A Comprehensive Look At The Real Estate Process From Beginning To End
The Real estate process is complex for a variety of reasons. First, it can be a time-consuming experience. Buying and selling real estate can involve a lot of paperwork and it can take a while to finalize.
If you’re not careful, you could end up losing money, wasting your time, and even end up with a bad deal. Most people are not familiar with all of the documents that need to be filed in order to close on a property.
That’s why it’s important to understand the real estate transaction process, so you can make sure you’re getting the best deal possible. This guide has broken down the processes in a real estate transaction into its basic components so that way people can better understand who is involved during each step of buying or selling a property.
How Does The Real Estate Process Work?
Real estate transactions require a lot of planning. The first step is understanding the type of property you wish to sell or buy. This includes understanding the neighborhood’s driving forces and understanding the market’s demand for the property.
The second part involves marketing, pricing, and negotiating the right offer. Pricing and negotiation could be one of the most time-consuming parts of the transaction process, and many sellers feel that it is the least fun to be involved in.
During negotiations, the seller has the right to review the offer and then counteroffer with the price and terms he/she would like to see. The buyer and seller work together to determine an appropriate sales price.
Then, there are the intricacies of a real estate transaction. Intricacies in a real estate deal may require that you ask yourself a number of questions such as:
- Who are the people involved in real estate transaction processes?
- Should I consult with an attorney or use a title company?
- What is the lowest price that I will sell my home for?
- What are the right contracts to use to sell my home or to purchase a property?
No matter what type of property you’re buying or selling, there are certain things you need to know.
Who is involved in a traditional real estate process?
There are many individuals involved in a traditional real estate transaction. This includes the listing agent, the buyer’s agent, the seller, the buyer, the lender or mortgage company, appraisers, inspectors, a title company, and attorneys.
In real estate, it is crucial that all parties involved work together to complete the transaction. The seller must be willing to list their property, the buyer must be willing to purchase, and the lender must loan the money to finance the sale.
The Listing Agent:
The listing agent represents the seller of the property. Listing agents are responsible for the initial marketing of the property, as well as providing updates to the listing on listing syndication websites. The listing agent’s main goal is to get the property sold, which requires that they facilitate negotiations between the buyer and seller to come to an agreement.
The Buyer’s Agent:
The buyer’s agent represents the buyer. Many buyer agents are responsible for finding a property that meets the buyer’s needs while ensuring that the buyer’s expectations are met. The buyer’s agent works with the buyer to come to an agreement and provides updates to the buyer on what comparable properties are selling for, yielding the buyer a reasonable deal.
Real Estate Teams:
A real estate team is generally made up of listing agents, buyer agents, and a transaction manager. The real estate team is responsible for making sure that the transaction goes smoothly and that the home is sold for the highest price. Real estate teams tour properties to keep informed when consulting clients about the industry’s dynamics.
The seller prepares the home for sale by doing things like cleaning the house, organizing the rooms, and making sure the property is well-maintained.
The seller may include a number of pictures of the property as well as a video tour.
The seller will list the home for sale at a price that he/she thinks will get the best possible return. They will also set a minimum price that will be considered and a maximum price that will be accepted.
The buyer is the person that buys the house. The buyer will usually engage agents to help preview properties that meet the buyer’s needs and desired location. Once the buyer has decided on a specific set of properties, the cooperating agent will communicate with the listing agent to make sure the home is ready to be seen and to coordinate a time to show.
If the buyer is interested in buying a home, the buyer and the agent will draft an offer that sets out the price that the buyer is willing to pay and any special conditions that the buyer will agree to.
If an offer is accepted, the buyer may be required to deposit a certain amount of money into an escrow account, called earnest money. This is to act as a guarantee that the person buying or selling the property will actually go through with the sale.
Technology has a significant impact on the real estate market by making it easier for people to find and purchase homes. Technology also allows people to see homes that are available for sale even if they are not located in the area that they are looking for. As the role of tech evolves in the real estate process, we may begin to see a shift towards blockchain real estate, including the management and verification of property ownership.
What happens after signing a purchase agreement?
Upon the execution of a purchase contract, buyers and sellers become legally bound. This means that all terms and conditions must be met or else legal consequences will ensue.
If the buyer is financing a property, the contract will be sent to the lender for review and loan approval.
How Does Mortgage Lending Work?
The Lender or Mortgage Company:
Once a purchase contract has been signed, a lender or mortgage company will begin its underwriting process. Underwriting a loan means that a lender does a check on a potential customer to ensure that he or she is qualified to borrow money for the specific property that they want to purchase.
Lenders or mortgage companies will usually have a list of home loan products that they can offer to their customers. These products include loans that can either be secured or unsecured. Some of these products are often referred to as fixed-rate mortgages and variable-rate mortgages.
In order to make sure the borrower is properly equipped with the money they need to pay off their debts, it’s important to know some of the key differences.
Mortgage Underwriting Process:
The purpose of the underwriting process is to determine the borrower’s ability to repay the loan and to determine what sort of credit risk a person may pose if the loan were to default.
Borrowers must pass a series of steps to be considered for a loan. Each step in the process must be satisfied before the next step can be considered. This process can take several weeks or months.
Steps in the Mortgage Underwriting Process Include:
- Mortgage Application
- Mortgage Underwriting and Review Process
- Appraisal of The Subject Property
- Protecting the Property
- Mortgage Decision
1. Mortgage Application:
The first step in the underwriting process is the mortgage application. The mortgage application is the process of submitting information about the borrower’s financial situation to a lender or mortgage company. According to Investopedia, a lender or mortgage company will want to know the borrower’s income, debt level, borrower’s credit score, and repayment history.
The applicant’s employment history and future work plans will also be taken into account.
2. Mortgage Underwriting Review Process:
After a lender receives a borrower’s mortgage application, it’ll be processed as quickly as possible. The process involves initiating a packet of documents for the borrower. These documents include information about the type of loan product offered, a statement of the terms and conditions of the loan, an estimated itemized statement of the closing costs, a list of the documents required to close the loan, and a credit report. Common types of home loan products include:
Fixed-rate mortgages are those loans that have a fixed interest rate for the entire term of the loan. They are the most common type of home loan and are generally the least expensive type of loan.
Fixed-rate mortgages are typically used for borrowers who plan to live in their homes for a long period of time.
Variable-rate mortgages are loans that have a variable interest rate. They are the second most common type of home loan and are generally more expensive than fixed-rate mortgages.
Variable-rate mortgages are loans that have an interest rate that can change during the term of the loan. The interest rate will not be locked in at a fixed rate, and the interest rate can go up or down during the duration of this product.
Variable-rate mortgages are typically used for borrowers who plan to live in their homes for a short period of time.
Hybrid mortgages are a combination of fixed and variable rates.
Hybrid mortgages have a fixed interest rate that applies for a certain period of time. This is followed by a variable interest rate that applies for the remainder of the loan.
Some of the terms of a hybrid mortgage may include:
- The length of the fixed rate
- The length of the variable rate
- The initial interest rate
- The interest rate at which the variable rate starts
- The interest rate at which the variable rate ends
3. Appraisal of the Subject Property:
The lender or mortgage company will want to know about the property’s location, size, age, construction, and whether any problems exist with its valuation. To do so, the lender will contract a licensed appraiser to produce a valuation report on the subject property.
4. Protecting the Property:
A lender will want to make sure that they have the legal right to foreclose on the property and that they are protected if a borrower defaults on a loan.
A lender may require that the buyer consults with an insurance agent. Title insurance is designed to protect the lender and buyer from any financial losses or legal issues that might arise from title defects.
Mortgage insurance is typically required for borrowers making a down payment of less than 20% of the purchase price of the home. It’s also often required on FHA and USDA loans. The purpose of mortgage insurance is to lower the risks for lenders making loans to borrowers who might not otherwise be able to qualify for a loan they want.
After deciding on what product to go with, the lender or mortgage company will proceed to a loan decision.
5. Mortgage Decision:
The mortgage decision is the final stage of the mortgage underwriting process.
In this stage, the lender will make a decision on whether or not to approve the loan. If the loan is approved, the lender will send the borrower a loan commitment letter informing them of the approval. The letter will include the amount of the loan, the interest rate, and any other terms of the loan.
If the loan is not approved, the lender or mortgage company will notify the borrower of the reasons why the loan was not approved.
What Do Appraisers Look For in Valuing Real Estate?
Real Estate Appraisers:
When a buyer is financing real property, the mortgage company would like to make sure the home appraises for the price the buyer wants to pay. This is usually accomplished by the mortgage company contracting an appraisal company to assess the value of the property and to produce a complete report.
An appraiser is an expert in the valuation of a property. The most common valuation method is the sales comparison approach, which relies on the average value of comparable properties. The income approach relies on a property’s estimated annual earnings to determine the property’s value.
The appraiser’s job is to provide the lender with an estimate of the property’s current value by looking at comparable nearby properties in the market. The appraiser is not there to help you decide if you should buy the property. Instead, they are there to give you an objective, reliable opinion of the property’s value.
A good appraiser can explain their findings in a way that lenders and mortgage companies understand. After an appraisal is complete, the lender will provide the buyer with a written report that includes the appraised value of the property. The appraisal report will inform the buyer of any variations relating to the value of the property and the buyer’s purchase offer. Lenders will then use the information in this appraisal report to make decisions on what value to lend.
What Do Home Inspectors Look For?
Before a home can be purchased, a home inspector will need to be hired to assess the condition of the property.
A home inspector is a professional who inspects a property to make sure that the property is safe and that it is in good condition. A home inspector will look at the property from the outside and will check windows, foundation, electrical, plumbing, heating, and cooling systems, the roof, and the roof structure.
Home inspectors will inspect the exterior of the house to see if it’s in any kind of distress.
After the inspection is complete, the inspector will produce a report informing the buyer if the property is safe and in good condition. The inspector will also make recommendations on any problems that need to be considered or repaired.
If a repair is needed, negotiations should occur between the buyer and the seller. The buyer may choose to request that the seller make the repairs or ask for a contribution towards the costs.
If the seller refuses to make any required repairs, the transaction may void.
If the agreed-upon repairs are completed, and receipts have been granted, the transaction can proceed to close.
What Does A Title Company Do?
Title agents can be described as an intermediary between the buyer and the seller of real estate. The title company will check to make sure that the seller is the rightful owner of the property. They verify that the property is clear of liens or other problems before signing off on the transaction. This helps the parties feel more confident with their purchase.
They will do so by analyzing if the seller has not had any liens placed on the property and by checking public records. If a lien or title defects are found, the title company will advise that any liens are paid off or that title defects are resolved.
What Does An Escrow Attorney Do?
An escrow attorney will keep the process moving along. They’ll also act as an intermediary between the buyer and the seller, making sure all agreements are in order and that the property transfers smoothly.
Escrow attorneys serve as neutral parties to the transaction and will be able to resolve any problems that may arise. They can also make sure that the buyer and the seller are aware of any liens or problems that need to be cleared up before the transaction can be finalized.
Generally, the buyer’s attorney will act as an escrow attorney.
Which is better: Using A Title Company or An Escrow Attorney?
Title agents and escrow attorneys will be able to manage similar transactions. They will be able to keep transaction processes moving forward, ensure that the seller is the rightful owner of the property and that any problems with title or deeds are resolved.
Deciding who to use may vary on the type of transaction and the type of property that you are purchasing. For example, if you are buying a home that has a title problem, an escrow attorney may be able to help you to get the property transferred.
Similarly, a title company will be able to provide you with a clear title report, so if you’re buying a home that doesn’t have any issues such as unpaid taxes, liens, or mortgage issues, you can probably use them.
What Are The Steps For Closing A Real Estate Transaction?
It is the responsibility of a title company or a lawyer to prepare all closing documents on behalf of the buyer and seller to ensure a smooth closing and transfer of ownership.
As mentioned previously, a title search will be conducted to make sure the owner has the legal right to sell the property, and that there are no issues on the title that could restrict closing.
The mortgage company will give what is called “a clear to close” that makes everyone breathe a sigh of relief because the buyer’s mortgage is now finalized. It is when the issuance of a mortgage is in order, the financing period is complete, and the funds are in place to transfer to the seller.
Sometimes, a closing may take place in a different area from where the home is located. This makes it difficult to have a notary come to the home. In this case, a title company sends the documents to the buyer, who then finds a notary in the buyer’s area, and returns the signed and notarized paperwork to the title company.
As the closing process is undeniably an essential part of the real estate transaction for all parties involved, it is wise to know every step in the closing process.
Steps in the Real Estate Closing Process:
- Receive a Clear to Close
- Pay Closing Costs
- The seller receives the funds, the buyer receives the keys, and the title company/attorney files all necessary paperwork to the appropriate jurisdiction for recording.
Clear to Close:
When the buyer receives a “clear to close”, the buyer then proceeds to conduct a final walk-through. During this walk-through, the buyer can inspect that the negotiated repairs or work were completed and the seller remained true about the condition of the house.
If all of the necessary repairs have been completed, the buyer and seller will sign a final closing statement. This document will contain the sales agreement, the mortgage contract, and any other documents that are required for the closing. The buyer and seller will sign this document in the presence of a notary public.
Who Pays For Closing Costs?
Closing costs may be negotiated throughout the transaction between the buyer and the seller. Closing costs can make up about 3 – 6% of the price of the home.
It is customary that the seller pays for the following at closing:
- Seller attorney fees
- Documentary stamp tax, transfer taxes, or recording fees
- Potential fees for HOA
- Title insurance
- Credits towards closing costs (if any)
- Escrow money promised to the buyer (if any)
- Real Estate Agents commission
- Prorated property taxes
Closing costs that buyers may expect to pay:
- Lenders Application, origination, or discount points fees
- Mortgage insurance fees (if submitting less than 20% down)
- Buyer attorney fees (if any)
- Title search, lenders title insurance, owner’s title insurance
How long after the closing date will the seller receive the money?
After closing costs are paid, the mortgage company releases the funds to the seller, and the buyer receives the keys to his or her new property.
Disbursements of funds may be available right away or within a few days depending on the transfer method used (e.g. wire transfer, ACH, etc.).
The final step to closing a transaction is for the title company or escrow attorney to file all necessary documents with the appropriate jurisdictions for recording.
Tying It All Together
It’s important to understand that the entire process of buying and selling a property is not a simple transaction. It is a complex process that involves legal, financial, and emotional aspects. And this complexity is compounded when there are non-traditional elements added to the transaction or asset class such as when a buyer is purchasing a property from a seller who is facing foreclosure.
Homeowners may opt to sell on their own or simply work with real estate agents, title agents, escrow attorneys, and other intermediaries to help facilitate the process.
Both the buyer and the seller need to be aware of the pitfalls that are associated with the entire real estate transaction process and make sure that a solid plan of action has been formulated to ensure that the transaction goes smoothly.