Stages To The Purchase Process
We found a house that you are very interested in.
What next?
Below is an outline of the steps and issues we typicaly address with our clients.
1. Disclosures
Look over the property’s disclosure packet, which I will obtain for you. This is usually a multi-page document packet that should include a current termite report and other seller disclosures required by law, and home inspections. This information may reveal the condition of the property & help you decide on an offer price.
2. Comparable Sales
Look at comparable properties that have sold in the area over the last 6 months. This identifies a reasonable price range for the property. Price per square foot (sale price/square footage) is one way to determine a range of value. The comparables, combined with the final number of offers on the home you’re looking at, will aid in your decision on an offer price and terms. Don’t rely on how much other houses have sold above their list price. Sometimes an agent will intentionally “lowball” the list price to excite buyers and start a bidding war. List price is an arbitrary number that may not reflect a home’s market value, so “percent (or amount) over list price” is not an accurate way to determine the value of your desired home.
3. Optional Strategy
Before writing an offer, consider a pre-inspection in which you look over the home with an inspector, 2-3 hours in length, at a cost of $400-600. This inspection covers roof, electrical, plumbing, foundation, heating, etc. Knowledge of the home’s condition beforehand helps make informed decisions. Pre-inspections are used by some experienced buyers if there is a lot of competition for a home. With the knowledge you gain from the pre-inspection, you may be able to write a stronger offer (see #4 below) You need to be sure about the house and really want it to spend money on a pre-inspection -- if you don’t make a winning offer and get the house, your money will be wasted.
4. Writing the Offer
We sit down at the office and determine the best terms and price for the property. Items to consider: Days to Close Escrow: This is the number of days until you’ve got the keys! Usually 30-45 days. Loan Amount: How much cash can you put down? What will you borrow to buy the home? Inspection Contingency:* We may ask for a certain number of days to do our own inspections. If the inspections turn up serious new issues, we can renegotiate or cancel the deal. If we’ve done a pre-inspection, we may offer no inspection contingency to make our offer more competitive. Loan Contingency:* We may ask for a certain number of days to see if we can definitely get the loans you’ll need to purchase your home. If we can’t get the loan(s), we can ask for an extension or cancel the deal. If you’re pre-approved for a loan, we may offer no loan contingency to make our offer more competitive. Appraisal Contingency:* We may ask for a certain number of days to see if your new home appraises for the sale price we’re offering. If it doesn’t (this is rare), we can cancel the deal. The appraisal contingency is related to the loan contingency, because your lender is the party that’s most concerned about the appraisal value. Personal Property and Fixtures: If you’re dying to have those custom drapes or the antique wardrobe, we’ll be sure to mention it specifically in the offer. The law defines many items that are automatically included in the sale (fixtures), but we can add other items if they’re important to you and if the seller is willing to part with them. *NOTE: CONTINGENCY PERIODS PROTECT YOU FROM SOME RISKS. If you make an offer without contingencies, you will be exposed to those risks and may suffer negative financial consequences. It’s important that you fully understand the benefits and risks of making an offer without contingencies. I’m here to educate you and help you make an offer you are 100% comfortable with.
5. Acceptance
I will submit your offer and wait for the seller’s response. The seller can respond in three ways: Acceptance: This is what we want. They like your offer, your check is deposited in escrow, an you are “In Contract” Counter-Offer: They are technically rejecting your offer, but they are offering you a different offer. Usually they want either more money, or better terms, or both. You can then accept their counter-offer, reject their counter-offer (walk away from the deal), or make them a new counter offer (which triggers their three options to respond again). Rejection: No deal. Your deposit money is not deposited, and you walk away with no obligations to the seller. Upon acceptance we open escrow with the title company named in the contract. Your deposit check is forwarded to the title company (usually 1-3% of the purchase price which goes towards the down payment). Your lender is notified and a copy of the signed purchase agreement is sent.
6. Inspections
Complete inspections (usually 5-14 days). Hire a home inspector (see 3. above) and other specialized contractors, as deemed necessary. Newly discovered safety issues or structural defects are items that affect property value. Defects include hazardous electrical systems, bad foundation or badly worn roof, among other defects or deficiencies. You may want to renegotiate the contract price in the form of credits or price reduction from the seller (example: if we find out that the home needs an extra $5,000 of termite work, we might ask the seller for a $5,000 credit against the purchase price).
7. Loan & Appraisal
The lender orders the appraisal (costs $300-500 for single family homes) to come out and assess the value of the home. The appraiser looks at recent comparable sales in the area and the condition of the property. Payment typically is at the time of the inspection, or made through escrow at close; ask your lender how they operate. Once completed, you remove the appraisal contingency and loan contingency (these may or may not be contingencies on purchasing the home).
8. Home Insurance
Obtain a home insurance carrier; perhaps try your auto insurance carrier. Call around and compare rates with companies such as Allstate, State Farm, or others. Insurance is getting more difficult to obtain! Carriers often require good credit and a clean record with prior carriers. YOU SHOULD GET AT LEAST A FIRM QUOTE DURING YOUR INSPECTION CONTINGENCY PERIOD (Not getting home insurance on a property could be a deal-breaker, so we need to make sure you’re set while you still have time to back out).
9. Signing Loan Documents
Sign loan papers at the title company (usually 5 days prior to close). Today or within the next two days, you will deposit into escrow a cashier's check (or wire transfer) for the balance of the down payment and closing costs due. The exact amount for closing will be calculated by your escrow officer when he/she receives the loan documents. Your agent will get you that dollar amount prior to signing (usually not more than a day before) or when you go to sign. You should have a day to get the funds to them, talk with your agent about timing.
10. Utilities
Prepare to transfer power, water, phone, cable and garbage. I will give you a list of utility company phone numbers about a week prior to the day of close.
11. Walk Through
About five days prior to close, you walk through the property again and check that everything is in the same condition- the lawn is still alive and trimmed, they did not take the stove you asked for in the contract, etc.
12. Funding
Funding means that the money you’re borrowing has arrived (by wire) at the title company. Funding happens at least a day prior to the closing date. The bank transfers your borrowed money to the title company, and your first payment, made through escrow, will be prorated based on the closing date.
13. Recordation
On closing day, usually a business day or two after the funding day, the title company goes to the county courthouse to file official records of your ownership and your loan(s). This official filing is called recording. The title company closes the escrow account and I’ll give you the keys to your new home!
14. Move in
Mail forwarding and Just Moved Cards. Fill out a mail forwarding card at the Post Office (or use their online service at moversguide.usps.com), notify friends, family, social groups, and businesses of your new address and phone number, and start making this home yours!
15. Celebrate!
Reward yourself; you have made it through a sometimes difficult and stressful process, made a significant financial investment and accomplished a major milestone. Celebrate with friends and family. There's the process. I will help you through all of this and make recommendations along the way.