The 7 Need to Know Buying Steps You Always
Wondered and Probably Already Asked!
For most of us buying a home is the most expensive purchase in our life. Making the right choices can save time, money and future headaches. I am often asked about the process and thought it might be helpful for home buyers to have an actual list with some references. Writing this 7 part post will direct anyone with more specific questions that I may have missed within our previous conversation. This is a quick guide for you whether you’re thinking of home buying or you’ve purchased a home before. Either way, the process is pretty much the same:
1. Talk to a lender
2. Evaluate your needs
3. Choose your Real Estate Professional
4. Identify a property
5. Write and negotiate an offer
6. Inspect the property
7. Close escrow
Talk with a lender. This important first step is sometimes skipped over by even the experienced buyer. Nothing can be more disappointing than finding a home that you love only to realize that you either cannot obtain a loan or you cannot afford the payment for that property. Lenders have tightened their criteria in the last few years and they also have many new programs that assist buyers as well. Even if you currently own a home it may be difficult to obtain a new loan with a payment you can afford. Obtaining financing is probably the most important step to the process. If you don’t know where to start I suggest to ask me for my preferred lenders, talk to your bank about mortgage products they offer, or even speak to your family and friends. Ask them how they found their lender. What did they experience and what are their thoughts?
Evaluate your needs vs. your wants. This includes location (where do you need to live vs. how far are you willing to commute). Do you need a den or can you get by without one? Is a pool a must or would you like to have a pool? Some “wants” can be difficult to locate in some price ranges. Knowing what you cannot live without can be very helpful when beginning your home search. Make a list that may help and share those thoughts with your agent. The most important job for me to do is find out what is “most important” to you.
Choose a Real Estate Professional. Choosing the right agent to represent you can make the rest of the process easier. Real Estate Agents are *not* all the same. Experience and expertise can vary greatly. Is your next door neighbor or your cousin’s friend really the best choice for you? A common mistake is that a potential buyer will locate the property before locating an agent. The agent listed on the ‘for sale’ sign already has an agreement to represent the best interests of the seller. Although they can help you purchase the property with what is called “dual agency” it is extremely difficult for one agent to give their best representation to both parties. Another problem I often see with first time buyers is that they view a lot of properties with a number of different agents. Once you have been shown a home by an agent, that agent is considered to be working with you for that particular property. This can be a difficult situation if you locate the perfect home but you happen to be with an agent you don’t feel comfortable working with. Choose an agent that best represents your needs and your personality. Think of it as a relationship. You want to make sure there is a constant communication and that your agent listens and interprets that in the deal. I find that searching for the right home here in Las Vegas can usually take 2-5 months and even longer for the Short Sale process.
Identify a property. The internet can be a great asset in your search for a property – especially if you’re not sure of the area where you want to be. There are some terrific tools available to search crime statistics by zip code, check out schools and even see what the neighborhood looks like – all from the comfort of your home. A good on-line search not only will allow you to see what is available in your price range, but can answer many of the questions you may have about a specific property such as if there is a homeowners association fee, property taxes, school information, etc. Some searches have information about the area a property is in, give you the ability to save your searches, download the listing or can even send you updates. The recent mobile access and larger search engine sites have been an easier tool for you. Sites such as Zillow, Realtor.com and Redfin are ideal for the buyer with a smart phone. They offer immediate listings that you can send me and I can further research and quickly identify your interests. If you feel overwhelmed, I have direct access with a membership to the multiple listing service (MLS) and have the ability to set up an automatic search for you using your needs, wants, area you want to live, your price range and other criteria.
Agents are often asked where the “good neighborhoods” or “good schools” are. Real Estate Agents cannot legally give you their opinion of an area. Giving their opinion could be considered a form of discrimination called “steering”.
I want to mention to my clients about going to an open house, or a new home builder, without your Realtor being present. It’s really not a good idea to preview homes by yourself. Remember-“Once you have been shown a home by an agent, that agent is considered to be working with you for that particular property”. So if you go to opens, including new model homes, you will find yourself being represented by an agent who has the sellers best interest in mind, not yours.
If you live near the city/area where you are planning to look for a property, I highly recommend trying to narrow down your search to roughly 5 or 6 properties before your first showing appointment. Many buyers find that they will need to make adjustments to their needs/wants after viewing about five homes. Pictures represent the property in a good way but actually being at the property is totally different. The way the sunlight shines throughout the house may not be felt within a photo. Maybe the condition of the layout in one room looks perfect but the master bath has an older shower in which you will have to replace later. This brings up a point that differs from agent to agent, “How many properties should you view before you buy?” I believe this number to be different for each individual buyer. I have had a buyer who purchased the first home he saw (to be sure it was the right one, we viewed 10 additional properties before he made an offer). I have had clients who looked at more than 80 properties before they found what they were looking for.
Buyers who are relocating from out of town may not have the luxury of viewing a small number of properties and making adjustments. Many of my relocation clients are given a mere two days to find a home. For those of you in this situation I caution that viewing a large number of properties in one day can be mentally and physically exhausting — be prepared! I dare not share my record of homes shown in a day for fear that I will be asked to repeat it! ;p
Once you’re ready to begin viewing properties in person you will want to contact your agent for an appointment. A common misconception is that Realtors are always available. A good agent is often working with several different clients at a time. Even in a slow market an agent may have appointments set up days (and sometimes even weeks) in advance. If you are coming in from out of town you should make an appointment with your agent as soon as possible to be sure they will be available. It can be very frustrating to drive 300 miles, call your agent from in front of the first home you want to see and find that they have appointments with other clients for every day you are in town.
Write and negotiate an offer: The Greater Las Vegas Nevada Purchase Agreement is the primary form used in residential sales. There is a corresponding purchase contract used for vacant land sales. The contract is between a buyer and a seller and establishes the terms and conditions of the sale of residential property. There is a lot of “boilerplate” language and items that can be modified by either party. Keep in mind that just about everything can be negotiated. Your agent should be able to explain each item and any additional addendums required. The property and type of sale will dictate which addendums are necessary (Home Owners Association, As Is addendum, Short Sale addendum, etc). Upon every written offer, go over I detail and explain every item. I immediately had you a copy or simply email one for your records. This will help look over later with any questions you may have.
If you aren’t paying cash, a pre-qualification letter be will usually submitted with the offer. In the Las Vegas real estate market and in the current lending environment, it is critical to demonstrate to sellers that you are not only willing to purchase their property, but that you are able to. It is not a guarantee that the loan can be obtained but it does show that you are a strong potential buyer. The letter outlines the loan terms, down payment required and qualification amount.
The most common question we get is, “How long does this process take?” If you are obtaining a loan for a standard home purchase (not a short sale). It’s usually best to plan on 30 to 45 days. If you are paying cash it can be done in about 21 days (I’ve seen shorter time frames but it is very stressful and I don’t recommend it).
Probably the second most common question from first time home buyers is “What is earnest money and how much do I need?” Every property has different sellers and the earnest money is determined by that seller. Upon submitting an offer, the seller would prefer a copy of this( usually in personal check) in which will later be used to open escrow when a deal is met.
The down payment is often indicated in the Prequalification letter and is typically discussed with your lender prior to locating a property.
The buyer should determine the price offered for the property – not the agent. Your Realtor can provide information (such as the latest comparable market analysis or “CMA” for the neighborhood) to help you with your decision. Properties in the last few months sold (not those that are listed for sale or under contract) are usually a good indicator of current value. Upgrades do not necessarily add value to the property but condition issues can reduce the current market value. Your agent should be able to help you determine if any of the recent sales were foreclosure or short sale properties. These “distressed” properties are often sold below market value. Once you determine an approximate market value, ask yourself two questions:
1 – Is this property realistically priced?
2 – What am I willing to pay?
Successful negotiations begin with realistic expectations by both the buyer and the seller. Buyers don’t want to pay too much for a property – sellers want to get the most from their investment. If the property is priced significantly higher than the comparables the seller may be unrealistic and it could make negotiations difficult. A higher than comparable price may also create a problem when the property is appraised for your loan.
A common negotiation mistake made by a buyer is to submit an unrealistically low offer with the expectation that the seller will counter the offer somewhere between the list price and the offer price. This isn’t usually what ends up happening. Many sellers have a difficult time seeing their property as an investment –they’ve made memories there. They’ve made improvements. They are emotionally bonded with their home. Extremely low offers tend to irritate the seller to the point that they don’t want anything to do with you or your offer. It can be better to start with the amount you expect to pay (maybe just a little bit less) and be willing to walk away from the property if the seller asks for more.
Walking away is not easy, but it may be necessary so prepare yourself. It’s important not to fall in love with a home while you are in purchase negotiations! There will be plenty of time to make memories and fall in love with your home after you’ve moved in.
There is more to submitting an offer and negotiating the purchase of a home than just the price (though obviously that is the major factor). Other considerations are the amount of earnest money, the inspection period, items that the buyer and seller will pay, length of escrow period and even loan terms all come into play. Your offer is a combination of all these factors and each factor will be weighed differently by different sellers. Make sure you understand all of the purchase contract terms and conditions BEFORE you submit an offer. Work closely with your real estate agent and let them help guide you and educate you on the nuances of submitting and negotiating a purchase offer.
Escrow-Open and Close
When the buyer and seller have reached an agreement on the contract; the contract, counters and addendums are signed – its time to open escrow. In the state of Nevada escrow is handled by a title company. The title company should be indicated either in the offer or counter offer(s). They will need *readable* copies of all the paper work, the earnest money, contact information for buyer, seller, and their agents. An escrow number is assigned to the account and a receipt for the earnest money will be issued. They will investigate the title of the property to ensure the seller can legally sell the property. They also order payoff information on existing liens, order information from the homeowner association (if it has one),calculate and prorate taxes, liens, interest, rents and insurance policies; arrange for title insurance protection for the buyer and lender; pay costs and liens as agreed upon by the parties to the transaction; close the transaction after all instructions from buyer and seller have been satisfied; prepare a closing statement for the parties to the transaction, showing disposition of funds in the transaction; and arrange for recording of the conveyance documents and any other legal instruments necessary to transfer title to the property pursuant to the purchase agreement. Escrow closes when the county recorder notifies title that the deed has been changed from the seller’s name to the buyer’s name. Your agent will notify you when this happens.
In the state of Nevada the inspection period is typically the first 10 days of the contract for dwellings and 15 days for bare land. These time frames – as with just about anything else in the contract can be negotiated as part of the offer. The inspection period begins at midnight after the contract (including addendums and counter offers) are signed and delivered. The contract states that it is the buyer’s responsibility to inspect *everything* about the property. This isn’t just the condition of the property. Your inspections should include the schools, HOA, utilities, square footage, services, earth fissures, crime statistics and anything else that could affect your decision to purchase the property. I occasionally have a buyer who does not want to pay for a home inspection. Their justification is that if it looks OK then they don’t need to pay the cost of a professional inspection. Image if you decline the professional inspection and later find the property has some major structural issues – and you now own the home AND the problem?
Per the contract the seller should provide the buyer with two forms within the first five days of the contact:
1) A Clue Report; 2) and the Sellers Real Property Disclosure Statement or “SRPD”. This is the statement of what the seller knows about the property. If the seller has never lived in the property it can be difficult for them to have information about the property. The buyer will be required to initial receipt of this document. Initialing receipt does not mean that the buyer accepts what is in the SRPD. You should be aware that if there is an underlying problem that the seller has not yet discovered – it would be impossible for the seller to disclose it. The buyer should use the SRPD to aid their inspection process.
A professional inspection of the structure can take two to five hours depending on the size and age of the property. If possible, the buyer should plan to attend at least the last 30 minutes of the inspection (but this is not required). Attending will give the inspector the opportunity to explain any issues noted in their report. Due to liability issues the inspector is required to note every tiny thing that they find – no matter how minute or insignificant. Keep in mind, sometimes things sound a lot worse than they are. Meeting with the inspector at the end of the inspection to go over the issues they have noted will help you understand the inspection report and the condition of the property. Most inspectors will be glad to answer your questions by phone as well. You are paying for the service – so don’t be shy about asking questions and getting verification. You may search for any licensed inspector or I have a few preferred home inspectors to choose from if needed.
Be sure to complete your inspections by the last day of the inspection period. There is a form that must be completed, signed by the buyer(s) and received by the seller’s agent no later than 11:59pm the last day of the inspection period (if the form isn’t received by that time your inspection automatically ends and you do not have the opportunity ask for repairs to be made. You have to take the property “as is” or risk losing your earnest money). The form is called the Buyer’s Inspection Notice and Seller’s Response (BINSR). The BINSR is *only* used to address inspection issues and cannot be used to negotiate the contract (it cannot be used for changes to the closing date, sales price, etc). There are *not* a lot of negotiations available with the BINSR and you should discuss with your agent the importance of each item you wish to have repaired by the seller. Is that item important enough to you that you are willing to cancel the contract and move on to another property if the seller refuses to fix it? The seller is only obligated to repair a “warranted item” that is non-functional (such as the heater or air conditioner). If it works – even if it doesn’t work well – they don’t have to fix it.
There are currently a lot of Las Vegas properties being sold “As Is”. This does not mean that you cannot have the property inspected – you should as you need to know what you are purchasing – it means that you may not ask for repairs.
The Nevada Department of Real Estate deems the inspection so important that they have attached an advisory to the front of the standard residential resale contract.
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