The Home Buying Process Demystified
The home buying process is wrought with potential pitfalls and challenges, but when done right can be relatively painless. As champions of homebuying, we’ve created this step-by-step guide to help you through the process.
Below you’ll find an overview of the home buying timeline as well as the major components of the home buying process with links to the various steps, tools, and information to educate and empower your home search, discovery and purchase.
How Long Does it Take to Buy a Home?
Your timeline may vary, but the following is a good guideline
- Preparing to Buy a Home: 3-4 weeks
- Initial Search for Ideas: 1-4 weeks
- Building a Team: 1 week (overlap initial search)
- Pre-Approval of Mortgage: 12-48 hours
- The Home Search: 4-8 weeks (depending on criteria)
- Contract-to-Close: 14-60 days
So, on average a homebuyer will spend 30-60 days shopping and 14-60 days from contract to close. For some folks, the process can be extremely quick taking as little as 30 days total, while for others, the shopping period alone can last several months.
How Much Home Can I Afford?
The first step in the home buying process is understanding if you have the resources to buy a home. This includes knowing how much home you can afford, what type of down payment and monthly mortgage payment to budget for, as well as what type of loan program you’ll use to finance your new property.
Buying a home is a complicated process that requires a good deal of research. In the course of it, there will be a number of professionals and specialists involved. Once you’ve done your homework and assessed your resources, you’ll need to assemble your team.
Assembling Your Team
After you have a good understanding of your own wants, needs, and goals, it’s time to assemble your team and begin the home search! Who should be on your team? Who you’ll need to find on your own may vary, but the key team members could be: Real estate agent (could be a RealtorTM but not all agents are), home appraiser, title company, home inspector, insurance agent and mortgage lender.
When selecting the members of this team, take the same amount of care you would in choosing a home, because these people will be working for you to help you do just that. Trust & communication are key considerations in working with your team.
Sorting Out Your Finances
With the selection of a mortgage lender comes the application for mortgage pre-approval, a task that requires collecting the necessary financial paperwork to help obtain the approval. Once obtained the clock begins ticking because many pre-approval offers have a limited life-span before they expire.
Your Home Search
While you juggle the paperwork and timelines implicit to the process, remember that your team works for you. Now your search for (and discovering) your new home begins. Research, save, view and repeat. Remember Homes.com has all the tools you need to find and keep track of your favorite properties and home shortlist.
You’ve got a mortgage pre-approval in hand and have found a property you can afford to purchase and see yourself living in. Time for a purchase offer to a listing agent or seller!
Once you receive an acceptance offer, the due-diligence period starts a timeline of checks and tasks for final mortgage approvals, appraisals, inspections, and other requirements that would be stated in the terms of the contract.
Assessment, Conditions & Negotiation
Many consider this to be the most difficult part of the home buying process as it includes, but isn’t limited to, inspection, obtaining the final loan, purchasing insurance, and the potentially arduous negotiation. In this part of the process, every member of your team will be utilized, and the more homework you have done in building your team, the smoother this part will go. Those who haven’t conducted their proper due diligence could potentially see the purchase fall apart at this point.
Closing the Deal!
A successful closing requires all of the team players to come together at the same time, with the same agenda, on the same date, with numbers and figures that match. From the start of the home search to the home inspection and closing the deal, the entire home buying process can take most homeowners about three months.
Considerations When Buying a Home
Home ownership is not for everyone. Some prefer the flexibility of being able to move to a new city or country every few years. Others are more focused on big projects in their career or education to devote the proper time to buying a home. Some simply do not have the resources. Whatever your situation, it’s important to know the right reasons to purchase a home.
Owning a home is a big responsibility. There are both financial and time costs associated with the ownership and the upkeep of a house. If putting in the time and money is something that you can make central to your life, then you might be ready. There can also be outside, societal pressure to buy a home, as many see home ownership as a universal stepping stone. Make sure you are buying a home for you, and that homeownership will fit your life and life goals.
Financial readiness isn’t just whether you have enough for a down payment or not. Because you may qualify for a mortgage it doesn’t mean you should borrow money for one. Before you begin looking to pre-qualify, make a budget for yourself. Calculate the true costs of homeownership. Look where you stand with debt to income ratio.
Perhaps you need to pay down some credit card debt before considering applying for a mortgage, maybe you’re expecting a child, or looking to go back to school; all of these can be valid reasons to wait to purchase a home.
Security and Stability
If your debt is low, work life is stable, and you plan on staying in the same location for the next five years, you should be looking to purchase a home. At a certain point, the monthly rent check is money that could be better spent on building equity. If the money you spend on rent seems like it’s getting thrown away, deep down, you may be thinking of buying a home. If you already own a home, but that new promotion has started to make you feel like home maintenance is a waste, you also may be ready.
Should I Buy or Rent a Home?
The decision to purchase a home is one of the biggest choices in anyone’s life. For most, a home will be the most expensive thing they ever own. In the past, home ownership was seen as a natural progression in the course of someone’s life. But today, many people happily rent for years on end, and never find an appropriate time to make the jump to homeownership. So how do you know if you are ready to make that leap?
Setting Your Priorities
Although there may be a perfect home waiting for you in your desired area, the unfortunate reality is that many home buyers have to make compromises during their home search process. To be prepared, understand that there may not be the perfect house in the perfect location at the perfect price and in the perfect condition you require. Although this doesn’t mean that you won’t find a house you can afford in your perfect location, be prepared to be flexible on:
- Price of the home + extras
- Location of the home
- Condition of the home
If you know what your priorities are, then finding your ideal place to call home is both possible and realistic!
Location. Location. Location.
If location is your #1 priority, yet buying in that location will price you out of several of your other priorities, then you might have to compromise in several ways:
- Look for a different home type within the community, such as a smaller single-family home, a townhome or condominium. Decide if you can live with one less bedroom or other features on your list.
- Consult with a lender or a financial planner to discuss your options for increasing your budget. While no one should overspend on a home, you should recognize that going above your price range when you’re financing your purchase with a 30-year fixed-rate loan may only add a small amount to your monthly payment (e.g. $10,000 might only cost an additional $30 / month).
- Lower your expectations about the condition of the home. While everyone prefers a move-in ready home, you can often get a better deal on a home that needs some cosmetic repairs. Do your legwork though, as cosmetic repairs might cost more than you think once you dig a little deeper.
Homebuyers all face the same tug-of-war. Home price, size, location, commute, amenities and many other considerations all grapple for attention. Although all features seemingly have equal importance, many could be objectively classified as ‘nice-to-have’ over ‘must-haves.’ Often something or somebody has to make a difficult choice, but ultimately ideal compromises can lead to a perfect (or almost perfect) home choice.
What You Can’t Compromise On
You can’t compromise on having good, qualified professionals on your home-buying team. Attempts to cut corners or compromise on this part of the home buying process will only lead to pain further down the road. Do your due diligence in selecting these people for your team, and make sure they always have your best interests in mind.
Closing Costs and the Full Price of Homebuying
In the home purchase process, the sale price of the house itself is only part of the cost of buying. Besides the down payment, there are always closing costs in any home sale. Closing Cost is a singular term for a wide variety of fees and payments, paid out to a wide variety of people involved in the sale, upon which the sale depends for going through.
This is not a complete list of all closing costs, but a list of the most common ones. The different fees involved to close a home sale can vary widely from state to state.
Fees to the Lender
- Application Fee: The cost for the lender to process your application. Includes a credit check for your credit score or appraisal as well.
- Escrow Deposit: Frequently, two months of property tax and mortgage insurance payments.
- Homeowners’ Insurance: This covers possible damages to your home. Often the first year of insurance is paid at closing.
- Lender’s Policy Title Insurance: This is insurance to assure the lender that you own the home and the lender’s mortgage is valid, and it protects the lender from potential problems with the title.
- Loan Discount Points: One point equals one percent of your loan amount. This is a prepaid interest payment that lowers your monthly payment.
- Origination Fee: This covers the lender’s administrative costs. Often 1% of the total loan.
- Prepaid Interest: Most lenders will ask you to prepay any interest that will accrue between closing and the date of your first mortgage payment.
- Private Mortgage Insurance (PMI): For those making a down payment that’s less than 20% of the home’s purchase price, you will most likely be required to pay PMI.
- Property Tax: Lenders will want any taxes due 60 days within the purchase.
- Underwriting Fee: This covers the cost of researching whether or not to approve you for the loan.
Fees to Others
- Appraisal: For the appraisal company to confirm the fair market value of the home.
- Closing Fee: The title company or escrow oversees the closing as an independent party in your home purchase.
- Home Inspection: The home inspection will verify the condition of a property and recommend any home repairs that may be needed.
- Recording Fees: Charged by your city or county recording office, to keep up to date the public land records.
- Title Company Search Fee: Paid to the title company for doing a search of the property’s records. Ensures that no one else has a claim to the property.
- Transfer Taxes: This is the tax paid when the title passes from seller to buyer.
You’ve made your first step by visiting Homes.com, a simply smarter way to search for your first or next home!
Now learn a little about the tools we offer and discover more ways to focus in on your ideal home.
Homes.com aims to make your results and experience more personal, to help you set the priorities that are important to you and your home search partner(s)!
Homes.com Innovations For Your Home Search
There’s more to finding the perfect home than just matching the right price and number of beds and baths. Our conversational search begins the search experience and easily navigates you to your ideal location, gives you insights into average area pricing, and allows you to intuitively select match criteria that matter to you most. With many match filters offering a “must have” and “nice to have” option and ‘around’ option on pricing, your search results can surface many more relevant listings than traditional search filters. To help you assess how close of a match each property comes to your criteria, each home results clearly displays a match score which shows on a scale of 0-100 just how close your match is in meeting your personalized needs.
The search results’ page allows you to sort by match score, as well as more traditional sort orders (such as price) and our intelligent algorithms help you discover more properties through ‘close matches’ as well as expanding selection by noting limiting match criteria (e.g. “you could see more homes if you made ‘pool’ a nice-to-have”).
Homes.com Match really does offer a smarter search experience, which means you’ll find exactly what you want, and won’t miss out on homes you might like.
Homes.com Snap and Search (beta)
You can try out our innovative photo-to-home feature by uploading, referencing or (on mobile devices) taking a photo to almost instantly match with alike-looking homes in the area you select. Another way we want homes.com to be your go-to address to find your new address!
Whether it’s where you grew up, a house you pass on their way to work, or something you’ve seen on your favorite TV show, Snap and Search (BETA) can sift through architectural styles, building materials, and more to find similar properties. Simply choose any photo, whether it was taken, saved, pinned, or posted to start searching.
Keeping everyone on the same page during the home search can be tricky. HomeShare makes it simpler; no more texting and waiting for your spouse or significant search partner to check their email! With HomeShare you can find, share, and discuss listings with your home search partners (your agent included) in one place.
HomeShare helps categorize and simplify your shareable lists of favorites, accessible from both search results’ pages and home detail listing pages, to easily share with those that care, and help everyone decide on the perfect mix of must haves versus nice-to-haves!
Fully integrated into the home search process, HomeShare is simpler and smarter collaboration tool!
Homes How To
Within the resource you’re reading is a treasure trove of key information to help educate and empower you and your search partner(s) to both understand and appreciate the home search process. We also offer valuable information on selling an existing home, renting and financing your home purchase.
Whatever the need you have, the Homes How To section should provide everything you need and more! Check back here often and on our home tips blog to catch up on any updates or tweaks we make frequently to keep this resource as up-to-date and valuable as possible!
Building Your Home Buying Team:
The People You’ll Need on the Path to Home Ownership
Buying a home from a seller is not a one-on-one experience. Both Buyer and Seller will need to convene a team of professionals and experts to inform, aid, and guide them through the home buying process. As a buyer, who are the people who will be on your team, and what are their roles? Here is a breakdown of the most common and most important people on your side.
Even if you’re a seasoned home buyer, working with experienced professionals can be to your advantage. Your agent and lender are key to the process—from searching and negotiating to financing and filing paperwork. Finding the right people to help you takes time, but can potentially save you thousands of dollars down the road.
In most cases, buyers rely on the help of a real estate agent throughout the entire homebuying journey. When you first meet with your agent, you’ll discuss your goals and priorities in home buying, and the agent weighs these desires against current trends in the market. A good agent is knowledgeable in market prices, neighborhood qualities, and real estate law and will help you strategize the experience. Your agent should meet up with you as you shop for homes, and use their experienced eye to point out features and flaws in the home that you might otherwise miss. Agents get involved in the final negotiations for a home, and can be an advocate during closing. Often, agents are the ones who hand you the keys when it’s all said and done.
Your lender is the one who allows you to borrow the funds to purchase your home, typically in the form of a mortgage. The lender is the only one who is with you during the home buying process as long as your agent, and likely, for years after the home is purchased. At the beginning of the home buying process, the buyer will apply for pre-approval from multiple mortgage companies, usually three. After pre-approval, some buyers choose to switch their mortgage to another company, but most often, buyers borrow their mortgage from the company that pre-approved them. From then on, the mortgage company works with the buyer and the agent to hire the appraiser, orchestrate the escrow, and finalize the closing costs. After the sale, your lender will handle things like property taxes and insurance payments (in an account also called an escrow account, but separate from escrow that was set up during the sale), until such time as the mortgage is paid off.
However similar they may seem, a home inspector is different than an appraiser. The Home Inspector enters the homebuying process fairly late, after an initial offer has been accepted but before a final price is negotiated. The Home Inspector takes a deep dive into the home’s condition, and estimates the cost of repairs. Armed with this information, the buyer can ask the seller to complete some of these repairs themselves, lower the total purchase price, or terminate the sale altogether. The importance of a Home Inspector cannot be overstated, and this person should be involved in pretty much every kind of home sale.
The title company legitimizes the title of the property and issues insurance for the title. This protects the buyer from any outstanding claims over the ownership of the property. The Title company can also be the one that handles the Escrow Account, the trust that holds the money and important documents until the purchase agreement is closed.
The appraiser is the one to determine the value of the property for sale. Standing between what the seller thinks the property is worth, and what you want to pay for it, is the appraiser. An appraiser does an on-site walk-through of the home, interior, and exterior conditions, and documents its compliance with property standards in addition to comparing other similar home sales in the area to determine the home’s value. In most cases, the Lender will have their own appraiser and is paid through the Lender as part of the loan agreement.
The insurance agent comes in after the home inspection. Many lenders will not close the sale until the buyer has purchased insurance on the home. There are two main types of homeowner’s insurance: a replacement-cost policy, and cash-value policy. A replacement-cost policy is more expensive than a cash-value policy, but it’s a good idea for older homes where the cost to replace is probably higher than the value of the property itself. A cash-value policy protects the home from depreciation in the market and ensures the home is insured for the amount you purchased it for.
Frequently Asked Questions
Do I Need a Real Estate Agent to Buy a Home?
Typically, as a buyer, the real estate agent is the person who is by your side throughout the home buying process. Many homebuyers stop at the agent’s office first, even before they’ve worked out their finances or applied for pre-approval. But what does the real estate agent do? Who pays them? And what, if any, are the advantages of going without one?
What Do Real Estate Agents Do?
Real Estate agents are professionals that understand real estate law, local and current market trends, and the attributes of different neighborhoods. They see a lot of homes and meet a lot of homebuyers so they can offer advice and examples about what to do in the myriad of specific issues that crop up in the complex process of home buying.
Agents are there as you shop for your home, doing the walk-through, and helping you set your priorities. The agent can be involved in the negotiation of your sale price, and work with you to close the sale. At best, the buyer’s agent is a personal advocate, who works hard to help you achieve your dreams.
Who Pays A Real Estate Agent?
In most instances, there is a seller’s agent and a buyer’s agent, and the seller pays both commissions. On average, the commission is around 6%, which is split evenly between the two agents. Many argue that since the seller is paying for both agents anyway, there’s no reason NOT to hire an agent.
Another note: Buyer’s Agents and Seller’s Agents are also referred to as Selling Agent and Listing Agent. If you hear those second two terms used, just remember: the Selling Agent represents the Buyer, and the Listing Agent represents the Seller. It can be confusing phrasing, but in the Seller/Listing Agent dichotomy, the Selling Agent represents the Buyer, NOT the Seller.
The Real Estate Agent Mind Shift
For many, gaining an agent represents the moment when the home buying process becomes real. This is no longer daydreaming about homes online, figuring out your preferences, or assessing your finances. From this point on, your options should be clear to you, and the buying process concrete. Your real estate agent is there to focus your intentions and to move you swiftly onto the next step in buying a home.
Now with your agent and team, it’s time to get smarter about your searching. A good agent is one that you can communicate clearly with, and that listens to your top priorities. This communication works both ways: you should ask your agent a lot of questions to unload some of the potential worries or concerns inherent to the process of buying a home.
Optimally, your agent will be able to collaborate in the search process, helping you weed through your selections faster than you’d be able to alone. allowing you to narrow down the choices with in-home walk-throughs. As your collaborative search continues, the agent will continue to be your advocate, navigating bad deals and sniffing out swollen price points. If all goes well, your agent should be with you all the way to the close of the sale.
Smart Search Features on Homes.com
Over the years, technology has dramatically changed the way real estate agents do business and find leads. Through all those advancements, Homes.com’s mission has always remained the same: help buyers and sellers connect with local agents. Now, we are pleased to introduce a new era of home search with the new Homes.com. With fun collaboration tools, a new industry-first photo search, and artificial intelligence, buyers and sellers can finally search how they think. Here are a few of the top changes visitors to Homes.com will find!
(learn more about these tools here)
Searching Smarter with Homes.com Match
Our conversational search experience accounts for “must have” and “nice to have” criteria to bring you listings you may not have found using traditional search parameters.
Homes.com Snap and Search (beta)
Snap and Search (BETA) can sift through architectural styles, building materials, and more to find similar properties for to ones you like.
HomeShare makes sharing your favorites’ lists simpler, with intuitive collaboration tools to easily find, share, and discuss listings with family & friends.
Homes How To
Homes How To empowers buyers, sellers, and renters with information to navigate the home search process with confidence.
Ready? Your agent will guide you based on your financial situation, the price points of your home search, and the local market conditions, but now’s a great time to look at finances and the advantages of mortgage pre-approvals.
How to Get Pre-Approved on Your Home Loan
In order to get pre-approved, you’ll need to contact a lender. The lender will review your credit reports, your employment history, and your income — and then determine which loan programs you qualify for, the maximum amount you can borrow, and the interest rates you will be offered. Obtaining pre-approval means that the lender is confident in your ability to pay off a loan.
Information to Provide for the Pre-Approval
This process is a simplified version of what you will ultimately go through to get approved for your final loan. Lenders are generally interested in your financial history for the last two years: two years of pay stubs, taxes, and residency. Information on your current assets and bank statements from any savings or investments are required as well. Also, a valid photo ID (Driver’s License, Passport,) and social security number for a credit check.
What to Do With Your Pre-Approval
In many cases, the lender that gives you your pre-approval is the one that approves the final loan, but not always. Some borrowers, learning more about the process, decide to go with another lender. You should feel free, before the loan is locked in, to consider competing offers.
The pre-approval gives the home buyer an idea of what their monthly payments, down payments, and terms will look like. The pre-approval is not just what you think you can afford, but what you can actually afford. A pre-approval letter is a great way to show agents and sellers that you have the resources and are serious about buying a home.
How to Get Pre-Approved by a Lender
It’s all in the paperwork & preparation
Obtaining a mortgage requires an extensive accounting of your personal and financial life. The mortgage application can appear to be a daunting prospect, but a little organization in your files and paperwork can go a long way. Go over this list of information and documentation required to apply for a loan, and get a jump on your application.
Information for the Federally Required Mortgage Application
- Full Name, Birth Date, Social Security #, Phone Number
- Number of children, their ages, marital status
- Residence history for the last two years; for renters, this includes landlord’s name and monthly rent. For homeowners, all mortgage, tax and insurance info for all properties owned.
- Two years of employment history: companies, addresses, titles held, contact
- Two years of income: includes bonuses, commissions, and self-employment
- Account Balances for all banking: checking, savings, retirement, investments
- Current fixed debt: credit cards, mortgage, car payments, alimony, child support, student debt
- Documentation of bankruptcy (in the last seven years), lawsuits, or a co-signer on any property
- If a percent of the down payment will be borrowed
Documentation Required to Obtain the Loan
- Written authorization for the lender to run a credit report
- Written explanations for anything derogatory in the credit report
- Discharge papers from Bankruptcy (if in the last seven years)
- For renters, 12 months of canceled rent checks from landlord, or a form confirming on-time rent payments
- If renting to others, applicable lease agreements and bank statements
- If selling while buying, confirmation of the listing agreement
- 30 days of pay stubs
- Two years of W2 forms
- Two years of personal federal tax returns
- For the self-employed, two years of business tax returns
- For the self-employed, year-to-date profit and loss statement
- Documentation of child support and alimony payments, and divorce decree
- Two months of bank statements from checking, saving, retirement, and investment accounts
- If you are receiving gift funds, a statement from the giver confirming the gift is a gift and not a loan
How Your Credit Score Could Affect Your Ability to Obtain a Loan
If you know your credit score, this general breakdown will give you an idea of what you could be working with.
720+ Excellent Credit: Should easily qualify for a variety of mortgages, obtain good interest rates and low fees.
680 – 719 Good Credit: Most likely able to qualify, with a decent interest rate and standard fees.
620 – 679 Fair Credit: A chance to qualify, with fewer options, higher interest rates and fees.
580 – 619 Poor Credit: Difficult to qualify, with much fewer options, higher interest rates and fees.
350 – 579 Bad Credit: Unlikely to qualify for a mortgage, with some exceptions.
Mortgage Blog Articles
How to Find a Lender
Using Homes.com professional search functionality you can find lenders across the US. Information for local mortgage professionals can also be found on each of our property detail pages, as well as through the recommendations of your real estate agent or brokerage.
Are There Any Homes That Don’t Require A Mortgage?
Not all home purchases require a mortgage, but for most buyers a mortage is the easiest and most logical option for affording a home.
Open Houses & Agent-Accompanied Tours
Basics That Every Home Buyer Needs to Know
By this point in the homebuying process, you’ve found a realtor you can trust, have been pre-approved for a mortgage, and understand how much house you can afford. It’s time to get off the Internet and do a physical walk-through of a few likely home candidates.
How Do I Prepare/What Do I Bring to the Walk-Through?
Most pre-approval offers expire in 60-120 days, so from the time of your pre-approval, the clock is ticking. When it comes to house hunting, saving time is not wasting time. Be thorough, but be organized. There is no overall average on how much time you should spend on a walk-through, but whatever you spend, don’t rush it. Remember – you cannot view 10 properties in an hour; it’s just not a realistic goal. Make sure you plan out a driving route on house hunting day so that you can view all the properties in the same area with efficiency, saving time and energy in the process.
Savvy homebuyers will bring a moisture meter with them to the walk-through. Moisture meters are good for pointing out leaks and other moisture problems and can preempt problems with mold. If you see spots of softer wood or stains on the ceilings or wall, use the moister meter. A good read should be around 16%, but under 28%, the home is still fixable.
Besides the moisture meter, you should bring a checklist for what to look out for in a home; Homes.com has designed just such a checklist for you to download here.
What to Do Before Making Your Offer
You’ve reached the point in the home buying process where you’ve found a home that you want to put an offer on. So now what goes into making that offer, and what sort of homework should you do before making it?
Look up information on homes that have been recently sold in the area, and ones that are most similar to the one you’re thinking of putting an offer on. Size, age, number of bedrooms, number of baths, and overall condition are all good measurements to start with. The homes that share these similar features are referred to as Comparables (often called “Comps”), and they will give you an idea of what people are willing to pay for in your market. This will help you craft an offer that stands out to the seller.
Your agent is your second pair of eyes in the home hunting process, but that shouldn’t stop you from getting a third or fourth opinion. If you have a friend or family member who has experience in home buying, or who works in home construction or home renovation, ask them along for a second walk-through.
More than just visualizing yourself in the neighborhood, spend a little time there. What neighbors may be like during the day can alter drastically how they are during the night. Take a couple of walks around the block, or go on a few mock errands. Take a dry run of your commute as well; for some, that daily trip could be reason enough not to buy.
Take another look at your finances, and think beyond just the interest rates. At this point, you should be factoring in closing costs, property taxes, and maintenance on the home. A home that requires some repair at closing might get you a lower purchase price, but homes don’t get younger. Keep in mind that older homes will only require more repair down the road. Make sure you are up to date on all your finances and credit and are ready to apply for that final loan.
The offer that you make on that home really does require a lot of thought, and should. Think back to the list of your top priorities that you made before this began. Does this home still fit within them? Think about what you decided you could compromise on, how much you can afford, and what you might have to give up or compromise on. Take into consideration everything you’ve seen on this home buying journey, everything you’ve learned, and put that all information carefully into your offer.
Making an Offer
Now that you’ve zeroed in on the home you want to buy, it’s time to make that all-important offer. In homebuying, the offer is much more than a verbal ask, or a number written down on a piece of paper. There are a number of details that go into the offer, including timelines, contingencies, and earnest money, which should be fine-tuned to appeal to the seller while still getting you the best price for the home. You’ll spend time fine-tuning your offer with your agent (points noted below), who will represent you in the final negotiation.
Before Making an Offer
In considering what to include in your offer, make sure to take in neighborhood comparables – that is, homes of the same basic age and size, with the same comparable features. If there are comparables that have sold recently in your area, these homes will serve as a baseline for your offer. Your agent will be helpful in pulling up comparables for your home, and should already have this information for you at this point in the process. Agents will have at their disposal Comparable Market Analysis (CMA) that will make this part of the process much easier.
Besides just the current market sales of comparable homes, consider how long the home you’re looking at has been on the market if the price has been reduced over time and the general condition of the neighborhood. All of these things will end up being important points in defining your offer, as well as in the buying negotiations.
What Information Does the Offer Include?
- Sale price
- Address and description of the property
- Terms—that is: an all-cash transaction, or obtaining a mortgage for a pre-arraigned amount
- The time limit on the offer
- Seller’s promise to provide clear title
- Target date for closing, that is: the date of the sale
- Type of deed that will be granted
- State and local specific details
- Earnest Money – this is a deposit that buyers offer the seller to show that they are serious about the sale. If accepted, the earnest money will go towards the down payment or the closing costs.
- Agreement by which any and all utilities, real estate taxes, rent, or fuel is paid for/split between buyer and seller
- Agreement by which title insurance, survey, termite inspection is paid for/split between buyer and seller
- Agreement about any last-minute inspection of the property
- Contingencies – these are actions or benchmarks that the offer is contingent upon. That means a statement within the offer that reads, “This offer is contingent upon [blank].” Common contingencies include details of satisfactory financing obtained by the buyer, the time frame in which the home must be inspected, and the date of possession, among others.
Presenting the Offer
Work with your agent or real estate attorney to put all this information in writing in a way that will connect with your seller, and help you get the desired outcome… an acceptance of your offer!
Unfortunately, that may not be the only outcome! Instead of a simple “yes”, the seller could outright reject your offer and (possible) a negotiation process could begin. Or the seller could agree and you have a contract (our preferred outcome too!)
No matter what happens next, having a good agent or attorney review the details of all legal communications and contracts is critical.
Homebuying and Sale Price: What’s Negotiable?
In every homebuying contract, there are several components on the negotiation table: home repairs, real estate taxes, HOA fees, etc. But when it comes to the overall sale price, how far south are buyers able to drive the sale? Is there a rule of thumb when it comes to lowering the price? And at what point does the seller simply walk away? Here are some helpful things to keep in mind when negotiating sale price.
Home Value > Listing Price
Another one of the valuable abilities your agent brings to the table is a clear picture of what the home’s true market value is. If the listing price is above that, then you may have some wiggle room. Unless you are considering a “stale” home that has spent some time on the market, you’ll be hard-pressed to find anyone dipping below the home’s value. If the home you are looking at is already at market value, don’t wait – lock that one down.
Depends on the Market
Again, your agent is an invaluable resource on this one. They will know if homes are selling for 3% below the asking price or 13%. Depending on the market, a seller could see an offer at 5% below as a slap in the face, while in other markets, an offer at 15% below is common. Ask your agent if this is a house to negotiate on, and how far you should go. Negotiating the home price within 90% of the asking price is not uncommon; 25% below the asking price is rare.
The Inspection May Not Change Anything
A home inspection is a natural place for homebuyers to change their offer: if the inspection turns up problems that are serious enough, the responsibility of repair can find its way to the negotiation table, or the homebuyers may want to walk away altogether. But often the inspection turns up nothing, or the seller doesn’t find that the inspector’s report warrants any renovation before the sale. The home inspection is a deeply important part of the homebuying process, but not the point upon which you want the entire sale price to hinge.
The only way to not compromise in the home buying process is to not buy a home. Whether it be the sale price, the terms, repairs, possession: if you want the home, on one of these things you will ultimately have to compromise. Before going to the negotiating table with the seller, know where your own wiggle points are, and get ready to compromise in order to get what you really want.
What to Do When Your Offer is Rejected
The homebuying process can be a deeply emotional one, and one of the most emotional moments is the moment when your offer gets rejected. Many homebuyers, first time or otherwise, are thrown for a loop when their offer is rejected. The most important thing to do when this happens is not to panic, and to instead consider the following:
Some Seller’s Agents Tell Their Clients to Reject All First Offers
For good or ill, this is a common tactic. In particular, if you are buying in a seller’s market, be prepared for your first offer to be rejected out of hand. Many homebuyers do this because they want to see who is truly interested in their home, and who is willing to work to get it. Be careful though, thinking too much about the motivations of the seller can be a trap, which leads to the next point.
Consider, But Don’t Overanalyze the Seller
It’s always an advantage for the home buyer to know a few things about the seller. Things about why they are selling, and what they plan to do next can offer insight into their motivations. But don’t get caught up in analyzing the seller too much; doing so can waste precious time. Sometimes their only motivation is just that they think that they can get a better price.
Make Another Offer
You can always make another offer. Make the second offer as soon as you can, while getting advice from your agent and your family. If you started with a particularly low offer, perhaps your agent had this second offer waiting in the background. Others choose at this point to do away with negotiation tactics (which is a tactic to itself) and to simply let the seller know exactly the maximum they can afford on the property. If a seller doesn’t respond to your best possible offer, you know to move on.
Don’t wait too long to move on. If the seller isn’t responding to anything you’ve offered, then put this particular home behind you. The time you waste now, anguishing over the offer from/to this seller, could be time better used to put an offer in on another home. The homebuying process is emotional, and it can be easy to fall into the trap of thinking that this home is “the one.” That kind of thinking can potentially slow down the homebuying process, and in fact, keep you from the true home of your dreams.
What to Look For, and How it Impacts Your Offer
Conducting a private home inspection is almost always a necessary step in the home buying process. Home inspectors are in demand in many areas of the country, so it’s important to get their inspection scheduled as soon as you know the time window described in the contract with the seller. Research home inspectors in your area for positive reviews and ask friends for recommendations, your agent will also have suggestions of good inspectors in the area.
When you speak to the inspector, make sure you know exactly what they are covering. Will they check for asbestos? Will they test for lead paint? There are often state and local ordinances that the inspector will be aware of. Like with all the professionals you will hire, do not be afraid to ask questions. One thing most home inspectors don’t do is Pest Inspection, so if the inspector sees some signs of termites or other pests, you may have to hire a pest specialist.
On the day of the inspection, be there with the inspector. Most likely, the seller’s agent will be there as well to answer some of the inspector’s questions, and these are answers you’ll want to hear. At any part of the home inspection where you can reasonably follow the inspector around the home, do so. A good inspector will give you tips and advice on how to take care of this particular home as it ages. More than just the pros and cons of purchase, think of this information as the “driver’s manual” of the home.
What to Look for in the Home Inspection Report
The bullets below are the primary areas to an inspector’s report should cover. The report may contain more than this, and the inspector will let you know what they feel is most important. If the report does not include the status of the elements listed below, it’s your job to ask why and, if necessary, to hire another inspector for another opinion.
- Foundation: Cracks or shifts in the foundation; if the walls where they meet the floors/ceilings are level
- Roof: General age/condition
- Exterior/Lot: Does the drainage flow away from the house; are there “soggy” parts of the yard. When was the last time the house was painted? Is the gutter system working?
- Attic: Interior condition of the roof, leaks
- Room Leaks: Areas around windows, or below windows on lower floors.
- Basement: Moisture levels, insulation
- Electrical: Grounding, Circuit breakers, Switches. If there has been any “DIY” work.
- Plumbing: Condition of the sewer line. Any drips, noises, or leaks.
- Appliances: If applicable, the age and condition of the refrigerator, oven, dishwasher
- Heating/Cooling System: Age and condition of the furnace and/or central air
How the Inspection Might Impact Your Offer
A good home inspector should be impartial to the sale of the house, so they are mandated to tell you all about the condition of the house, not whether it should affect the home’s price. In many cases, the inspection does not change the offer between the buyer and seller at all, and simply gives the buyer a heads-up on things to look for in the home’s future. In the case that the home inspector’s report does flag something worth negotiating, the buyer has three options:
- Negotiate lower offer
- Request certain repairs
- Rescind offer
When it comes to requesting repairs, a buyer can ask for something as simple as a new screen on a window, or something as big as a new roof. When trying to decide between the three options above, consider the following: Did the seller already reflect the home’s damage by listing the home at lower-than-market value? What is the cost of the fix compared to the overall cost of the house? Depending on the house, sewer problems might be a fraction of the home’s costs, or it might be as much as the home itself. How much do you trust the seller to do the repair in the best way possible? If you think the seller might cut corners to close faster, you might want to negotiate a lower offer, rather than request repairs.
What to Look for on a Final Walk-Through
As a homebuyer, the home inspector will make their report to you, and you and the seller will agree on the seller making a few improvements and repairs on the property, perhaps lowering the sale price if necessary, as well.
After this has been agreed upon and the seller makes these repairs, the buyer does a final walk-through. This walk-through is to make sure that these agreed-upon repairs have been completed, and the home is in the condition you remember. The final walk-through will most likely be the last chance the buyer has to see the home before taking possession.
Final Walk-Through Checklist:
- The Exterior: Check the yard and the exterior of the building, especially if there have been any storms in the last few days. Check the paint, the gutters, or if there are any pools of water in the yard
- Turn All Light Fixtures On and Off
- Make Sure No Light Fixtures Have Been Removed: Chandeliers, Wall Sconces
- Turn Heat/Cooling Systems On and Off
- Flush All Toilets
- Turn on Water Faucets, Check for Leaks
- Check Oven, Refrigerator, Dishwasher
- Turn on Garbage Disposal, Exhaust Fan
- Check All Windows and Doors
- Check Screens and Storm Windows
- Check Ceilings, Floors, and Walls for Damp Spots or Stains
- Check Garage Door Opener
- Look in Storage Areas for Anything Left Behind
- Check for Any Other Agreed-Upon Repairs
While doing the walk-through, have your purchase contract with you. It will help you remember any small details involved. Some prefer to do the final walk-through alone, but, if they agree to it, there are some advantages to having the seller there to explain the repairs. This is by no means a must, however, and in many home sales, the buyer and seller never meet. This final walk-through should take you about an hour, and the time put into it will be time well spent.
Clear to Close: Everything You Need to Know for Closing Day
On closing day, the months of planning, searching, paperwork, and negotiation all come down to spending two hours in the closing agent’s office signing papers. It can be an overwhelming moment, and so to prepare, we’ll break down who will be there, what you’ll need to bring, and what you’ll be signing on closing day.
Who Will Be at the Closing of The Home?
In most cases, there will be the closing agent, your real estate attorney, and you. Who is the closing agent? The closing agent was agreed upon in your original offer on the property. The closing agent is a knowledgeable third party who can handle the legal documents, often a representative of the escrow company or a title officer. Don’t expect the seller to be there. In some states, the seller and buyer will meet, but it’s rare.
Documents to Bring
- Photo ID: Driver’s License or Passport
- Certified Check: For the closing costs and the down payment. Federal law requires that the closing agent inform you of the amount to make the check out for, if multiple checks are required, and to whom it/they should be written, at least 24 hours before closing day.
- Proof of Insurance: It may have been required for the mortgage or part of the sale, but the closing agent will need to see a copy as well. It makes everything go smoother to have one prepared specifically for them in advance.
- Final Sale Contract: For reference, to double check and make sure everything is agreed upon.
Documents to Sign
On closing day, you’ll be signing two major contracts. One contract for your loan, and one contract for the purchase of your home. The number of documents you’ll have to sign varies from state to state, but expect for there to be between 30-40 of them. Here are some of the most common types.
Closing the Purchase
- Closing Disclosure: This is an itemized accounting of the buyer and the seller’s closing costs. This exhaustive document is actually available three days before the day of closing, and if you have a chance to look it over beforehand, do so. While long, this document should be looked over with care.
- Warranty Title: This legal description of the property transfers the property from the seller to the buyer.
- Proration Papers: This is the agreement by which the property taxes and utility bills are divided between buyer and seller; also, Homeowner’s Association fees, if applicable.
- Statement of Identity: The title company uses this to clear up any confusion between you and someone who shares the same name.
- Declaration of Reports: The buyer signs off that they have seen all inspection reports
- Abstract of Title: This is the document of documents, which lists all the legal papers that affect the title
Closing the Loan
- Promissory Note: This is the promise to pay back the full sum of the loan, according to the terms laid out by the note.
- Truth in Lending Statement: A description of your interest rate, annual percentage rate, amount being financed, and the total cost over the life of the loan. Look this document over carefully.
- Deed of Trust: This document states that you are putting your new home up as security against the debt you owe.
- Monthly Payment Letter: This is a description of your monthly payment, with a breakdown of how much goes to principal, interest, taxes, and insurance.
Closing Questions to Answer
If it hasn’t already been taken care of in the sale contract, you’ll be asked how you want to take the title of the home. The answer will most likely be one of the following, Sole Owner, Joint Tenancy, or Tenants-in-Common. The first is when an individual takes sole possession, the second is when each member of a couple takes survivorship, and the third is when two or more have unequal shares in the property.
When Do I Get My Keys?
Many homebuyers, first-time or otherwise, are surprised when they do not get their keys right after they sign the papers at the closing agent’s office. This is because the moment the papers get signed might not be the official date of closing. Another reason is that you may not get the keys until the city or county records the title. Other times, a delay in closing is caused when there is some benign error in the paperwork. To avoid these problems, try to schedule the signing of the papers early in the morning, and preferably not on a Friday.
In addition, know that “closing” is not the same as “taking possession.” This should be something discussed during the negotiation of the purchase contract. If the seller is having trouble moving, or cannot move out until a certain time, work that out as part of the offer. In these instances, the new owner renting out the home to the old owner becomes part of home’s sale.
Work with your agent to make sure you:
Transfer Your Utilities
The transfer of the utilities is something that homebuyers should consider before obtaining the keys to their new home. To have a seamless transition of utilities between the buyer and the seller, how the utilities will be handled should be decided all the way back when the details of the purchase contract were being made.
To avoid paying the last few months of someone else’s heat, electricity or water bill, make sure the utility transfer is discussed before the closing papers are signed.
Utilities to Transfer
Here’s a list of the most common utilities to consider during the transfer of a home. Some homes, of course, have special or specialized utilities for their unique circumstances, but this list covers a broad base.
- Water and sewer
- Natural gas
- Cable or satellite TV
- Trash collection
- Security/alarm systems
Some utilities, like #4, 5 and 6 can wait until you move in because they are simple enough to switch over. Others, like #1, 2, and 3 you’ll want to talk to the seller about. In most cases, you’ll be responsible for making the changes yourself, but occasionally the seller agrees to put these utilities into the buyer’s name before they move out of the property and, depending on the scenario, may negotiate the purchase price accordingly.
If the home has a security system, and you want to continue with the service, then it’s likely you’ll have to call the security company to come out and replace the system or update it for a new user.
These are important questions to deal with when transferring to a new home, so make sure to talk to the seller about when you can perform the transfer in a seamless manner.
Change of Address & Other Move-in Essentials
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