50 steps to buying a home
From hundreds of transactions comes this step-by-step explanation of the process of buying a residential property. Although this list is fundamentally based on how the process works in the United States, many of the tasks can be applied anywhere on the globe.
The essence is that one has to cover these steps when buying or selling a home.…and what makes the process harder, stressful or painful is when stakeholders (Buyers, Sellers, Agents, etc.) take shortcuts.
As a Buyer, take time to go through these steps and make your own version of steps that apply to you. Understand the process, work the process and get it all done with as little stress as possible. When you are able to do that you will probably avoid costly pitfalls of time and money and end up with more of both in your pocket.
1. When do you plan to buy? Will it be in less than 30 days, 30 – 90 days, or more than 90 days? Knowing your time frame is themost important step in the process. The time frames define your ability to buy, the terms of how you will buy, and the condition of time. You can always make money but time is the one resource you can never get back.
2. What is your ability to buy? How much cash do you have to buy? What is your ability to borrow or leverage cash to work your best deal?
3. Confirm your credit score. Your credit score is your greatest asset in the loan process. It becomes the basis upon which all other parts of the loan become possible.
4. Identify. Who will lend you money: family, friends, a mortgage company, bank, or credit union? Be careful to not be fooled by teaser interest rates or banks that say they lend money but in reality not that much. The big banks may give you a credit card and a car loan but may string you along with the “promise” of a home or investment loan. Stick to smaller regional banks, credit unions and institutions. The Mortgages section will help you through this process.
5. Quantify. What can you qualify to borrow? If you are able to borrow a certain amount, how does that monthly payment or the amount fit into your lifestyle right now or 30 years from now?
6. What is the cost of borrowing money over a specific time period? What specific time period do you want to pay back the loan such as 5, 10, 15 or 30 years? The cost of borrowing money is based primarily on the INTEREST RATE you will be charged as the cost of borrowing money.
7. RETHINK & REVISE. Now that you have a handle on the money what is your revised timeframe to buy?
8. Reconfirm your total finance options based on 3-7 to prepare yourself for looking at actual properties.
9. What is your current lifestyle? What do you anticipate as your future lifestyle?
10. What are you/ your partner’s short term (<5 years) and long term (6-15 years) goals and aspirations?
11. What type of home and layout fits your lifestyle now and later? Now is a good time to look at what styles of houses are in the neighborhoods you are considering. Even if you are not an artist , draw out what kinds of plans, spaces you like in a home. Discuss with your significant other and friends.
12. Find a real estate agent to help you. There are thousand’s of agents out there, some with a lot more life experience and real estate knowledge than others. Ask yourself, “What is his or her life experience and knowledge?”
As you can tell from this list so far, having a good agent representing you is more than having a doorman or doorwoman simply opening doors to a house. You need someone able to open your mind and help you make the best decision. This requires a level of trust between you and your real estate professional.
Trust is gained over a period of time, not formed by an instant 2-second appointment setting or an email, or text from a random website.
Meet the agent before you visit the houses you are interested in whenever possible. If you meet the agent at a house for the first time, don’t hurry the process. Use the house visit to listen to how the agent reacts or responds to you and your reactions to the house.
There is a 99% chance you will not buy the first house you see. It is a process of home buying, not buying a tube of toothpaste on sale at big box store. As such, keep your mind open and receptive tolisten to what the agent does or does not say.
If the agent is not clear on first impression or does not listen to you tread cautiously.
13. FORMS. Understand the Buyer agent form and what it means to you. The buyer agent form says you, the buyer, will work exclusively with an agent as they help you find a house.
You are in essence saying you are “hiring” them to assist you in finding a place to buy within a specific period of time.
14. FORMS. Understand the DUAL AGENCY form. Dual agencyis when an broker / agent represents both a buyer and seller. This form varies by state and country. This form is not allowed in some states because it may appear to be a conflict of interest. It defines part of the roles and responsibilities of the person representing you and how they represent you or other parties and is usually associated to when a listing agent represents both sides of a transaction.
The best way to understand who represents who is by always being able to work with someone who is clear tells the truth and does the right thing. This philosophy goes in line with the strict code of ethics all licensed REALTORS® have to live by.
15. UNDERSTANDING HOW AGENTS GET A COMMISSION. Remember when I said earlier about the Buyer listening to what the agent says? Understanding how a commission works is just as important.
Generally the Seller pays a commission to the LISTING AGENT’s BROKER. The listing agent works for a real estate Broker. The Broker is the person who actually has a contract with the Owner of the property to market the place to sell. The Listing Broker / agent has a responsibility to the Seller first.
The commission money is paid to the LISTING BROKER who then splits their money with the LISTING AGENT and the Buyer AGENT, if there is one. The Buyer AGENT may also work for the LISTING BROKER or may work for another BROKER.
Confused yet?
Basically, the commission is usually spilt between multiple agents…so when you hear of a 6% commission, it rarely goes to one person and generally is split between multiple people.
This means it is usually better to have an agent who has your back and avoid #14 (Dual agency where an agent represents Buyer and the Seller) so there are no questions or confusion when you get to negotiations and making sure the right thing is being done on your behalf. It can happen in dual agency but requires complete transparency that goes beyond the norm.
16. What is your search criteria for a place? Have a written list. When you first sit down with your Buyer agent go through this list of what you want.
Don’t worry if your list changes because it always does. Remember, this is a process over time not a point in time.
17. Start visiting spaces / neighborhoods. I believe in walking and talking a neighborhood. If you can’t feel good about it initially you won’t feel good about it later. Build notes in your book and in your mind. Write down how you feel, what you see, smell, touch all around you when you visit a space.
18. Start visiting specific places. Find out about the open houses and when you make appointments to see specific places note to yourself the time of day and any feelings you have about a place.
19. REVISE your personal CRITERIA…on a place, how the spaces feel and how you feel overall with places, spaces and prices in that order.
20. Get reports from your real estate agent for ACTUAL SOLDS in the past six months. This is a report that shows the sold price for a house, NOT the price that was listed.
At this point you don’t really care as much what people are asking for a house. You the Buyer only care about what a house is really worth, and what it is really worth is the price that it sold for. This is your basis for making an offer.
21. Get additional reports for TREND DATA on what is selling, where it is selling, how properties are selling and for how much. Your agent should be able to provide this information giving you an overall feel for inventory beyond specific properties.
22. Start a personal RISK ANALYSIS for what you do/don’t want in a house and what it costs to make changes. The risk analysis is your personal list of things you like, dislike or don’t feel comfortable about in the whole buying process.
23. Upgrades potential. With the advice of your agent and others, start looking at properties in terms of what potential changes can be made to a property to better fit your lifestyle and possibly increase real equity in a home.
24. FORMS. Consider “what it would take to make changes” on a house if need be. This may require a contractor or simply a trip to the hardware store to look at material prices. Sometimes the scale is big enough that one needs a design professional. The best professional though is you. Write down what you want and need.
25. QUOTES. Confirm insurance costs on a place. Make sure the quotes define clearly what they cover such as 1) Flood 2) Wind and Hail / Fire policy 3) Disaster coverage such as hurricane, earthquake of otherwise. Insurance may vary depending on your personal credit so maybe trust the Seller numbers but then verify with your own every time.
26. Where applicable, look closely at HOA (home owners association) and / or Condo Association documentation (Condo docs).
You need to closely make sure each association has money in the bank for maintenance and any risk factors you identified in #20. This is referred to as “reserves.”
27. MAKING AN OFFER – part 1. Before you make an offer, understand clearly the (a) PROPERTY DISCLOSURES and (b) all other disclosures.
These include but not limited to lead based paint disclosures, dual agency, redhibition and other disclosures required by your state and federal laws.
28. MAKING AN OFFER – part 2. When making an offer make sure from #7 you clearly have your financing in place. Go through options with your agent as to the best way to leverage your cash on hand to present to a Seller a strong offer to make the deal happen, with backup proof of funds and/or financing and anything else that can help you work the deal!
29. MAKING AN OFFER – part 3. The COUNTEROFFER. “Wait!” you say. “A counteroffer?? How dare they!” As a Buyer, especially a first time Buyer the counteroffer process is the part of the process that gives the most heartache. It is however a normal part of what happens in the negotiation to work the best deal.
Remove your emotions from being aghast and replace it with a carefully planned execution of accepting the counter or another counter until you feel comfortable with Item #19, (your personal criteria).
Keep in mind you are the most important factor in the process and the goal is to satisfy your needs and desires balanced with the resources to achieve your goal of buying a home.
30. MAKING AN OFFER – part 4. If the Seller counteroffers, take time to process it. With emotions controlled as much as possible, review the reports from item #20 (ACTUAL SOLDS),then step back before countering or accepting an offer.
31. Once you have an accepted contract to buy, deposit a check in escrow as your good faith deposit accepting the terms and conditions of the “Offer to buy” contract.
32. PROPERTY INSPECTIONS. Carry your own checklist. When you previously walked through the property you may have seen some things you were not 100% sure about. Add these items to your Item #22, RISK ANALYSIS list. Use the Inspection Checklists section to help in the process.
If you plan on doing renovations, now is the time to bring on your professionals…architects, engineers and contractors ALL AT THE SAME TIME. Why all at the same time?
It makes for a better celebratory dinner if all the cooks know what the others are making.
Walk through the outside, then the inside room by room without the noise or talk from any other person …just you and whoever is buying with you. Just take in the place and get a sense of place in the space.
Now after you go through with a home inspector compare their list with your own. Now go back and refine #19 (Personal criteria) and take time to consider what you want, what you are willing to accept and what both are worth in terms of money and time.
33. PROPERTY INSPECTION RESPONSE FORM. Each place has a version of this - it is the second major part of negotiating your contract to buy. It is very important to use this as a tool to leverage deficiencies, such as, electrical installation not to code, or items an insurance company might have problems with (see Section on Four Point Inspection). If major defects have been found make a decision with real estimates on having them repaired.
Remove yourself as a Buyer in these negotiations by getting quotes and opinions from others and use these as your response to a problem or discovered potential problem.
Do not let the property inspection reports sway you off the boat. It is a tool to help protect you…most of the time. It should be a guide to help you avoid risks you may have thought about in #22 (Risk analysis) and risks an insurance company may not cover. Make sure you have a copy of the Four Point Inspection form that insurance companies use to help determine what premium they may charge you.
34. Termites and other bugs inspections. We are but animals living amongst others that have been on earth long before us and will be here long after we are all gone. With that thought, expect to find some bugs of some sort and simply have a plan to deal with it.
Take vermin reports seriously and cautiously and put the burden of getting rid of bugs on the Seller. Read through the 21 steps to understand how, where and what termites and other 6-legged “friends” come into a house.
35. Appraisals. An appraisal is an opinion of value. Appraisals will use some of the numbers your agent should have already given you in the “ACTUAL SOLDS” report (item #20) of properties that most closely reflect the building you are considering. This means there should not be too many big surprises, and if there are, your default is not to pay a penny more than the appraisal - unless you see a huge potential you noted in Item #21 and Item #23, (trends and upside potential).
36. FORMS-Extensions to the contract are a normal part of the contract process. When you made the offer you had assumptions/guesses on when the house could close. As such, expect that some of the previous inspections/variables may cause the timeline to close to be extended.
37. FORMS-Addendums are changes to the contract. An extension is a type of addendum.
There maybe changes to the price, terms and / or conditions of the contract. Make sure what is written is clear and concise, and refers to specific dates and specific money tied to those dates.
38. Title work. When you are buying a property what you are buying is “a bundle of rights”. This bundle of rights helps define all the aspects of the property both physically (the physical boundaries of the property) and legally (who owns it or has rights to it, and what can and cannot be done on the property, etc.).
An attorney will generally take care of making sure you are getting the rights to the property, and no one else is making a claim on the property. The attorney will check to make sure there are no liens on the property such as taxes, fines, mechanic’s liens, etc.
Liens are instruments that give a party a monetary claim to the property.
Someone besides the apparent owner may have a legal right to the property due to a previous owner’s loan, fines, taxes, or work that was performed on the property. Therefore, a debt is still owed to those individuals.
In many places you can go to the local assessor website and look at much of this information yourself. It is recommended you do this as soon as you are considering making an offer on a property even prior to Item #27: (making the offer). This information may put you in a better position to negotiate a deal.
When there are issues with the title the attorney may need to take care of these before you can take ownership. When you purchase the property the attorney will be “insuring the title” to protect you, the Buyer, from anyone or any situation that may impact your ability to get the bundle of rights you are paying for.
39. FINANCING. The final approvals before actually getting a loan can be a monster of epic proportions for the uninitiated. There are constantly new regulations that are supposed to help the Buyer. Instead, the extensive checks and balances can become a burden on the Buyer.
Expect to be asked the same questions repeatedly by multiple people. When you get close to final approval make sure you do not do anything out of the ordinary which would affect your credit. At this final stage in the process, one needs to keep track and follow up when the inevitable “need more info” requests come up.
40. WARRANTIES. If you get a home warranty make sure you have confirmation of who is paying it, when it was paid and what coverage you are getting. Look closely at the deductible and how soon the coverage starts. Go back and look at your Item#22 (RISK ANALYSIS) and consider this as you decide on whether or not to buy a home warranty or extended warranty.
41. Paying Uncle Sam and his cousins. When you get close to closing/escrow/getting your keys to the house confirm what fees are associated with the purchase.
Check when property taxes are due, transfer fees from the City / County / Parish. These are added real costs to a Buyer and you may need cash you need on hand to close.
42. Bank fees, bits and pieces. When you go to closing take time to look at the bank/mortgage company fees. They are generally charges to pull your credit, delivery charges for paperwork, points if you paid any, (a percent of the purchase price) and notary charges. These can seriously add up. They will appear on what is called the “HUD” statement.
43. Got keys/get changed. Congratulations on your new house! The first thing you are going to do is change the locks. Next, determine what other security you might need.
44. Change utilities to your name. You, the Buyer, may need deposit money to do this. Make sure you are clear as to when and how utilities will be changed to your name.
45. Homestead exemption. Several states offer this for homeowners for which the house is their primary residence. What this means is that a certain amount of property taxes will beexempt. You need to make sure that this exemption is filed in the local courthouse where you will be residing.
46. Home Ownership Plans. Your plan going forward now that you own your home is to create a simple list of what you would like to do over a period of time. Be cautious to not go out and spend what money you have on 100 projects. Write your whole list down, then break it into manageable chunks of time, 3 months at a time.
47. Keep track of all expenses. If you happen to be buying a multifamily, talk to your CPA about what is deductible and how you should best leverage your spending habits in Item #46 (Home Ownership Plans) to reduce your tax liability at the end of the year.
48. Document. If you are buying a single-family home, still keep track of all expenses. Keep a folder for each utility bill, taxes and all your closing documents. If you can, have a bank account that only income/expenses for the house go into this account. Treat the building as an investment - because that is what it is!
49. Document some more: RECORD and SAVE! Take your own pictures and video of both inside and outside within one week of buying your house. This way you start a record of what it looked like the day you purchased the building for any possible future insurance claims.
50. Create a maintenance schedule. Now that you are the proud owner of your new place, take the time to add a note to yourselfof things that need to be changed or checked on a regular basis.