Dear Buyers,
Investing in real estate is one of the best ways to create and increase generational wealth. This is true regardless if you are purchasing your primary home, a rental property, or raw land. When the market values are based on economical principles, real estate is a very stable investment. Tom McKay, a seasoned investor and founder of FlipAnythingUSA likes to say “There’s no such thing as bad real estate. Just bad deals.” For one of largest investments of your life, you definitely want to get as good a deal as possible. And that’s where we come in.
Before you start shopping for your new property, there are several things you should consider:
- Your long term financial goals
- Your reasons for acquiring this new property
- Your budget
- Your timeline
- Your non-negotiables
Knowing these advance and sharing them with your agent will help make your real estate journey as smooth as possible.
Stages of the Home Buying Journey
Pre-Approval
Unless you plan on paying all cash, the first real step in your homebuying journey should be to get yourself pre-approved for a mortgage. Just as you consider different real estate agents before you decide on one, you should do the same for your mortgage loan officer. Not everyone will be a good fit for you. Do not be shy about shopping around for rates, either. According to themortgagereports.com, as long as they are made in the same 14 to 45 day time period, multiple inquiries from different lenders only count as one inquiry.
While your mortgage pre-approval is being worked, your loan officer and the underwriters will be looking at your income, your assets, and any and all financial obligations you may have such as student debts and auto loans. And as both your real estate agent and your loan officer will tell you, this is the time to hold off on any major purchases. You will also want to avoid opening any new lines of credit until the purchase of your new home is closed and funded.
Being pre-approved means that you as the buyer have had your financials checked and verified by the underwriters, and have been approved for the stated loan amount on the pre-approval letter that your loan officer has provided. After you have been pre-approved, lender needs to ensure that the property meets the requirements for the loan, including appraising for the right amount. Having that pre-approval letter will speed up the negotiation process. In fact, many sellers will not even consider an offer that isn’t accompanied by a pre-approval letter or proof of funds. Many real estate agents will not take you to a property showing before you are pre-approved either.
Choosing a REALTOR®
As self-serving as it sounds, we definitely recommend using a REALTOR® in your home buying journey. A skilled real estate agent can help you find the home of your dreams, while ensuring you get the great value on the price that you pay for it. They act as a guide throughout the entire process; helping you avoid pitfalls such as losing your deposit, overpaying, and potentially ending up underwater on your mortgage in the future.
A lot of buyers believe that they will save money if they do not use a real estate agent to represent their interests. This is almost always false. Unless you are an experienced investor or an industry professional yourself, you will likely not have the skills, knowledge, and access to the relevant data necessary to secure a good deal. Another thing that a lot of buyers are not aware of is the fact that it is actually the seller who pays for the commissions of both the listing agent and the buyer’s agent in most cases.
The saying “Your network is your net worth” most definitely applies to REALTORS®. An established agent can quickly set you up with options for a lender if you have not been pre-approved already. They also can recommend trustworthy and reliable title companies you can use once you get a property under contract. Their network will include professionals in the industry that are auxiliary to the buying process, such as home inspectors, general contractors, surveyors, and attorneys.
Even if you choose another REALTOR®, team, or brokerage to represent you, we highly recommend using a real estate agent as you navigate the housing market. Look for an agent that you can trust and that you feel comfortable with. A good agent will not rush you or pressure you into a decision (unless it is to push you to do something you are legally and/or morally obligated to do). And after you have settled into your new home, that agent might even become a lifelong friend.
Deciding on the Property
Once you have your pre-approval letter (and therefore budget) ready and your REALTOR® selected, you are ready to go house shopping. However, before you visit the first potential home or even set foot in an open house, you need to decide on what your must-haves are. This could be the number of bedrooms or bathrooms, the distance to work and/or school, and certain features like a walk-in closet for the master bedroom or farmhouse sink for the kitchen. Time is money, and you do not want to be wasting your time viewing houses that do not fit your criteria.
One of the most valuable things that a real estate agent can do for their clients is to do a comparative market analysis (CMA) for them on a property that they are considering. A CMA is a tool that real estate agents use in order to estimate the current value of any given property, using similar properties within a predetermined radius. With the modern technology easily available to members of the local REALTOR® association, a competent REALTOR® should be able to knock out a CMA report in minutes. A CMA will allow you to tell at glance if the property is over or under market value. Check out rocketmortgage.com for more on CMAs.
Buying is an emotional process. And those emotions are felt even deeper when the price point is in the hundreds of thousands of dollars. The final decision on any real estate transaction should be the client’s and the client’s alone. However, having a great real estate agent by your side can help you keep your emotions in check so that you can get yourself as good a deal as possible on one the biggest investments of your life.
Negotiations
Most people do not like confrontation and, therefore, do not like negotiations. This is one of the reasons to hire a a real estate agent. This is where your agent should shine. Your agent should already be a local market expert. They should quickly be able to point out good deals and weed out bad ones. And they should be more happy to negotiate on your behalf once you find a house that fits your criteria.
As we see it, the transaction process has 3 major phases where negotiations take place. The first is the period of time before the sales contract is signed by both parties. This includes the initial offer; all proposed contingencies, contract addendums, and changes; and everything that is within the four corners of the contract. One of our favorite sayings is “Everything is negotiable.”
The second phase of negotiations is during the option period. An inspection might result in issues being discovered about the property that the seller was unware of and did not disclose. This is when you as the buyer can ask the seller to fix the issues or to lower the price. Assuming that you did not waive the option period and gave yourself enough time to do your due diligence as a buyer, you should be able to exit the contract and keep your deposit if you and the seller are unable to come to terms on how to handle the issues the inspection turned up.
The third phase of negotiations occurs after the appraisal of the property and if the appraisal report comes under the agreed upon price. Your REALTOR® should have ensured that there was an appraisal contingency in your contract. If the appraisal report has the property valued at less than the price in the contract, the appraisal contingency should allow you to exit the contract and keep your deposit if you do not want to pay the difference or if the seller does not want to lower the price.
Closing
The final part of the home buying journey is closing day. It is important to remember that the transfer of ownership of the home is not finalized until after the transaction has been closed and funded. This means that as the buyer, you do not have possession of the property until you have signed all the closing documents, the seller has signed all the closing documents, all the closing costs have been paid for, and the lender (assuming you took out a mortgage) has given the green light to the title company.
In the last couple days leading up to closing day, you will want to have finished packing and your moving preparations. You will want to have also made sure that everything regarding your soon-to-be former residence has been taken care of, such as the last rent payment, your security deposit, and final walk-through with your landlord or apartment manager. Lastly, make sure you do one final walk-through of your new home before closing day to make sure that all parties have upheld the part of the contract.