10 Steps to Buying a Home

Buying a home can be intimidating if you don't understand the process. 

To make the process simpler for you, here are our 10 Steps to Buying a Home.

-Before You Begin

-Step 1 = Determine Your Needs, Wants, and Wishes

-Step 2 = Establish Your Purchasing Power

-Step 3 = See Everything for Sale Online

-Step 4 = Get a Feel for the Neighborhoods

-Step 5 = Choose Your Home

-Step 6 = Do Research Before the Offer

-Step 7 = Negotiate the Contract

-Step 8 = Monitor Inspections & Repairs

-Step 9 = Open Escrow & Coordinate the Close

-Step 10 = Move In and Live Happily Ever After

Buyers, Before You Begin

In earlier times, all Realtors worked for the seller.  You would be riding around with this nice person, telling them your deepest secrets, and they were the agent for the seller.  An agent has to tell the person he or she works for everything they know, so there go your secrets.

Protect yourself by having a Buyer's Agent, an agent who works for you.  Your information is confidential.  The Buyers Agent only has your interests in mind. If you go to a new home community, and they have agents on staff, bring your own representation.  You would not go into court and use your opponent's attorney.  Don't get into your largest financial transaction without your own Buyer's Agent.

You will sign a contract hiring your Buyer's Agent.  If you do not sign a contract, the agent works for the seller.  The contract is the best consulting agreement you will ever find: (1) You do not get to pay your consultant (2) You can fire the consultant at any time for no reason, and you do not owe them anything for their work (3) The consultant has to hold themselves to high standards in representing you.  Your Buyer's Agent is paid from the proceeds of the sale, when it closes.  So, you pay this agent nothing, and you get a better deal and extensive service.

Don't buy without a Buyer's Agent.

Step 1 = Determine Your Needs, Wants, and Wishes

Just like any journey, the first step is to figure out where you want to go.  What is important to you about a home?  Write it all down.  No censoring - put down everything.

Next, divide everything you can imagine into three groups.  There are things you absolutely have to get.  If you have three children, you need more than a one bedroom townhouse.  These are the essentials.

There are things you want, items that are extremely important, but you can live without them.  You work at home on occasion, so you want a separate home office to keep you more organized. But, you could also set up an office as a part of the guest room.

There are things you wish for, but it would not hurt your lifestyle if you did not get them.  A large dressing area in a glamorous master bath, complete with a seated makeup area would be nice, but a decent bath would work out too.

Be sure to tell your Realtor not just what you are looking for, but break it down into what you need, want, and wish for.

Step 2 = Establish Your Purchasing Power

Find the money first before you find the home.  By showing a seller that you have the money secured, you will be more powerful when you negotiate for the home.  The biggest fear the seller has is that you will not complete the sale, and when sales fall apart, it’s usually because the buyer cannot finish the financing.  So, eliminate that fear, and negotiate from strength.  It is also wise to know your costs, such as how much down payment you need and what your  monthly payments will be.

Before you look at your first house, figure out what you have for down payment and closing costs, and talk to a lender about what they will loan you.  Your credit score, normally called a FICO score, is a number created by Fair Isaac & Company that blends together a weighted system of factors.  It’s the most important indicator of what financing will be available to you.  If you want to find out your FICO score, go to www.myFico.com.   There is almost always financing available, and you need to see what the choices are.  Other factors are the amount of debt you are carrying in relation to your income (called debt to income ratio), how long you have been in your present employment, and the amount of your cash reserves.

Get a “Good Faith Estimate” of what your financing will cost.  This estimate shows the monthly payments for a particular loan and the amount it will cost to originate that loan.  The “closing costs” and “prepaids” are two groups of charges that usually add up to about 3% of the loan amount.

To show your purchasing power, get a letter from the lender.  A Pre-Qualification letter shows that you have talked with a lender, and the lender thinks you can get a loan.  A Pre-Approval letter is much stronger, it shows that your financial factors have been reviewed in more detail and it is extremely likely that you will get the financing.  Sellers will take your offer more seriously if it’s accompanied by a Pre-Approval letter. 

Step 3 = See Everything for Sale Online

You can drive all over town and wear yourself out looking at homes that are not appealing to you.  Or, you can review the homes online, shop in your easy chair, and narrow the choices to the homes that fit your needs.

You can see homes available for sale in the Multiple Listing Service by using our Home Finder System.  Send an e-mail to Laurie@SouthBayHomeTeam.com specifying your needs, wants, and desires.  We will send you information on those properties that peak your interest.  When another property that meets your parameters becomes available, you'll get an email describing it.  That's better than going to open houses at properties that don't meet your needs, right?  Some homes have virtual tours, so you can see not only the front of the home, but panoramas of the inside and outside of the home to show you how the rooms fit together.  The homes we market have extensive virtual tours of nearly every room in the house and a review of the neighborhood.

Step 4 = Get a Feel for the Neighborhoods

The old joke is that there are three rules of Real Estate, (1) location, (2) location & (3) location.  Take some time to drive around neighborhoods that come up in the online searches.  How do those neighborhoods feel to you?  We can tell you the qualities of the neighborhoods, but you are the one who will spend your time there.  It’s got to feel right.

We can show you similar homes in several different neighborhoods, so you can see the range of choices.  If you are looking for homes with lots of children, look at the play equipment in the back yards or drive by on a sunny day when school’s out.  If you want to get a feel for the people in the area, go to the local grocery store and look around for a while.  Tell us which neighborhoods you prefer, and we can refine your search.

Step 5 = Choose Your Home

You cannot remember every home you look at, unless you are Debbie, one of our past clients, who has been relocated by IBM many times.   For the rest of us, trying to remember every home just leads to confusion.  Besides, you are not going to buy more than one at a time, unless you want to make our Team really happy.

Start by looking at the neighborhood, and ask yourself if it feels like your area.  Approach the house, and ask yourself, “Is this the first impression my home should make?”  Go through the home and see if it has the features you need, want, and wish for.  Does the kitchen work for your family?  Can you entertain the way you want?  Do the rooms flow together in a pattern that fits your lifestyle?  Is the master suite big enough?  Is it light enough?  Choose one house that’s your favorite so far.  Then compare the next house to your current favorite.  If it is better than your current favorite, remember this house and forget the one that was your favorite.  If the house you’re looking at is not better than your favorite, forget it.  You should only try to remember one or maybe two houses.  OK, you can remember three if you are really good.

There is no such thing as the “perfect home for you.”  They all have features that are not quite right.  If you get a home that has one to four flaws, that is as good as it gets.  Tim built an entire neighborhood, created his own lot, designed his own home, and built it.  When he moved in, it had three flaws.  If he couldn’t get it perfect when he controlled all the construction, you won’t get it perfect when you are selecting homes.

It is hard to overlook, but the colors and the carpet are not really important.  If it is a great design, the rooms are right, the neighborhood feels good, you can paint and put in new carpet.  Many first-time buyers chose a decent house because they liked the decorating instead of getting a great house and doing their own decorating.  You are going to change some things in any house you buy, so don’t miss a great house because you hate the wallpaper.

Our Team points out the benefits of the house and the drawbacks.  Unusual?  Yes, but we want you to know the drawbacks because you will be the seller of that house down the line, and we want to market that property for you.  Our input is mainly on the investment potential of the property and what may hold down the value in the future.  All of these factors are important to consider when making your home selection.

Step 6 = Do Research Before the Offer

Tim teaches other Realtors to negotiate.  Knowledge is power!  Look at a market analysis of the home you are going to buy.  Is it well priced for what you are getting, or do the sellers need to be more realistic?  Find out what is offered by other homes that are similar to the one you want, so that you can point out that this home does not have the features of other homes that are going at that price.

If we can, we’ll find out the seller’s level of motivation.  If the seller has moved to a new home already, he or she is paying two mortgages and will want to sell quickly.  If the sellers are getting divorced, they would like to be done with the emotional part of selling the house.  We may not be able to find out much about the sellers, but we’ll use whatever we learn to structure your offer so the seller will want you to be the buyer of the home.  If you give the seller something the seller wants, we can negotiate for something you want in return.

Step 7 = Negotiate the Contract

Make sure you put everything in the offer that is important to you.  The “Statute of Frauds,” which applies to real estate sales, says if it is not written in the contract it does not count.  If the seller offers the washer and dryer in the Multiple Listing Service, you still need to specify in the contract if you want them.  If you want the drapes and the satellite dish, put it in the contract.  If there are any repairs or cosmetic changes that you want, write it down.  The contract already has standard provisions that entitle you to certain things, so you do not need to add those.  If you do not like what the standard contract says, we can discuss changing it.  Many other Realtors cannot modify the standard contract, because it is considered the unauthorized practice of law.  However, Tim is a licensed attorney, and authorized to practice law.  Determine what you are getting and what you are not getting at the time you write the contract, so at the close of the sale, you get what you expect.

We love to negotiate.  We emphasize the merits of our offer, and the de-merits of the house.  We write a letter of introduction about you so that the seller wants you in their home.  It’s at this point when the Pre-Approval letter from the lender is also important.  We show your strength as a buyer.  We also emphasize the features of the offer that give the sellers what is important to them.  Most people think negotiating means “nailing” the seller.  Wrong.  If you completely humiliate the other person, it will come back on you in some way.  Get a good deal, but leave the seller with some pride, so the sale will close more smoothly.

If the asking price is already below the market, don’t expect major reductions in the price.  In fact, do not take too long going back and forth on your negotiations, because a “real deal” will attract other offers.  When you are in a “bidding war” with another buyer, your negotiating power is gone, and we’ll use a different strategy.

Once the deal is agreed, go over the paperwork carefully before you sign the revised contract.

Step 8 = Monitor Inspections & Repairs

Choose a recommended inspector to go over the house and give you a written report.  The inspection is a visual inspection, so if the inspector cannot see it, he cannot point it out in his report.  None of us wants to spend enough on a house to have the walls opened up, the foundation dug up, and the roof partially removed in order to see everything there is inside the house.  Even if we had the money, no seller would let you tear apart a home you have not purchased.  There may be some problems that the seller does not know about and the inspector does not find.  If it is an older home, with signs of “deferred maintenance” you hopefully negotiated for a Home Warranty to cover large repairs for the first year after you buy it.

The repairs are the second round of negotiations.  After reviewing the inspection, ask the seller to repair only the things that are important to you and covered by the contract. 

The seller has the right to refuse to do requested repairs.  If the request is appropriate under the purchase contract, you can terminate the contract if the seller will not do the repairs you request.  Your right to terminate keeps the seller motivated to do the repairs.

The seller wants to do the repairs as inexpensively as possible, but you want them to be top quality.  Instead of having the seller do the work, you may consider having the seller give you the money to pay for the repairs.  Sometimes the lender requires that the repairs have to be finished before you close, so that option may not be possible.  Other lenders have requirements that you may have to meet, so our Team may have to find a solution that satisfies everyone.  If you can do the repairs after closing, you have control of the quality, but you take the risk that there may be more to the problem than first meets the eye.  We’ll help you determine what scenario works best for you and for the seller.

Step 9 = Open Escrow & Coordinate the Close

Once the contract is agreed upon and signed by all parties, we will open escrow.  Escrow is a holding bin for all the documentation and funds that need to be coordinated and exchanged. 

Your first job during escrow is to complete the application for the financing right away.  You’ll start right after the contract is signed and go through the process of furnishing everything the lender requires.  There are a number of other steps that have to be done before the closing.  For example, the pest control inspection needs to check for termites and wood destroying insects.  All of the other conditions of the contract have to be checked to be sure they are satisfied.  That is why our Team has a Manager that focuses on all of the items from the time the contract is signed until the close of escrow.

Failure to follow up during this time is where the real estate horror stories come from.  Between 85 and 120 people deal with your transaction if you count everyone at every firm that touches your sale.  If one of them makes a mistake, it can delay the closing or worse.

The secret to success in this part of the sale is to have a highly qualified professional take care of all the details early in the process.  If there is a problem, it will be discovered with plenty of time to fix it before the closing.

You walk through your new home just before closing.  The time for the seller to move out is specified in the contract, and it is possible for you to move in before closing, or for the seller to remain after closing.  Your walk through is to see that the house is still in the same condition as when you agreed to buy it, and that the repairs have been properly made.

Once everything in the escrow is satisfied, the escrow can close and the house will be officially yours. 

Step 10 = Move In and Live Happily Ever After

Moving day is always a lot of work and a lot of joy when you see your furniture in your new home. 

There may still be some things in progress while you are moving in, as it is not uncommon for the sellers to be finishing their moving chores.  Even though escrow just closed, call the Team if you need help.  We do not pack or unpack, but we do many other things to make the process as smooth as possible.

After the close of escrow, you get the Team’s advice for life.  So, no matter where you are, if you need help with a Real Estate issue, call us at (310) 377-4702 or send an e-mail to Laurie@SouthBayHomeTeam.com.  How often do you get free advice from a Team consisting of a veteran Realtor who is also a Lawyer, from a Harvard-educated business manager, from a former builder & contractor, and from a lady who's moved more times than she cares to admit?  Do not be shy about calling us for advice even if it does not involve a sale.