By Mark Pruner
This week, it’s a back-to-basics article with a beginning buyers’ guide to the home purchase process in Greenwich.
Preliminary Planning
Many people don’t have a plan when they decide to buy a house, they just start looking and that is fine. However, random searching in today’s tight market can put you at a disadvantage, when you are competing against other buyers; many of whom have bought houses before and/or have more financial resources than you do.
When you start out take a few minutes or days to write down why you want to buy a house. What pain points will the house alleviate? What opportunities does it give you and your family? What would you like in a house? What’s roughly your budget and financial options?
You don’t need to plan this to the nth degree, but having a rough idea of what you want is very helpful when it comes to figuring out what fits your needs. As you progress in the house buying process, you want to revisit and update your original plan as you learn more about the market.
Selecting a Real Estate Agent
You need to select an agent who is experienced and has intimate knowledge of the local area, properties – both active and sold, and good negotiation skills. The best way to obtain this info is to interview an agent. You can take a friend or family’s recommendation but do your own due diligence. You are making an investment in one of the biggest assets you may ever buy, you need a trusted, experienced agent that you can comfortably with.
Speak to several agents to understand their level of training, education and experience and see if you have matching philosophies. A good agent will tell you what the issues and opportunities are with each property, and not just push you to buy. If you find you know more than the agent, consider getting a new agent to work with. There are some great Realtors® out there – keep questioning them until you find the right one for you.
The Buyer’s Representation Agreement
When you do select the right agent, they will request that you sign a Buyer’s Representation Agreement. Connecticut state law requires that this document be signed by a buyer prior to a real estate agent showing a property.
This document can specify any period of time (even one day or just one house) and it identifies the market area they will show you. Review this document with the agent prior to signing it. While there is a standard GMLS contract, some firms have their own buyer’s rep agreement with different terms that you should understand. These agreements are also negotiable, though your agent will probably need their broker’s approval to make changes.
Do Your Homework
The next step is not to immediately look for a house, but to look for the neighborhoods where you would like to live. Get a solid understanding of the price range and areas you want to see, not simply in terms of real estate, but also the quality-of-life issues. Determine what each neighborhood has to offer you and your family as to amenities, schools and commute times. As to price, consider not only the initial purchase price, but renovation and other first year costs.
Don’t forget resale potential. A cheap house on a problematic property will still be on that property after you fix it up. Don’t look just at new listings. One buyer’s problem property may be another buyer’s opportunity, There is nothing worse than finding what on first impression looks like your dream home, then spending years wishing you had bought somewhere else.
Mortgage Pre-Approval
Early contact with a mortgage broker or bank can set the groundwork for a successful purchase process. Your real estate agent should be able to provide you with names of lenders should you need them. The majority of buyers actually have complicated, and often unique financial situations, so speaking to a few lenders can help you see all your mortgage options. Often you may be able to afford more house than you originally thought.
Your initial meeting will identify the financial parameters for your situation and credit rating. Further understanding of your financial situation will allow the lender to issue you an underwritten pre-approval letter, not just a pre-qualification letter. This letter says you have been approved for a mortgage up to a specific dollar value subject to the property appraisal. This is an invaluable asset during the negotiation process if there are other bidders who are all-cash buyers.
Finding the Right Property
The search portion of the process should be a joint effort between you and your real estate agent. Tell your agent what it is that you like and don’t like. This way you can focus your search and your agent can suggest other options you may not have considered
Often, a person’s desires don’t equate to what it is that they are able to purchase. Focus on your needs, not your wants. A seasoned agent should not only make you think about how a property suits you now, but discuss how you might use it or expand it in the future. Is this a home something you can stay in as your family expands or contracts or will you need to move from this property to meet your future needs?
Preparing to Make an Offer & Strategy
Once you have narrowed your search and focused on one or two properties, your agent will be able to provide you with historical market data and recently sold properties. You then can formulate an offer strategy with your agent. Price is not the only factor. The other terms are important. A seller may take a lower price if you are willing to close either earlier or later depending on what the seller wants.
The Offer
Elements of an offer include
• Names and addresses of the buyers, sellers, their agents and attorneys
• The offering price and financing, whether all cash or a mortgage contingency. (The amount of your mortgage and contingency expiration date. Seller’s want a shorter contingency date, but it has to be long enough for the bank to process your application.)
• The closing date upon which you will take title and ownership of the property.
• Inspection contingencies (building, radon, termite, lead paint, well, septic, survey, pool, etc. with a completion date for each inspection.
• Other contingencies should be included in the offer and dates, if appropriate.
• Identification of any items that may be included or excluded in the purchase price.
• The date you will sign the contract and give a down payment, customarily 10% of the purchase price.
Once you and the seller reach agreement on the terms and conditions for the purchase, a Final Offer to Purchase is prepared. This document is sent to the seller’s attorney to draft a sales contract and to the buyer’s attorney to alert them to expect a contract.
Contracting Process
The seller will instruct their attorney to draft the contract of sale based on the terms in the Final Offer to Purchase. Your attorney will review the sales contract from the seller’s attorney and ensure that your interests are protected by attaching a buyer’s rider to the contract. Much of the buyer’s rider are seller’s representations such as there’s been no water in the basement and no encroachments by neighbors.
Negotiating usually takes seven to ten business days from the accepted offer to a signable contract. Your attorney will do a title search. You then sign the contract and submit a down payment in the amount of 10% of the purchase price. The down payment is a check usually made out to the seller’s attorney as trustee. The contract signed by you and the down payment check are then delivered to the seller’s attorney for execution by the seller.
Pre-closing Activities
Your agent will work closely with you to ensure that the specified contingencies which are part of the contract are removed by the dates stipulated. If any of the dates appear to be in jeopardy, notify your attorney immediately. Extensions of deadlines do happen, but this gets complicated if there are higher backup offers. With the mortgage contingency date, you may be at the mercy of the bank. This is where a good mortgage person can be of tremendous help to make sure the bank approves the loan before the contingency date expires.
An experienced real estate agent is also there to assist you with any other tasks, such as contractors, furniture stores, moving companies and locksmiths. They also have lots of info school enrollment, parking pass for the train station, beach cards, …etc.
A week or two before the closing, your agent will remind you to notify the utility companies to transfer accounts into your name on the date of the closing. The companies require the new owner to initiate the request for these services. The seller will also be contacting the same providers to discontinue service. This transaction needs to go smoothly to avoid having to pay a connection or hook-up fee because the service was completely terminated.
A few days before closing you will be advised of all the costs and fees associated with your closing, such as recording fees, homeowner’s insurance, adjustment costs, tax escrow, and any other costs associated with the transaction.
Closing Day
On the day of your closing, you and your real estate agent will do a final walk-through of the house. You want to check that:
1. the property is in the same condition as when you signed the contract of sale.
2. the seller has left all the included personal property specified in the contract
3. the house is “broom clean” and the yard has been maintained.
4. there are no defects visible now which were previously hidden, such as a damaged floor previously hidden by carpeting or a hole in a wall that was hidden by an entertainment center).
After the walk-through, you head over to your attorney’s office to sign the mortgage documents. Before Covid, you brought certified checks and your checkbook. Nowadays, the money to close has often been transferred into your attorney’s trustee account. Often, the attorneys meet without their clients and exchange documents and checks. If there is a bank financing, your attorney will ask your bank to release the funds.
After a couple of hours, the seller’s attorney advises the buyer’s attorney that he has good funds. Finally, the deal is done, and you can pick up the keys to your new home.
Mark Pruner is a Realtor with Compass. He can be reached at 203-817-2871 or mark.pruner@compass.com
