The Complete Buying and Selling Process Step-By-Step
This is the complete buying and selling process explained step-by-step. This tutorial is given so you can be more informed about not only the buying and selling process, but also to understand the benefits agents can provide in the reale state transaction.
Quickly jump to any topic by clicking the following steps. If you'd like to read it in its entirety click on Step 1 and then scroll down.
What is agency? How does agency affect your agent? What is designated agency?
Agency is the first important thing to know about when working with an agent. Agency in itself is a relationship. This relationship is a beneficial relationship for you, the buyer. You have this relationship with the agent that you work with. By having someone work for you, that person works as your agent, which is referred to as a designated agent.
What is so important about this agency relationship?
It is important because it is a vital factor when buying a home. This relationship is a structured, organized, and established relationship that ensures that there is someone who knows what they are doing looking out for your bests interest. Without agency, you'd be by yourself and left up to your own means to protect your own interest.
Consider for a moment a person accused of a crime. That person would likely hire an attorney to represent them in court. Their attorney would not only know the law better than the individual, but would also be able to represent this person so as to protect this peson's best interest. Similarly, a real estate agent that represents a buyer or seller in a real estate transaction works for a client with the client's best interests in mind.
As your agent, your agent will be experienced in the local real estate market. They are professionals in their field, which is only earned through experience, education, and research. And from that an agent can represent you and help you to get what you pay for.
So it is here with agency that everything is started. You and your real estate agent agree with each other that your agent will be in an agency relationship. This can take the form of us signing a form agreeing to this representation or it can be a verbal expression with each other. Either way, you both are in understanding that your agent is looking out for you and protecting you (and ultimately your wallet). It is then that your agent becomes your designated agent.
An example of when it can be a detriment to buyers without this type of relationship is when buyers give information to the wrong party. They disclose certain details to another real estate agent that is not their designated agent and who is working for someone else. That agent can then use such information to his own advantage for the person he is working for. (This is not to say that agents are intending to take advantage of the other party, but agents do have a goal of getting their clients the best deal possible, which just so happens to be in opposition of the other party.) You the buyer, could ultimately have put yourself in a position where you lose monetarily. And it is for this reason that agency exists. The agency relationship exists so you can go to your agent and disclose to him everything knowing that you can trust him. Then the agent speaks for you to the other party, representing you, so that your best interests are never compromised.
DUAL AGENCY:
Dual agency is a type of representation that isn't as common. It would come about if the buyer and the seller both were clients of a single agent. That agent would be acting as an agent for both the seller and the buyer. In this instance, that agent would still owe duties to both clients. That agent couldn't discuss with either clients the motivations or prices of either clients. That agent would also treat all clients with honesty. Basically, the agent would provide information for both clients so that they can make an informed decision. One difference in dual agency is that negotiation isn't a factor. Since there isn't another agent for the agent to negotiate with, each client would have to make a decision based on the facts that the agent provides them. The dual agent would act as a mediator between the clients conveying the information.
What does the bank do when buying a home?
The Bank is the first stop when buying a home. At the bank you can find out how much you can afford. It will be a good idea, if you don't know a loan officer personally, to go to the bank which you currently hold checking or saving accounts with. Your already have a relationship with this bank and can use it as a springboard to help you get a loan.
Go to a "loan officer" and tell them that you are buying a home and that you want to see how much you can afford. The loan officer will ask you for information and documents. They may request past tax returns, bank statements, and income verification papers.
The loan officer will get all of this information together, verify it, and then assess it. From the assessment they will find out how much you can afford. And from them you can get a pre-approval letter stating that "Buyer Smith is pre-approved for such-and-such amount of dollars". You can then take that letter to your real estate agent, and whenever you make an offer on a house, you can use this to better your position, and make your offer more appealing to the seller.
Important: Pre-qualification and pre-approval are not interchangeable. Pre-qualification is more like an "educated guess". Pre-approved is where they have verified your information and have been pre-approved for the loan. Whereas pre-qualifying someone can take a few minutes, it can take a day or so for someone to be pre-approved.
The next step is to start the search! You'll want to know what houses are available to pick from. Your agent will have access to any house that is up on the market. So whenever you see signs on the road, regardless of what real estate company has it for sale, you can call your agent and your agent can get the details for you. Remember, it is best to call your agent, your designated agent. Also, you'll want to know about what comes up as it comes available. Your agent will be able to set an appointment to view the property.
The showing is basically where you go and look at the house. At every showing your agent will personally accompany you to the house and guide you through it. Your agent will arrange for you to be able to see it at whatever time you decide on, and then will ensure that you can get a key to get into the house.
Once the appointment is set up, then you'll preview the property. If you do not like the property, then your agent will leave and can go to the next house. Some buyers look at only a few houses before they buy the right one, but most buyers look at several before purchasing.
Tip for first-time homebuyers: Look at many different houses. Each house has something different about it, that you can like or dislike. You'll get a good sense of what you are looking for by what you like and don't like about houses. It is a great way to hone down your characteristics for that home. (Some agents can also preview the property on your behalf and take pictures of it and then email you those pictures. And if you like what you see then your agent can set up an actual tour of the house at a later time.)
If you are at a showing, and you really like the property, then your agent will then go to the next step in the buying process.
Likely one of the most important steps in the process is the offer. In the offer it is more than just asking to purchase the property for a certain price.
When you see a house you want, the first step is to put an offer in for it. You can offer the full price for property, but you don't have to offer full price. Many times buyers offer a little less than the asking price, and even sometimes offer more than the asking price.
Also included in the offer are lots of terms. It is all included in the Agreement to Purchase and Sell offer that you make. It will include the address of the property, how big the lot size is, and will also lay out all the rules and deadlines of the offer.
Mineral rights can be requested to be given to the buyer.
Financing: You will notify the seller of how you will finance the property. you could be paying cash or getting a loan.
You can also request for certain appliances to be reserved on the purchase agreement.
Once all of these things are done, your agent will present the offer to the selling agent. The selling agent will then present the offer to the seller, who will then respond to it within the deadline your agent set in the purchase agreement. If the agent doesn't like the offer he can outright reject the offer. But lets say that the seller would like to negotiate.
If the seller is negotiable he will then make you a counteroffer.
What is a counteroffer? Do you have to accept a counteroffer?
The counteroffer is basically a rejection of the initial offer, but it is similar to an alteration of the original offer. The seller could then raise the price of the agreement, or change some of the terms (like mineral rights, closing date, etc.). The counteroffer stage can go back and forth until an agreement is finally made or the offer is rejected.
What happens after the acceptance?
When one party accepts the other parties offer, then all parties have come to an agreement. This is a pivotal point in the buying process. Once an offer is accepted, you have to ensure that several things take place. Your agent will be there to ensure that you do the things t hat you need to do in a timely manner. Timing is everything in real estate. There are several timelines that you have agreed to under the purchase agreement, and your agent is there to see that all of your obligations are met.
What is a deposit? Why have a deposit? What does a deposit do?
The deposit is a monetary commitment that you are making to buy the property. If you back out of the agreement for no reason other than changing your mind, then you will likely lose that deposit. The seller is at liberty to keep the deposit as consideration for the liquidated damages that the seller had incurred while the house was off the market. Deposits are usually not less than $500. Sometimes they are $1000. Sometimes several thousand dollars. The deposit amount is up to you, and the more you put the deposit as the more serious the seller will take your offer. Generally the bigger the price of the house, the higher the deposit. The deposit is generally made via personal check, which will then be cashed in a non-interest bearing checking account of the listing agents real estate office.
The purchase agreement spells out under what circumstances you can get the deposit back. Instances where you can get your deposit back:
- You inspect the property and cancel the contract do to an unsatisfactory inspection.
- You are unable to get financing for the property.
- The house does not appraise and the seller refuses to reduce the sales price.
TIP: The deposit will be held until closing. During closing you can add this amount to the total purchase amount of the property. So it isn't like you will never see the money again. At closing you can choose to either pocket it or to use it to go toward the closing amount.
What is a home inspection? Should I have an inspection? Why have a home inspection? Do you have to have an inspection? How long does an inspection take? When does the inspection take place?
DEADLINE: Within X days, you will have to have hired an inspector to inspect the house and have communicated the results to the seller. (Your agent will ensure this happens. The X is a variable, meaning that the purchase agreement allows you to choose how many days you want to have to do your due diligence. 10 days is typical for residential houses.)
A home inspection is where a licensed inspector looks at a house and notifies the buyer of any defects with the property. While having an inspection is optional, it is highly recommended to have an inspection performed.
The inspector’s purpose is to point out all the flaws in a property. He doesn’t give advice on whether it is a good buy or anything like that. He sticks to the facts. If you need advice, your agent, could give you the advice you need or refer you to the proper person who could… Again, you don’t have to exercise your right to perform an inspection, but it is wise to do so. Inspectors look the house up and down, and can interpret the condition of a property that the public cannot readily distinguish.
Lets say on day 2 the inspector goes to the property and inspects it. The inspection can cost you around $350. your agent would then accompany the inspector as he goes through the inspection process. The inspector would explain to you any defects.
If there is a defect that the inspector discloses that makes you not want the house anymore, then you can call the agreement off and start looking for another house.
But you don't have to call it off, if you'd still want the house if that defect was resolved. If this is the case, then your agent could request the seller to fix this defect. The seller would have the option to fix some, none, or all of the requested repairs. If you come to an agreement with the seller at this point then the buying process goes on...
It is also up to you, the buyer, to choose the Title Company. This company will handle all of the legal aspects of the deal. They generally cost about $500 or so. It varies from company to company. What the title company does:
- Ensure the seller of the property is the proper owner
- Ensure the title is clear.
- Ensure that there are no liens on the property. (A lean is a debt that is owed in relation to a particular property.)
- Ensure that the proper papers are signed at closing.
Your agent will get them the proper paperwork that they need, as well as handle any inquiries about the property.
What is an appraisal? Why get a home appraisal? What does an appraisal do? Should you get an appraisal? Do you have to get an appraisal?
The Appraisal is optional if you're paying cash for the property, but still a good idea to get. Banks typically require appraisals. The bank sometimes takes care of the appraisal, but they may leave it up to you. In either case you will pay for the appraisal yourself. Regardless of if the deal goes through, you will not be refunded the amount you pay for the appraisal. It may cost you $350 or so to have an appraisal done on the house. The purpose of the appraisal is to verify the price of the house. While, your agent's expert advice is helpful in ascertaining the price the house with the current market, appraisers almost always give you an objective third-party verification of the price. Appraisers use past sales of similar homes to come up with the value of the home. This is similar to my Comparative Market Analysis (CMA) that your agent does for sellers when they want to see how much their house is.
The appraisal will be done by the appraiser and you'll get a pamphlet back from the appraiser telling you how much the house is valued in his own opinion. He will also explain how he came up with the price, and will give you details on both your house and the comparative properties that he used. They generally include pictures of the property as well.
- If the appraisal for the house comes in higher then nothing changes.
- If the appraisal comes in at the same price then nothing changes either and the deal moves forward.
- If however, the appraisal comes in lower than what you are purchasing the house then you have a decision to make. Do you still want the house for the price you originally agreed upon?
- If you do then you can pay the higher amount and move on in the buying process.
- If you don't want to pay the over-appraisal price then your agent will then notify the selling agent of the under-appraisal.
- The seller then has the option to lower the original price amount to the appraisal amount
- Not lower the amount at all.
- Meet you somewhere in between.
- If the seller doesn't want to budge on the price, then you can cancel the purchase and get your deposit back.
- If the seller wants to meet you somewhere in between the appraisal price and the original price then you can either accept it or cancel the purchase.
- And of course, if he agrees to lower the original price to the appraisal price, then you must proceed with the sale.
What types of insurance are there when buying house? When should you get insurance on a house? Do you have to have insurance on your house?
As America saw with Hurricane Katrina, insurance for a property is necessary. There are different kinds of insurance that you will need. Here are the two most common.
Homeowner's Insurance: This will cover you home from fire and other things like that. If you are getting a loan, then they will require that you get this type of insurance. If you pay for the house in full with cash, then it is up to you to insure the house or not.
Flood Insurance (If Applicable): Not all houses are in flood zones, but if your house is, then you'll need to have flood insurance on it for you to get a loan. Even if flood insurance is not required by the bank, it still is a good idea to have it.
What is a walkthrough? Do you have to have a walkthrough? When does the walkthrough take place?
The walkthrough is an option where you can go and inspect the property before buying it. It can happen the day before the actual purchase of the property. Your agent would set it all up, just like a showing, and during the walkthrough your agent would accompany you through the property. You will then check to make sure that all of the repairs that were previously agreed upon were resolved to your satisfaction, and also, make sure that the seller has "maintained the condition of the property" like swept the house clean and got rid of the furniture and kept the lawn cut. This is one agreement the seller made with you on the purchase agreement. There are alternate measures to take if the seller fails to do some of these duties.
What happens at the closing? What is a closing? Where does a closing take place? When does a closing take place? What does a closing do?
The closing table is something you may get worried about. You may have lots of misconceptions about what a closing table is. But it is actually just what it says it is. It is a table that you, your agent an attorney, and the other agent and the seller will all sit around. Sometimes a loan officer is present, and sometimes the seller does not attend. During the day of the sale, your agent will meet at the Title company's office that you chose. There you will sign all of the loan papers and sale papers to finalize everything. Your agent will review the papers to make sure everything is on the up and up. After everything is signed, you will receive the key!
(Also, you may be wondering, but it isn't until you get the key that your agent actually gets paid for all of the work your agent did for you. Your agent gets a pre-established commission that the seller prior agreed to pay for any agent who finds a buyer for his property. Your agent will ultimately be paid from the proceeds of the sale.)
Now you can read a case study of Mike's example of how when he bought a house: Buying Process Example
