This page aims to provide buyers with more information and a better understanding of how today's real estate transactions work. Here is a breakdown of the most significant steps in a buyer transaction:
1. Letter of pre-approval from a mortgage broker/lender
When a buyer plans to obtain a mortgage to finance their purchase, they need to consult with a reputable lender before even looking at properties. To help narrow their focus and save them time in the long run, it is crucial for the buyer to know how much they can afford. A pre-approval is a letter of "preliminary approval" that a lender provides after analyzing a buyer's income and expenses and he/she submits the necessary documentation. The buyer will need an updated pre-approval at the time of offer. This pre-approval is included in the offer package as the seller will want to have the assurance the buyer is financially qualified to purchase the home.
2. Submitting an Offer to Purchase
The buyer's agent prepares the Offer to Purchase. The offer to purchase will outline the terms the buyer is offering to the seller to purchase their home. Price, deposit amounts, performance dates, and additional provision are all included. The offer for the property is submitted electronically by the buyer's agent to the seller's agent. Upon receiving the offer, the seller has the option of accepting, rejecting, or countering. When both parties are in agreement, the offer is signed. In order for the offer to purchase to become legally binding and enforceable, the acceptance must be communicated. The deposit is then delivered.
Multiple offers are possible
An offer situation involving multiple offers occurs when a seller receives more than one written offer at the same time. A seller's agent will typically set an "offer deadline" when multiple offers are expected- meaning all offers must be submitted by a certain date and time. The seller's agent may not disclose to other bidders the offer price and terms of the other bids without the seller's permission. Typically, once the seller has reviewed all the offers, he or she will: accept the offer with the best price and terms, choose one of the offers and negotiate to reach an agreement or ask for a “highest and best” from all the bidders to see if anyone is willing to sweeten their offer. In most cases, the seller will accept one of the offers without negotiating, so it is vital that a buyer puts forth their best offer in the time that the deadline for offers is approaching.
3. Deposit Amounts & Dates
The first deposit is due when the Offer to Purchase is made and is typically $1,000. A copy of the check is included by the buyer's agent when the offer is submitted electronically. After both parties execute the offer, the deposit will need to be delivered to the listing brokerage in the manner agreed upon. Funds are due the same day as the Purchase and Sale agreement is executed for the second deposit. The deposit may range from 3-10% of the purchase price, but sometimes it may be higher depending on the buyer. Deposits can be made by personal check, e-check, or certified check. Your agent will confirm arrangements with you. Deposits are typically held in the Listing Brokerage's escrow account, so the check should be made payable to the Listing Brokerage unless otherwise indicated. A mutually agreed-upon release must be executed by all parties before funds can be released if a buyer utilizes a contingency or defaults on an obligation outlined in the offer.
4. Acceptance of the offer to purchase
When a buyer and seller reach an agreement and both sign the offer, it is considered 'accepted'. As a result, the buyer and seller have binding legal obligations.
5. Schedule Your Home Inspection(s)
The deadline for inspection(s) and type(s) of inspection(s) is/are outlined in the Offer to Purchase. Inspection(s) are typically completed between 7-10 days following offer acceptance. The inspection(s) should be scheduled immediately to allow for enough time to conduct and review the inspection(s).
6. Consult with and hire a REAL ESTATE attorney
It is critical for the buyer to hire a real estate attorney when purchasing real estate. They specialize in real estate conveyance and will represent the buyer's interests at every step. A real estate attorney prepares all legal documents, ensures there are no liens, easements or covenants on the property, and ensures that it has a clear title. These attorneys are also proficient in current real estate contract language as well as the guidelines of TRID (TILA-RESPA Integrated Disclosure).
7. Perform the home inspection(s)
During the home inspection, if any unidentified or undisclosed material defects are discovered, the buyer may renegotiate their offer terms or back out of the deal as a result. If the parties cannot come to an agreement, the buyers are entitled to get their deposit back as long as they notify the seller before their contingency date and both parties sign a release.
8. Review and sign the purchase and sale agreement
A P&S is a legally binding contract between a buyer and seller drafted by a real estate attorney. Unless otherwise agreed upon, the terms outlined in the P&S are the same as those in the original offer. As part of this agreement, each party defines what needs to be done prior to and during the closing. The P&S contains clauses to safeguard both the buyer and seller. The buyer should work with an experienced real estate lawyer to protect their interests. The P&S execution date is not flexible without an agreed upon extension, so the buyer should aim to sign prior to the due date. On the P&S date, the second deposit funds are due and they must be available for delivery.
9. Continue with the mortgage application process
The mortgage application process begins when the buyer applies for pre-approval and the lender performs an initial evaluation of the borrower's purchasing power. As mentioned, it is based on the borrower's income, assets, and creditworthiness. As part of the process, a lender will outline all the items the buyer needs to provide. The buyer's best interests are served by providing the lender with accurate and timely information.
10. The lender orders an appraisal
Appraisals are conducted by licensed appraisers hired by mortgage companies to determine the value of a home. An appraisal is done by a third party who is unbiased. The purpose of the appraisal is to allow the lender to determine whether the home's value is sufficient to qualify the buyer for a mortgage in the amount sought. The amount of the appraisal outcome cannot be controlled by buyers, sellers, agents, or lenders. In order to determine an appraised value, the appraiser must adhere to specific guidelines. If the appraisal comes in low, the buyer's agent will explain the options based on the circumstances.
11. Staying on top of Mortgage Commitment Dates
It's crucial to keep track of the mortgage commitment date during the transaction, since that's the date by which the lender must commit to providing financing to the buyer. Keeping track of this deadline is essential, and it must never be passed without commitment, extension, or termination. Should buyers need additional time to obtain a mortgage, they may request an extension from the seller prior to the mortgage contingency date. If they are unable to get a mortgage, they must let the seller know before the commitment date to receive their deposit back. If after this date the buyers cannot get a mortgage, the seller has the right to keep the deposit. You should keep in mind that the deposit release guidelines agreed upon by both parties would apply in these circumstances.
12. Schedule and conduct the final walk-through of the property
A final walk-through at the property needs to be conducted by the buyer before closing. This ensures that the property's condition hasn't changed since the buyer's last visit, that any agreed upon repairs have been made, and that the buyer has met the contract's terms. Ideally, the walk-through should take place the morning before the scheduled closing date.
13. Closing Time
The closing date is when the deed is executed and transferred to the buyers, and the buyers officially take ownership. A specific closing time is usually arranged between the buyer's attorney and the buyer. This date is usually a firm date that won't be easily changed. A delayed closing may be caused by mortgage delays from the buyer or title delays from the seller. If a delay occurs, an extension may be granted and a new date must be agreed upon by both parties. Official transfer of ownership occurs once the funds are dispersed and the property is formally recorded at the Registry of Deeds.