The SMART Guide To Home Buying
by Hal Feldman (MiamiHal.com)
So, you’re ready to buy a home? Congratulations. Now that you’ve said it, it’s time to get busy and do it. Yes, buying a home is going to be a challenging, fun, exciting and nerve wracking endeavor, but the reward is more than worth the effort. There’s no better feeling than sleeping under a roof you own.
No matter what you’ve been told, the first step is not to run out and start looking at property. There are four major steps in purchasing a home. To succeed, these steps need to be done carefully and methodically.
Step 1: Know What You Can Buy
Step 2: Shop for a Realtor®
Step 3: Shop for a Home
Step 4: Hire Your Closing Team
To successfully purchase a home, you must prepare yourself to face unforeseen pitfalls. With large sums of money at play and with Buyers and Sellers often wanting different things, it is no wonder issues arise. My job as your Realtor® is to let you know you will encounter problems during your purchase. I'll help you avoid the avoidable and support you if the unavoidable occurs. Let’s see how:
Step 1: Know What You Can Buy
The most critical step in buying a home is understanding what you can afford. Take an honest and direct assessment of what you can buy. Everyone wants the biggest and best; only a few can afford to make their dream purchase. And, if you want to avoid failure and disappointment later on in the process, now is the time to understand your buying power reality.
Unless you plan to buy with all cash, you’ll need to start with a bank or mortgage broker. Getting started is pretty painless. You have two goals in mind: get an impartial opinion of your buying power and get a loan pre-approval letter. The loan officer will ask for payroll stubs, tax returns and a clear picture of your assets and liabilities. Give them real numbers and hide nothing. You want a true analysis of what you can safely borrow and afford for years to come.
Within 24 hours, any worthwhile lender will be able to produce a pre-approval letter. It is generated using a standardized computer program called Desktop Underwriting (or DU) and it is your key to understanding what you can potentially purchase. Note that I said potentially. This letter is a preliminary document that lets you know what a standard bank thinks an average person with your financials can afford. It does not take into account the property condition, condo/homeowner association, and other factors that will ultimately need to be checked and approved by the lender’s underwriting team later on in the home buying process.
Now, armed with a pre-approval letter stating a specific dollar amount you can afford, you're ready to begin the dreaming part of your purchase. Start with a blank piece of paper and think about the things most important to you in a future home. Most people will want to start writing about how many bedrooms and bathrooms they want. I urge you begin with the location of where you want to live. Nothing is more important than location. Once you have a target location and review home asking prices, you will quickly see if you have enough money to buy a home there. If not, alter your dream. Reassess your location and features until you set an attainable goal.
Real estate purchases can be made simple if you attack it methodically and treat it as a business decision. Remember, this is likely your largest lifetime purchase. Get serious, but have fun doing it. Most important, don’t create self-imposed setbacks.
Now, with a realistic dream home in mind and pre-approval letter in hand, you are ready to hire your first home buying employee...me!
Step 2: Shop for a Realtor®
Realtors® come in all shapes and sizes. From energetic to lazy, full-time to moonlighter, personal to “all business” and every flavor in between. You must find your partner… and I don’t use the word partner lightly. Working with a Realtor® is a true partnership.
The average adult only buys three homes in a lifetime. You need someone whose full-time job is to know the market, to navigate through rough waters and to be your advocate. And, believe me, personalities must match in order for you to be successful. Since you will be relying on your Realtor® for the next few months, it is imperative to be comfortable with the person you choose and how they work.
Make sure that you speak with several people as you shop for a Realtor®. It’s easy to get started. Pick up the phone and call a reputable local broker, surf the web or better yet, get a referral.
Here’s how I work: I work for you first and a paycheck second. That may sound odd, but my reputation is earned by succeeding with each of my clients, and it is much more valuable to me to get your referral and glowing praise than a few extra dollars at closing.
Remember, you are hiring an agent to work for you. But also understand, the Realtor® has a choice as well. If you seem unenthusiastic, disorganized or less than truthful during the interview process, good agents will pick up on that and can, in turn, decline to work for you. Partnership is a two-way street. When I provide 100% dedication, I deserve it back.
Once you find your partner and new best friend, loyalty is paramount. You have a responsibility to each other. Don’t “date” other Realtors® by going on side showings or not tell your agent about a For Sale By Owner home you visited. It’s not ethical and it usually ends up hurting you in the long run.
Under most conditions, I use a Buyer/Broker agreement. It is a simple piece of paper that protects both you and me as we start to work together. But more on that when you call me... [MiamiHal Buyer/Broker Agreement]
Step 3: Shop for a Home
Now that you know your budget, know the ideal home criteria, and have a Realtor® assisting you, it’s time to start shopping! And, like anything in life, there are many ways to approach the task.
Your Realtor® should take the initial lead here. Armed with your criteria (don’t leave anything out), he should compile a list of homes for you to review within the first 24 hours of your partnership. If this doesn’t occur, fire your agent immediately.
Once you have this list, go over it carefully, and share with your Realtor® why you like some listings and don’t like others. This honest exchange process should continue until you’ve educated your Realtor® so well that he automatically knows what to look for. If you later want to change your criteria, let him know honestly. The agent will appreciate staying in sync with your changes.
After a few rounds of discussion, either by phone, email, website or in person, you’ll be ready to go see listings. Everyone is different, but I suggest you see no more than eight listings in a day and that as you leave each one, you do two things, (a) grade rank the home and (b) give the home a nickname. A nickname such as “red door and white kitchen” will help you remember characteristics of the home more easily. You may also want to take a few digital photos with your smartphone. At the end of each day, any home not graded as a B or higher should be permanently rejected. Throw out related notes and photos immediately.
The rest can, and should, be your style of shopping. Make sure you don’t ever get the feeling that the Realtor® is calling the shots. You call the shots and he is the wingman. Use your Realtor® for advice, coaching or whatever you feel you need.
When you get to a property you feel is Grade A, stop! It’s time to tell the Realtor® to give you a full market analysis and put together an offer. Don’t get caught in the trap of thinking “there is a better one around the bend.” You can shop forever and something new will always come up, but if you graded your selection an A... how much better is it going to get!? Get focused, get moving and don’t lose that Grade A find.
Your goal now is to make your selection yours. Decide how much you plan to offer for the property. You want to CLOSE the deal. Here’s how to get to that closing.
Step 4: Hire Your Closing Team
With a good Realtor®, as soon as you have an offer put together, you are likely less than 48 hours from a signed contractual agreement. Your offer becomes a contract when all terms are agreed upon and are signed by both Buyer and Seller. This step can take some delicate negotiation where you and the Seller each try to gain the best advantage for yourselves. The importance of the Realtors® at this juncture cannot be overstated. It is an emotional time, and it is best to have someone negotiate for you and avoid confrontation with the very people you are trying to craft an agreement. The Realtors® know that what may seem to be personal to the Buyer and Seller (the price, the dates, the included fixtures/appliances, etc.) is just stuff everyone has to work through to close a real estate deal.
When you have a signed contract, you and the seller cease to be on “opposite sides.” From here on out, both Buyer and Seller work independently, but with the exact same goal in mind…to complete the sale and purchase of the property.
Besides the price you are going to pay, the real estate contract says you’ve made other promises. You’ve agreed to provide a down payment (that will be kept in escrow), to conduct various inspections, to apply quickly for a loan (assuming you are not paying cash), and to close (pay and take possession) by a certain date, etc. In turn, the seller promises a laundry list of things, including that when you close they will provide title to the property that is clear (has no known problems).
If you don’t understand each step, no need to worry. That is what a Realtor® is for. They can educate and coach you. This does not mean your real estate agent can legally perform any of these steps on your behalf. It means they can assist in making sure they are done in the right order and that everyone involved has the same calendar dates and deadlines.
The moment your contract is signed, it’s time to hire a few more “employees” to work for you.
Here is the standard list of “employees” used by a Buyer, including their functions in completing the purchase of your home.
Real Estate Attorney – Helps assist a Buyer to understand their contract, what the Buyer has promised and which parts of the contract protect the Buyer. While some Buyers do not need an attorney, others simply feel more comfortable with their services.
Mortgage Bank/Broker – This person will make sure the property is worth the purchase price agreed upon in the contract. He/she ensures that any condo or homeowners association is financially worth buying into. He/she provides a loan commitment to you. He/she is the person that brings the money you are borrowing to the closing table for you!
There are potentially unexpected complications in the home buying process. Some threaten to derail the sale just when you thought you were on the home stretch. Your Realtor®, mortgage bank/broker and appraisers, surveyors and other experts brought in will act on your behalf to assure your sale is trouble free in the future. Or they may warn you against continuing.
Please be advised, you will pay for the above services as part of your closing costs. You will receive a full disclosure sheet (called a HUD-1) explaining what you owe in addition to the price of the house itself. Ask your closing company to provide this information as soon as it is available.
Here are other people you will likely encounter as part of your home purchaing experience. Let your real estate agent help guide you in working with each of them:
Inspection Companies – Voluntarily hired by you to ensure there are no hidden problems with the home. Based on any adverse, unacceptable findings, you can usually break the contract with no penalty or you may choose to re-negotiate the contract based on the inspection results.
Insurance Company – If you are financing any portion of your purchase, you will be required to purchase some or many of the following insurances: Property, Windstorm, Flood, and Condo. These policies must be in force on the day of closing. These days, passing a 4-point inspection (roof, plumbing, electric and air conditioning) are critical to getting insurance to bind (attach to and become effective) on your new home.
Title Company/Closing Company – Based on your contract, either Buyer or Seller will select and pay for someone to review the title, be sure it is clear and you are buying from the true owners of the property, to insure the title and to handle the deposit money (escrow) until closing day. At closing, it is this person who distributes the money, hands over keys and files the paperwork for the deed.
By no means is this a comprehensive list, but it gives you a good idea of how many moving parts must work together to close a typical real estate deal.
Despite the many steps in buying a home, the process is really not that difficult. Align yourself with a Realtor® you can trust to protect your interest and give them your loyalty and honesty. In turn, they will guide you through to a successful purchase.
Take it from me, who has seen many happy Buyers, there is no better feeling in the world than walking away from the closing table with shiny keys in hand.