the Basics of Buying a Home
This guide has been prepared for those who are typically the first time buyer; however, it might contain useful information for the more experienced purchaser as well.
The process of finding an acceptable home usually requires hard work, and at times can be frustrating. Much depends upon the market conditions. If there is an abundance of homes the buyer will have many selections to look at, and due to the varied selection maintain significant negotiating power. This is very true in today’s market, as the price of homes seem to have stabilized and in many instances decreased. More frequently there is an abundance of homes for sale, hence more negotiating room related to the asking price and typically less competition from other buyer’s.
As a successful buyer in a sellers’ market you will need to have greater access of information to understand the real availability of current homes on the market. Therefore it makes sense to utilize the services of a buyers’ agent -- a real estate salesperson representing the buyer. Normally this is one of the best deals you will find in today’s economy, as the seller will typically pay the sales commission. However, the list price of the home usually takes into account the commissions owed to the selling agent, as well. So, even though the buyer does not "directly" pay commission, the cost is baked into the price.
In today’s market, the salesperson must inform the buyer or seller exactly whom they represent (i.e., either the buyer or seller or both). The salesperson will generally maintain forms explaining agency relationships (including dual agency – where a salesperson or the broker may represent both the buyer and seller) and a New York state form that you will be asked to sign. The signature is not an obligation, binding you to the agent, but merely a statement of the fiduciary responsibility of the salesperson. If you are a buyer you will want a buyers’ agent to work for you and not the seller. The seller will want the opposite.
FINDING THE HOME
When looking for a home you will definitely want to work with an agent who is a member of the Realty Board and who had access to the local Multiple Listing Service (MLS).
Find an agent you trust and work with them. You will always have some idea of what you are looking for in terms of bedrooms, bathrooms, and type of home. You may be looking for a particular school district, and have some knowledge of the price and taxes you can afford. Armed with this data the agent can search through the MLS for homes that are available and make appointments to view the ones you find appealing. Typically you might wish to look at three or more homes at one session. This will all depend upon your individual time restraints and the homes juxtaposition.
If you get lucky you might fall in love with one on the first go-around, but realistically give your self several weekends to look, depending upon the market conditions, as it might take much longer. You may even discover that the area you are thinking of may not be up to your standards, or listing at a price or style that is beyond your reach -– or just not right for you.
At your first meeting the agent should ask if you have been to a banker or mortgage professional, to determine what realistic price range you will be able to work with, and how you will finance the ultimate purchase. The agent is usually looking for a pre-approval, or a commitment, provided by a mortgage professional. This will provide comfort that based upon the best information available, you (the buyer) should be able to receive a mortgage and pay taxes of up to a certain dollar amount. This will give the buyer’ agent the necessary information, based upon their knowledge of the current market in the area, to focus in on the homes you should be looking at. It is also absolutely necessary to have this information available, as the pre-approval (or commitment) will accompany the initial offer you may make on a home.
Make certain you understand what your immediate and future financial obligations will be when purchasing a home. I would recommend that you set up a realistic budget amount that will cover the mortgage payment, energy, water, and electric bills with some funds available for emergencies. Your taxes will generally be included in the mortgage payments (including the home insurance) and normally will include School, Local & County Government levies. These taxes seem to increase on a yearly basis. Be certain to discuss the costs with your agent, mortgage professional, and attorney.
MAKING AN OFFER
Making an offer is probably the most difficult decision you can make in the entire process. The asking and selling price are not related to each other by any formula, or percentage calculation. A fairly priced property may sell at asking price or above. Yet, another home may undergo a price reduction. Market conditions at the time of your offer are very important, and your agent should be able to discuss these current conditions with you in detail. You should work closely with you buyers’ agent who will offer you guidance and support through this home buying stage. More than likely you will have some negotiating to do through your Buyers’ agent so be sure to make yourself available should there be counter offers to discuss. Your agent will make their best effort and bedside manner to put forth your position in friendly yet professional style. But in the final analysis it is yourself who will make the final decisions as to the price you are willing to pay. It is best to itemize everything you want included in the sale (i.e., dishwasher, lighting fixtures, etc.) at the price you are offering.
You have spent many hours locating a home, negotiating a price, and finally the seller has accepted your offer. But this is not a time to rest, as the house is not; as yet, yours and the seller will probably continue to show the house (to other potential buyers) until it is under Conditional Contract. Your agent should have made your offer contingent upon various inspections (home, insect, radon, etc.). Your willingness to move quickly at this point is important, as it will give the seller comfort and confidence that you really are determined to buy this property. Thus you will attempt to have the house inspected as soon as possible (usually within 48 hours). Your agent should be able to provide you with several recommendations.
A good inspector will do a very thorough job and this means he/she will find fault with your home-to-be. The Inspector is paid to find problems and will always discover something that needs attention. In any event make certain that you and your buyers’ agent are present with the inspector so you will be available to ask questions, and evaluate any faults. If the inspector rejects your request to be present, find another.
Often an inspection will uncover many annoying items, to the extent that a buyer will wonder why they are consider buying this home in the first place. But, after some scrutiny, one discovers that the majority of issues are usually cautions or maintenance items that need to be addressed some time in the future.
Condominiums’ and Co-ops’ may be treated in a somewhat different fashion, as the exterior of the premises is generally the responsibility of the association or corporation. Therefore the buyer might wish to employ a handyman who will be able to determine the condition of the interior that will normally be the responsibility of the buyer.
Inspections may uncover major items that need to be addressed, that go beyond general maintenance issues that you as a buyer may require repair or remedy, prior to closing. These issues should be shared with your agent and lawyer, as they need to be brought to the attention of the seller. The seller may agree to make the necessary repairs, offer a credit at closing, or worse case the deal may fall through if there is no equitable solution. Obtain a copy of the inspection report for your agent if at all possible.
Let us assume that the inspection has gone well and you are satisfied with the condition of the house. You will then inform your agent that you wish to proceed. Your agent will then advise the seller that you wish to enter into contract. The sellers’ attorney will send a contract to your attorney and you, as the buyer, will be the fist to sign. All additional requirements (i.e., repairs), if any, should be included in a rider to the contract. Once you sign (and provide your attorney with a check representing a down payment (traditionally 10% of the agreed price of the property) your attorney will send the package back to the sellers’ attorney, for their signature. The seller should then sign the contract as well and there should be no further showings of the home.
At this point the seller should be providing disclosures relating to (1) lead paint – assuming the house was built prior to 1978, and (2) a general property disclosure (a legal document). Please discuss these disclosures with your salesperson and attorney. Ask your buyers’ agent to try and obtain a copy of the property survey. The survey may be required by the Bank and if one is not available it is the buyer’s responsibility to obtain one.
Once available an executed copy of the contracts (signed by all parties) will need to be delivered to your mortgage professional. Please arrange for your agent to receive a copy as well. At this point your contract is contingent upon the bank approving your loan.
The remaining tasks to complete the purchase are a completion of the title search (ordered by your attorney) by a Title Company, and the bank approving you mortgage, which may require an appraisal of the property.
The true value of any home is the amount someone will actually pay for it. However, most of us will be required to seek out a mortgage for a certain percentage of the cost of the home. In instances where a buyer is able to put down 20% or more, toward the purchase of the house, the bank may be required by you or your agent at this point.
Should the mortgage bank require a full appraisal; the buyer’s agent will make the necessary arrangements, for the appraiser to gain access to the property. He/she will make contact with the seller so the appraiser will gain access to the home. The buyers’ agent will also accompany the appraiser at the time of their appointment.
The legal ownership of a Co-op takes the form of shares in a corporation that owns the property where the unit is located. A Co-op usually has a committee --a Board -- that meets and screens all prospective buyers’. Some Co-ops establish criteria (normally not published) that are used for the screening of prospective buyers and all have rules & regulations that must be agreed to by all new owners. The buyer must go through the entire process of offer, contract, and mortgage commitment and then meet to obtain Board acceptance or rejection. The Board is not required to explain why they have rejected a particular applicant.
There are a few other items for a buyer to be aware of up to and including the closing. The bank will require the buyer to obtain insurance on the home. Therefore please speak to your mortgage professional to determine exactly what will be necessary.
It is important to get to know your attorney/bankers and spend as much time as possible to understand the closing process, particularly the costs. You will be require to provide certified check(s), and will and need additional cash in your private account(s) to cover such things as title insurance, taxes, and other miscellaneous items addressed at the closing. Please be certain to understand, how much cash you will need to close. Your attorney should be able to give you an estimate.
Just prior to the closing date you will want to make a final walk through. This is necessary to make certain everything is in good working order, swept clean, and the amenities originally included are there. This should be the final appointment your buyers’ agent should be making on your behalf. The final step in the buying process is the closing. They generally last about one to two hours and there will be many documents that you will need to sign. Your attorney will explain the significance of each document. Just remember people do this all the time and it is a state of controlled confusion. Once all the documents have been signed and all the checks have been passed around the table you now own the home, will be given the keys, and may move in at your convenience.
Some Buyers are in the position of moving into their new home at their leisure. Typically these Buyers are moving from a residence that they either rent, are part of a relocation package, have made the purchase of the property with cash, or are buying a second home. These buyer’s may have sufficient time to make any home improvements prior to moving in.
The majority of buyer’s will need to sell their property and use the funds from the sale to close on the new home. This chain of sales may impact both the buyer and the seller and timing of the closing needs to be coordinated with the attorney’s. Ideally the closings will be held on the same day. However, from time to time the closing may not coincide and other arrangements will be needed to accommodate both the buyer and seller.
What ever arrangement is finally agreed to it is highly recommended to be in writing. The attorneys for both the seller and buyer should have experience in these matters and be relied upon to create the agreement(s). In most transactions the seller will be the party who may need additional time to move. There are options, such as a rent back arrangement, where the buyer will delay moving for an agreed period of time. The seller will probably be required to leave funds in escrow, and pay the mortgage interest (or another agreed upon funds) while continuing to occupy the property.
Most attorneys will recommend that the seller does not allow the buyer to move themselves or possessions into the home prior to closing. Most believe that this type of arrangement suggests risk or other potential complications that is not in the best interests of the seller.
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