Written by Jack O. Pysz, Managing Broker/Founder, REDCO, INC. 11/22/2016
There are numerous guides to a real estate deal all over internet. If you are a first time homebuyer you will find here a step by step process written by me, Jack Pysz, a licensed managing broker. I have years of experience in all kinds of transactions. I close and oversee many deals every week and therefore I thought it would be useful if you could get an actual and real process, the way it happens and what may go wrong - written by someone who is part of the industry. Besides of being an owner and founder one of the fastest growing real estate companies I also serve on a Panel Of Professional Standards Committee for the largest association of realtors in Illinois.
It all usually starts on the internet, or maybe you started by looking at some open houses. Either way, eventually you will start working with a realtor. Hopefully, you got the right agent and that, you can usually tell by responsiveness to your inquires. Good agents are busy people, so do give them some time to answer, however do not wait too long. Assuming you and your agent “clicked”, now you are out looking at some homes and at some point, you will pick one of them. This is where this guide starts.
Your agent will make an offer on the property. You can make an offer at the asking price, over asking or you can start under what the seller is asking. Your agent is at this point the best person to ask which strategy is the best based on the property, its location, time on the market, time of the year, and how much you love the house. Also, if you were to miss out on this house, is there an alternative, how much longer will you have to be looking and things of this nature… This process may take a few days, that's when you and the seller are going back and forth on their offers, you eventually both agree on the basic terms. One of them is of course the purchase price, another would be the type of financing or maybe you will be paying cash, closing date, and some contingencies, in other words how much time you as the buyer have,to do an inspection and secure solid financing.
After your offer is accepted, you will need to:
- Write an earnest money check, this is to prove that you are serious about the purchase, it is also customary and required by sellers on most of the transactions. The seller’s real estate brokerage will usually hold earnest money check, it is also sometimes held by the seller’s attorney, title company or in rare instances by the brokerage of the agent who is representing you on the purchase. Your agent will tell you who to write the check to. Remember, earnest money is always held in a special escrow account, it is not hold by the seller. When a brokerage holds earnest money, the only way for them to release it is when both parties, seller and buyer agree to it, for example at the successful closing. In case the transaction did not go through and seller or the buyer backed out, whoever holds earnest money will need a written direction from both parties to release the funds. Always make sure you hire an attorney to represent you on a real estate deal, your attorney will make sure your earnest money is safe during the transaction. For the ease and convenience, REDCO holds earnest money for our clients.
- Schedule the inspection, you typically get 5 business days to do that but you could ask for an extension if there are holidays during that week and maybe your inspector is not available right away, btw. inspection is your upfront out of the pocket cost of say $300-$550 and more depending on type of the property. Over $500 applies to big, big homes typically. Your agent should be able to refer you to a good inspector.
- Quickly start working on your mortgage, your loan officer will be now ordering an appraisal for the property which again is an upfront cost for you in the range of $400-$600 depending on the lender and the property type. I should have mentioned earlier, that your entire process of searching for a home should start with a loan officer. You should get your preapproval so that you know exactly how much money the banks will lend you and just to make sure everything is fine with your credit. At the end of the day, the moment you decide to make an offer on a house, the first thing your real estate broker will need is to get your preapproval letter. They DO NEED this to send an offer. Sellers don’t like to even entertain offers with no proof of funds or preapproval letters. GET PREQUALIFIED before you start looking. Also, your real estate broker is doing this every day, they will be able to connect you with the right lender.
- Real estate attorney – another big one. Not only you need an attorney but you also want an attorney who specializes in real estate law and does this every day. Again, your agent is the one who will be able to refer you to an excellent attorney.
Let’s get back on track. Your offer got accepted, you have your loan officer working on your loan, you schedule the inspection with your inspector and your agent. The day of the inspection, you, the inspector, and your agent should be there at the house. Inspection will typically take 1-3 hours during which the inspector will be going thru the house with you and explaining you many things and pointing out potential problems or just explaining regular maintenance. After this is over on the same or next day you will receive the inspection report by email. Also, it is worth to know that not necessarily you need to be present at the inspection but you most definitely should.
If the inspection did not reveal any issues or say nothing that you would be concerned about, you are good to go. At this point you would be basically working with your loan officer on your loan which should be done anywhere between 25-40 days. 25 days and under is super-fast, under 30 is great, nothing wrong if it took 35-40 days to close your loan….
Many times, though there will be issues with the house, like cracks in foundations, bad roof, windows not closing properly, electrical outlets not working…. While many issues are not of a huge concern, you still may want to address them with the seller. So, when you do you look at that report, you and your agent will decide whether you should ask the seller to correct the problems or you could also ask for a repair credit, for example you found out that a humidifier on the furnace is not working, you could ask the seller to repair or ask for a roughly $500 credit. Once you discuss all these with your broker, you should go through a proper channel, your attorney. He or she will draft an official letter to the seller’s attorney, requesting the credits and/or the repairs. It is also possible that during the inspection you found out about a very serious issue(s), that you do not want to live with, this is where you could back out from the deal based on the findings in the inspection. In such case your earnest money would be refunded to you.
Say, that everything was fine with the inspection or that the seller agreed to repair items you asked to be repaired… Next part doesn`t involve much of an action from you. Appraiser will come out and make sure that the property is worth what you are paying for it. Given the appraiser comes in at the contract price or above, you are fine and you move forward towards the closing. Sometimes though, the appraiser may come in short, say by thirty thousand dollars. At this point, you have a few options, again you could back out and not buy(make sure to use an attorney on your deal as this is not by default), you could cover the difference and bring more down payment, or you would start negotiating with the seller again to bring the purchase price down. Seller could agree to a lower price or meet with you somewhere in the middle.
Let’s say everything worked out. Your closing is scheduled for Wednesday 11am. You and your broker will go for a final walk through. Typically, just before the closing. You should both go thru the house and make sure everything is fine. This is your last chance to bring something up. Let’s say the fridge disappeared, or some of the windows were broken. Your agent would notify the other side about the issue and likely you would be compensated for such things at the closing.
At 11am, you will meet with your attorney and your agent at the title company selected by the seller’s attorney. This is what is called a closing, other side will be there as well, seller, seller’s attorney, and seller’s agent. Closing will take about two hours (sometimes much longer than that). You will be signing a lot of documents, and all of them will be explained to you by your attorney. At the end, you will receive the keys to a new home. Oh, don`t forget to ask about garage door remote… Congrats! You just bought a house.