Major Steps in First Time Home Buying
1. Knowingly Choose a Real Estate Agent FIRST; Before The “System” uses “Procuring Cause” to Pick Your Agent For You. Know Who Is On YOUR Side from Day 1 !!
Annually, about 93% of residential transactions involve a real estate agent. Therefore, as a buyer, you have a 93% chance of having to deal with one. It is so tempting to wander in and out of Open Houses or to call and/or email a listing agent about a home s/he has listed on the internet. The system is set up to get a buyer to do just that.
People often scour the internet, surfing from one web site to another, browsing URLs with houses for sale. It is so easy and seemingly so non committal. Plus, the listing agents faces are so conveniently located next to or near those houses. It cannot hurt to ask a question of a listing agent. Right ? It can’t hurt to pop into an Open House now and then. Right?
Not so much.
Each time you contact the listing agent of a home, you are actually communicating with someone who has already committed to work ON BEHALF of the Seller of that home. Would you ever contact the lawyer of someone who already represents your opponent ? No. Then why would you call a real estate person who is already positioned against you ?
Further, because of a relatively unknown aspect of the real estate business known as “Procuring Cause”, the “system” may actually choose your agent FOR you. Totally unbeknownst to you. That is why, as a buyer, NEVER let an agent show you a home until you have met with that agent prior to viewing any home. Under “procuring cause”, merely seeing a house with a listing agent can “lock” you into using that real estate agent for that house, as well as, possibly, other houses.
In Pennsylvania, it is best to have a written agreement between yourself, as a buyer, and the real estate COMPANY which you desire to represent you BEFORE you view even one house. In order to hire a company that will never enter into Dual/Designated Agency, the best choice is an Exclusive Buyer Agency.
2. Figure Out How Much YOU Can “Afford’. It is NOT, Necessarily, How Much a Bank Will Loan You.
It truly is a great idea to be pre-qualified/approved for a mortgage loan. It can be a terrible feeling to look at homes, fall in “love” with one, only to find out that it is way outside your monetary comfort level. Plus, talking to a reputable and knowledgeable loan person will get you initially familiar with how the entire process works. You will begin to see that there is more money into a transaction than simply the purchase price.
There is something positive to be said about spending as much as you can “afford” on a house that you love, that also makes a wise monetary investment. However, what a lender says it will loan you is often waaaaay more than you are comfortable in spending. Having a few sample “Fees Estimate Worksheets” at various price ranges will allow you to be better educated as to what dollar amount you can “afford”, according to YOUR definition of “afford”.
3. Determine your “Needs, Wants and Can’t Stands” List.
Armed with a fairly decent idea about your price range, now it is time to turn your attention to how to find THE house. Putting thoughts to paper ( or tablet ) is a great place to start.
Many years ago, we used to provide a checklist for buyers. It was about 3 pages long and had a great deal of detailed questions. There were a variety of categories ranking various characteristics from 1-5, etc.. We soon realized that it became very cumbersome for buyers. It gave them too many choices. Plus, it was not very flexible. Home search parameters tend to change over the time of a search.
That is when we can up with creating a simple “Needs, Wants and Can’t Stands” list. Simply take a pad of paper ( or use your tablet ) and create 3 columns: Place “NEED”, “WANT” & “CAN’T STAND”, each at the top of the page, in 3 columns.
A “NEED” is something you absolutely must have. Examples are ” a minimum of 3 bedrooms”, “a minimum of 2 full bathrooms”, ” a price range of $150-$225,000″, etc.. NEEDS tend to be space, size and location related. Usually, these are very objective and definable items.
A “WANT” is something you would prefer, but it is not imperative. For example, “skylights”, ” a finished basement”, etc.. WANTS tend to be more subjective items. Often, they are characteristics a home owner can add over time.
A “CAN’T STAND” is exactly what it says. If the house has it; you do not want it. Examples include items like “dated kitchen”, “wallpaper”, etc… In fact, this category is a bit of an inverse to the “NEED” category.
This list rarely stays static. As buyers become more familiar with what their chosen market has to offer, NEEDS can become WANTS, WANTS may become CAN’T STANDS, etc.. So much is driven by your budget.
For example, you may NEED “walkability” to shops, restaurants, etc. Metro Pittsburgh has a number of neighborhoods and towns that have just that. You may also NEED a garage. However, a great many houses in these types of neighborhoods were built before automobiles were common. So, you may have to give up on the NEED for a garage to keep the NEED of “walkability”.
If more than one person is involved in the final decision making process, it is a great idea for each party to independently write his/her own NEEDS, WANTS and CAN’T STANDS list. Each party should try to NOT take into consideration the potential thinking of the other(s). Then, each come together with one another and compare notes. Come up with a final list.
4. Start Looking At “Candidate” Houses In Earnest
Now that you should have hired your Buyer Agency, it is time to look in earnest for homes. Your agency should be a member of the MLS that covers the areas of interest for you. Praedium Real Estate Services is a member of the West Penn MLS.
From an Exclusive Buyer Agency, you will receive an Unbiased list of homes that are truly listed and fit your criteria. With your Praedium agent, we will help you navigate all the data so you are well versed in MLS code. It is best to view homes that well fit your “NEEDS, WANTS and CAN’T STANDS”, so as not to waste time looking at places that simply do not fit the list.
With the advent of satellite photos, multiple interior and exterior shots, etc., so much can be eliminated merely from your laptop, tablet or smart phone. Yet, most buyers still want to see the inside of a house before deciding whether or not to purchase it. So, it is best to weed out as many homes as possible, up front, so you do not waste time.
While other online “sources” such as Zillow(R) and Trulia (R) may have interesting gadgets, etc., they are not up to date sources as to what is for sale. Only information sent to you from the password protected MLS database is truly accurate.
There exist other sources, not within the MLS, which are known as FSBOs (For Sale By Owner).
Once you and your Praedium agent have determined what places are “Candidates” to view, your agent will arrange those viewings in line with your schedule and the showing instructions in the MLS for each home. In each home, we will help you evaluate the bad, as well as the good. Our job is to provide you with OBJECTIVE advice, helping you to make an objective decision.
5. Prepare A Strategic Initial Offer and Negotiate to a Fully Executed Agreement
Once a house has been found that “fits”, it is time to put together a written offer. The Pennsylvania Association of Realtors (R) Standard forms are the most commonly used. Your Praedium agent and you will sit down and plan an initial offer that takes into consideration a variety of factors. There are many variables within an agreement of sale. Price is merely one of them. How much “hand money”, how much down, what inspections to include, when to close, etc., all come into play when putting an offer together.
We like to look at the initial offer much like a first serve in tennis. You can use the initial offer as an ineffective “lob” over the net, meant merely to get the ball into play. The better way is to use it as a means to dictate the point. Try to “Ace” the seller, so to speak.
Usually, terms are negotiated within 2-3 offer/counter offer exchanges. Once the agreement is “signed, sealed and delivered”, the buyer’s time frame to make mortgage application, perform inspections, etc., begins. We often suggest that our clients look at the Agreement of Sale much like a script of a Broadway play.
Each negotiation takes on a life of its’ own. We do our level best to map out a strategy that prepares our clients for the road ahead. While negotiation is not over until the closing happens, usually it is “done” after the various home inspections are completed. Your Praedium Agent’s job is to try and get you the best terms and price possible.
6. Navigate Through “Thumb Twiddling Time” Until Closing
Once a home is fully under agreement, there is about a 45-60 day period between Day 1 of a fully executed and initialed Agreement of Sale and the closing date. The first 7-15 days are generally a flurry of activity for you, the buyer. These are primarily occupied by inspections and loan application. Once the inspections are out of the way, and the loan application is made, there generally occurs a period of 2-4 weeks in which you seem to be doing nothing. Yet, much is going on behind the scenes.
Thus, for you, much of your time seems idle. That is why we have come to call this period in the process “Thumb Twiddling Time”.
It often helps to look at the home purchase as if it were a Broadway play being acted out in real life. The Agreement of Sale is the script. YOU, the Buyers, are the stars. The Sellers are supporting characters. However, the players list does not end there. Just as with any theater production, there are numerous people, both seen and unseen, that impact the quality of the visible production.
By the time “Thumb Twiddling Time” has begun, you will already have met the loan officer, as well as your inspector(s). Both are very visible and critical players in your production. Indeed, they are significant supporting “co-stars”. Here is a partial list of behind the scenes participants.
Once you have made loan application, the approval process begins. The “underwriter” is the collector of much, if not all, of the information that has been presented about you ( income, tax returns, employment history, etc. ) AND the property ( appraisal, flood certificate, quality of title, etc.). The underwriting team analyses all the information before finally producing a “loan commitment letter” for you which says, “Congratulations ! We will loan you the money…..”.
Also, there is a closing/title company that researches the title to the real estate. They generally prepare/collate all the documentation you and the seller will sign for the closing. Often handled by a lawyer ( we STRONGLY recommend that your closing be handled by a closing LAWYER ), it the title/closing company’s job to insure that the title is “good and marketable” for you.
The appraiser is hired by the lender through a third party known as an “Appraisal Management Company”. Armed with the actual agreement of sale for the subject real estate, the appraiser visits the home and prepares a report that compares the subject home to sales and other listings of comparable homes in the neighborhood. Ultimately, the appraiser presents an “opinion of value” within the appraisal report that is then provided to the underwriter.
A surveyor is someone licensed to present varying types of written visualizations of “what is in the deed” relative to real estate. 99.9% of the time, a survey is not “required’. The lender does not require one. The title/closing company does not generally require one.
That said, it is an EXCELLENT idea for you, the buyer, to have one done anyway. As the saying goes, “you just never know”. For the typical cost of $350-$425, you can have a survey done, in your name, that depicts the metes and bounds of what you are purchasing, as well as a written depiction of the house and yard improvements.
Various Municipal Employees
This group is perhaps the most under appreciated, yet significantly impactful group, relative to ultimately closing on your home. Depending on what municipality in which your home sits, there may be a municipality ordered building inspection, dye test, etc. Also, it is from these entities that final “no lien” certificates are presented to the title/closing company. These letters are critical to making sure that you, the buyer, are ultimately obtaining a good an marketable title.
7. “Approach for Landing” to Closing
Usually about 7-10 days before the closing, you will have received the Loan Commitment Letter. In essence, it gives the final instructions to all involved as to what final details are required to finally make your home YOURS. Much like the first 7-15 days, this last 7-10 days presents a flurry of activity on your part.
It is very much like the time period between when the captain of an air flight gives the final notice of “Approach for Landing”. After having been gliding along for a while, it is time to put laptops away, put your seatbelt back on, re-set trays to their upright position, etc..
The underwriter will probably be asking for some last minute documentation. You will be given the utility company information so you can call to set up the transfer of the utilities to your name. The title company will be further verifying the clearance of title. Also, about a day or 2 before closing, the title company will have been given instructions from the lender. It is from these instructions that a final HUD-1 ( settlement sheet ) will be prepared and you will know your “final cash to close” amount.
A time and place will be set for closing. A walk through will be set up, usually right before the closing. There, you and your Praedium agent will walk through your new home, making sure it is in satisfactory shape at the time closest to when you will actually be signing on the dotted line. Assuming all is well, we will then head to the actual closing.
At this point, all the documents have been prepared and await your signature at the closing. The closing ( also known as the “settlement”) company meets with the sellers and buyers around a conference table at a mutually convenient office location. While you should be prepared to sign your names about 40-50 times, the major items for signature will be the 1) note, 2) mortgage, 3) deed and 4) HUD-1 / settlement sheet. Your Praedium agent will be with you to guide you every step of the way.
Once all the papers are signed and you hand over your certified “cash to closing” check, the keys are turned over to you and it is time to celebrate ! Congratulations on owning your first home !!