Process Financing Choosing Your Realtor Writing an Offer Inspection
The Buying Process
87% of homebuyers in the United States used real estate agents when purchasing their home in 2015. At the onset of the relationship, the buyers felt that the purpose for hiring an agent was to “help them find the right home.” The benefits that the buyers most appreciated after the experience was behind them, was the agent’s “knowledge of the process, observations of unnoticed features and faults with the property and negotiating for better sale contract terms.”
Below are the usual steps to a residential home purchase in Oregon.
1. Pre-qualify for financing
2. Choose a Realtor
3. Set up search parameters
4. View homes
5. Write an offer on a home
6. Pending sale
7. Deposit earnest money
8. Complete the loan application
9. Order inspections
10. Home inspection and review of the preliminary title report
11. Negotiate repairs
12. Complete appraisal
13. Complete repairs
14. Reinspection and final walk-through
15. Sign closing documents
16. Close escrow
17. Key exchange: possession to buyer
Smart Home Financing: Borrowing Smart
Lender shop doesn’t interest rate shop
The interest rates are in constant flux. The closing fees are as important in qualifying the loan and lender as the interest rate. Lenders who have the greatest latitude to tailor the financing to your specific needs should be at the top of your list.
Give your lender the whole story
A great lender will adjust the type and terms of the loan based on your situation. If you expect this to be a “short term” house of three to five years’ ownership, you may take a slightly higher interest rate for lower fees up front and end up paying less to the lender over the life of the loan. Your lender will find out about the source of any money used as cash to close, so tell them the source of funds up front. Also, let your lender know if you have anything derogatory in your financial story. This will empower your lender to structure the loan for success instead of disappointment in the eleventh hour.
Keep your application moving forward
The home loan effort is a team effort. Promptly pursue any requested documentation during the process. Don’t over-personalize the questions asked or the documents required. The underwriters are required to have freakishly detailed files before offering you loan approval. If your lender is not calling you weekly, call them and ask what the next step will be and ask if they need anything from you.
Keep your Realtor in the loop
Give your lender permission to speak freely with your Realtor. As a team, they can work as your advocate toward the common goal of getting you the home. The Realtor needs to know PRIOR to writing an offer if you and your lender have planned on the seller’s participation in your loan fees. Remember that this will reduce the appeal of your offer to the seller, so consider all the edges of the choice of seller participation in loan fees.
Choosing Smart: The Right Realtor
41% of all buyers in the United States in 2015 found their real estate agent by referral from a friend, neighbor or relative. 12% used an agent with whom they have previously worked and 10% find their agent/advocate from the internet. 67% of all buyers never spoke to more than one agent before deciding on their real estate agent of choice.
- Find the expert in your marketplace.
- Spend some time with the Realtor you are considering as your advocate. Realtors are not all the same. Realtors can be in business for many years and have a lot less experience than a much “newer” Realtor.
- Look for an advocate in your Realtor.
- Do not choose the Realtor because they found you the home. They could be the listing agent or a low-sales volume Realtor. You will want independent counsel from the seller’s agent and you will want an experienced agent who understands the hurdles, challenges and opportunities on the path to closing a sale.
Interview Questions for Realtors:
- What is the Realtor’s sales volume in the past twelve months?
- Have the Realtor describe the market that you are about to enter: What percentage of sales were similar to the home you are seeking or selling? Is it a buyer’s market or seller’s market?
- What does the Realtor believe their role in the transaction will be?
- If you are a buyer, how will the Realtor assure that you know of every home that meets your parameters?
- If you are a seller, how will the Realtor assure that everyone that should know about your home is informed?
- What is the Realtor’s average time on the market for a home sale? How far off their list price do their listings usually sell for?
- Demographically speaking, who will be the likely buyer of the home?
Writing a Smart Offer on Your Next Home
Finding the home is only the beginning of purchasing a home. The homebuying process has many check points and consumer protection requirements. For example, the seller is required to disclose any latent material defective of which they are aware to a buyer. But as a consumer you must be prepared and alert to deadlines and commitments in order to protect your rights.
Review the home price with a real estate agent
Review the trends of other home sales similar to this one and recognize what varies from the success stories: Has this home been on the market and inordinate length of time? Is it priced above the other homes similar in size, amenities and location?
Review the other opportunities that you have as a buyer
You want to know if this home is a “dime a dozen” or a real minute commodity. What is your best alternative to a negotiated offer in this market place and at this time?
Investigate the seller’s motivation and “hot buttons”
A competent real estate agent will investigate what is important to the seller aside from price. Is there a sensitivity to timing for the seller based on where they are heading from here?
Be completely open with your advocate — your real estate licensee
If they do not know what you can or are willing to do, then this means either, one: you do not trust them enough to be handling your negotiation; or two: you are not working as a team in developing the message. The agent cannot work outside of your written instruction; you will retain all the control on what you choose to accept or decline.
Brainstorm on how to gain the confidence of the seller
This can be a strong lender letter, verification of cash available to complete the sale, or even a letter telling your story and expressing your excitement for living in their home as your new one. You want the seller to want to work with you.
Write the offer as if everything is going to go right and as if everything is going to go wrong
That is, with a strong Realtor and in some cases, an attorney counsel, look at the opportunity while also reviewing and minimizing the risks of your offer.
Be prepared to not let the “ball die in your court”
Some people feel as if they need come out of the gate with an extremely low or high ball offer, or terms that make no sense to the other side but would be ideal for them. Keep your eye on the long term goal and stay grounded in what you have set as your limitations, but find a way to send a response that steps toward the other party regardless of how offensive their offer seems.
Smart Due Diligence: Home Inspection and Review of the Preliminary Title Report
Now that you have an accepted offer, it is time to drill down on what it is that you are buying and to confirm that it is what you expected. Unless you asked for an improvement or repair in your initial offer, you are purchasing the home in “as-is” condition. However, you have a right and a window of time now to discover what this condition is. Here are some steps to take to assure you have a full understanding of your purchase:
Find your inspector
Work with your Realtor to find inspectors who will give you the greatest detail on the home’s repairs, deferred maintenance and future maintenance needs. Most homes need to be inspected from the rafters to the subfloor by a whole house inspector, on the roof by a roofing contractor and below the floor by a pest and dry rot inspector.
Get an onsite review
Work with inspectors who encourage you to meet with them at the end of their inspection to get an onsite review of their findings. A written report will not be as clear or comprehensive as the discussion at the property, but technology will help the inspector to photograph any area of concern.
Get independent inspections from your lender
Remember that the appraiser for the lender is not working on your behalf. Some buyers believe that the bank’s inspector/appraiser is working with the buyer’s best interest in mind. Although the buyer and bank’s interests may parallel in regards to wanting to see the home in reasonably good condition, the bank is merely looking to verify that the home is sufficient collateral for the sales price and that the structure is solid without need for major structural improvements in the next three years.
Use only licensed inspectors and contractors in review of the property
Remember that the seller will want to confirm that your request for repairs is reasonable. That is, any reasonable buyer would see this as a problem and want to have it resolved before ownership. With an objective professional’s opinion in writing, the buyer has a much more compelling argument.
Review the status of the title and all attachments to the deed in a timely manner
The preliminary title report tells you about the factors that you cannot see when viewing a home. For example, does anyone have any rights of use or ownership on the property? By reviewing the title report, you will learn about any homeowners’ association associated with the home, covenants, conditions or restrictions. This includes rules of the neighborhood on parking vehicles or the color you can paint your home. You will also see if anyone has rights to pass over your property or easements for a particular use. Utility companies often reserve the right to get to overhead or underground wires that cross your property.
Work with your Realtor
If you see anything that you don’t understand in the preliminary title report, pursue it early in the transaction with the assistance of your Realtor.