GETTING TO CONTRACT
This is Part II of three parts listing the broad steps in the home buying process. Part I was my prior post. The steps listed are generally in order of occurrence. Although, some will occur at the same time or cross other steps.
View properties – At this point, you have selected several properties to see which seem to meet your requirements (needs and wants). Especially, if you are seeing several houses at once, take pictures to help remind yourself of the houses. It also helps to take notes and name the houses (e.g., the Dungeon, the Castle, the Hipster, etc.) In taking notes, it is especially important to comment on what you really like or dislike about a particular house. This helps you decide about the house and helps your REALTOR fine tune the search.
Pre-offer – Once you have decided to make an offer you will want to complete some due diligence. Depending on the timing (how quickly you want to make the offer), you will want to complete some or all the following steps. If not completed now, all but the market analysis can be completed during the option period which will be discussed in Part III.
If prepared, review the seller’s disclosure. This form is required to be completed in the majority of residential transactions. It will generally be completed as part of the listing process. But, it may not be prepared until after an offer is signed. If not prepared, the contract will give you an “out” after you review the disclosures. The seller’s disclosure will tell you issues of which the seller is aware (e.g., termites, foundation issues, broken air conditioner, etc.) It is prepared as of a certain date. Depending on timing (how old the signatures are), you may want it re-signed/updated by the seller.
Check with your insurance agent to obtain the CLUE report which lists all claims made against the home. You will also want to obtain an estimate of homeowner’s insurance and determine whether the home is in a flood plain. If it is, you need the elevation certificate from the current owner for your insurance agent to determine your flood insurance rates.
Your REALTOR will prepare a market analysis of comparable homes to evaluate a reasonable range for the offer price. The market analysis will have sales prices of comparable homes sold in the last six months or so.
Write an offer – Once satisfied and an offer price is selected, the REALTOR can prepare the offer. There are standard forms REALTORS use with blanks for offer price, etc. Depending on your comfort with the transaction, you may have a lawyer review the documents. There will be additional forms for neighborhood association disclosures, MUD disclosures, financing details, etc. Your REALTOR will submit the offer to the listing agent. The listing agent is required to present the offer to the sellers unless the sellers are no longer accepting offers (i.e., they have an existing offer with which they want to work or have accepted an offer.) Generally, due to timing issues, your REALTOR will obtain two checks (one for the option period and one for earnest money) before submitting the offer. Your REALTOR will hold the checks until both parties sign the agreement.
Negotiate terms – The sellers will accept, decline or indicate a willingness to work with the offer. Depending on the REALTOR, this may be documented in writing or communicated orally. Once one party communicates different terms to the other party, that communication becomes a new offer. An offer becomes a contract when it is executed (when the second party – buyer or seller – signs.)
Part III will include the steps to finance and buy the home.