able to list, the easier it will be to select homes that could work for you. I always ask my clients what are you looking for, and the more information they provide makes it easier to find the right home.

It is important to have your financing set up prior to viewing homes. This will help you to establish price guidelines for your purchase. Also, the market is currently very competitive, and, if you see a home that you would like make an offer, I could submit the offer the same day that we saw the home.

Just about everyone starts their search utilizing one of the various real estate search vehicles. I think the most popular are Zillow, Trulia and Realtor.com. Generally speaking, all the real estate sites provide the same information. They all are getting the same data downloaded from the various multiple listing sites. Most buyers are putting in their requirements, and the sites will send them the latest information on homes that meet their criteria. When you see a home that looks good you should contact your agent and set up a personal tour of the home.

The current market is a very strong sellers’ market, and lots of sellers are accepting an offer within a couple of days of listing the home. Therefore, when homes are listed you may not have much time to submit your offer. If you see a home that looks good make arrangements to see it as soon as possible, and then make your decision on whether to make an offer.

THE OFFER

I take the ethical responsibility of fairly negotiating contractual terms very seriously. As your agent I have a fiduciary responsibility to represent you, and your interest to the best of my ability. It is my job to find a win-win agreements that are beneficial to all parties involved to keep the deal going forward. All offers should clearly provide all terms of the agreement. This includes who is buying the home, the purchase price, funds being contributed by both buyer and, if needed, any third-party lender, contingencies, contract and closing dates. Buyers should also provide dates when the contingencies will be resolved, and proof of funds. We may even have to deal with the sellers receiving multiple offers. Normally when this occurs the sellers will ask for “highest and best” offer by a certain date. There are ways to improve the quality of your offer other than just increasing the price. Some points that should be considered are:

1. Greater than 20% or more down payment – a larger down payment is attractive to a seller because it helps mitigate the risk of the appraisal not coming through.

2. Consider obtaining certified pre-approved mortgage that was discussed earlier. A pre-approved mortgage has already been reviewed by the underwriter, and the only step that needs to be done is the home appraisal. This should reduce the time significantly to have a clear-to-close for the mortgage.

3. Waive the appraisal contingency – if you do this, you must be prepared financially to cover an appraisal shortfall.

4. Waive the inspection – this could be risky particularly for older homes, but is certainly attractive to the seller.

5. Waive the mortgage contingency – only consider this if you either don’t need a mortgage, or you know for certain that a mortgage will not be a problem.

6. Cash with no contingencies – obviously the best option for a seller.

7. Close at the seller’s convenience – possibly even rent the home back to the seller if they need time to find a new home.

All of these options have a certain amount of risk, and as your agent, I will help explain all the angles and pressure-points for you. This should be discussed before making an offer so you have time to some thought on how you would like to proceed.

The initial offer may not be the final offer, and there are a number of terms and conditions that may influence the final outcome of a price. You can trust me to help you thoroughly understand the details of your offer.

An effective agreement is a legal arrangement between a potential purchaser and the property’s seller. Laws vary from state to state, but in order to be a legally binding agreement, the agreement may require consideration (a returnable cash deposit). This consideration (initial and additional deposits) will be held in your attorney’s escrow account pending the fulfillment of conditions or contingencies in the effective agreement.

I keep written records of everything, and will provide you a copy of all documents. For the sake of clarity, it is useful to transcribe all verbal agreements including counter-offers and addendums in writing for our records.

Now that you have chosen your offer, you and the buyer will be given a timeline to mark every stage in the process of closing the real estate contract. Meeting the requirements on time ensures a smoother flow of negotiations and also ensures that each party involved is not in breach of their agreements. During the process, I will keep you constantly updated so you will always be prepared for the next step.

WHAT HAPPENS WHEN THE OFFER IS ACCEPTED

When the buyer makes an offer, it could be conditional based on various contingencies. The most common contingencies are the home/property inspections and mortgage/appraisal contingency. If these contingencies are not waived during the closing process the buyer has the option of rescinding their offer without penalty.

Inspections

The first step is that most buyers will have the property inspected by a licensed property inspector within the time frame that was agreed upon in the agreement to purchase. You may want different inspectors if you wish to obtain professional opinions from specialists in a specific area (i.e. septic, pools, etc.). If the inspectors find issues can ask that the seller resolves the problems, or give a concession at closing.

Appraisal

If the agreement is conditional upon financing, then the property will be appraised by a licensed appraiser to determine the value for the lending institution via a third party. This is done so that the lending institution can confirm their investment in your property is accurate. If the home appraisal is less that the agreed upon selling price of the home the buyer may request the price to be adjusted to be consistent with the appraisal. Cash buyers can also do an appraisal to ensure that they do not over pay for the home.

Attorney

As soon as an offer is accepted, if you have not already done so, you should retain an attorney specializing in real estate. Your agent will then send the attorney all the details of the purchase. In both Connecticut and New York both seller and buyer must be represented by a licensed Attorney. The seller’s attorney normally prepares the first draft of the contract, and will send it to the buyer’s attorney. The buyer’s attorney will review it with his clients, make any necessary changes, and have the buyers sign the contract, and make any additionally payments as require. Once the contract is signed it is return it to the seller’s attorney to be reviewed and signed. Typically, the contract will be fully executed when all the contingencies, except the mortgage contingency, have been resolved. This will normally take around 2 weeks from when the offer was accepted. Clearing the mortgage contingency can take 4 to 8 weeks, and when this is done the buyer will receive a “clear to close” from the mortgage company.

Walk Thru

The walk thru is normally done on the day of the closing by the buyer. The owner has moved out. The buyer will inspect the property to ensure nothing has changed since the inspection. Additionally, the buyer will confirm any changes that the owners agreed to do have been done. This is normally the final step before the closing.

SUMMARY

This outline briefly summarizes steps in the buying a home, and gives you a pretty good idea of what to expect. The actual process certainly will be different, and normally there are issues that need to be resolved. What is really important I will be your only real estate contact during the entire process. I will do whatever is necessary to make sure that we close, and will be available anytime to discuss and deal with any issues that may come up during the process.