Buyer's guide to a real estate transaction.
March 13,2022 | Posted By Flavia Brown in Real Estate
Buyer steps to present an offer and the entire transaction – in order:
Get pre-approved for a loan before searching for a home (for buyers who plan to finance). However, the home search can begin before pre-approval for buyers who are confident that they can get qualified and who know their approximate price range.
Search the internet or ask a Realtor to search for the type of property you want to buy, or both can search at the same time. A Realtor will narrow down the search to meet a buyer’s required criteria, which will include the city or specific areas, type of property (SFR, condo, townhouse, duplex, etc.), physical condition of the property (move-in condition or needed cosmetic or major repairs), price range, anything you must have (formal dining room, large back yard, upscale area, etc.), and anything you must not have (on a busy street or near a freeway, house with deferred maintenance, etc.).
Choose a seasoned Realtor who will look out for your interests 100%. The Realtor should know the inventory, local real estate trends, where the best deals are, have experience on both sides of the table, be a skilled negotiator, knows how to conduct a smooth transaction. and knows how to analyze the comps (comparable nearby Active listings and recently sold similar properties.
Prepare to make an offer. Have the following items ready: earnest money deposit (EMD), pre-approval letter, proof of funds (POF) sufficient to cover your EMD and closing costs (approx. 3% and 1% respectively of the offered price), and the amount of down payment. Next, discuss the most important paragraphs and terms of the purchase agreement with your Realtor. Your Realtor should provide a written brief explanation of every paragraph in the California Association of Realtors (C.A.R.) Residential Purchase Agreement (form RPA). Some other purchase agreements are acceptable, but the RPA is used in 95% of all real estate transactions because it protects the buyer and seller, but mostly the buyer. Note on the EMD: It can be any amount up to 3% (3% of the purchase price is the maximum amount allowed by the State (per the liquidated damages clause in the RPA). However, the more the EMD the stronger the offer will be. Therefore, most buyers offer 3%. The EMD becomes part of your down payment, which will be due one or two days before close of escrow.
Make an offer. After studying the comps and establishing an offered price, your Realtor will draft the offer and email a rough copy to you so you can make any corrections or changes. Upon your approval of the offer your Realtor will finalize the offer and email the final edition to you and all recipients for electronic signing and initialing (DocuSign or Digital Ink).
After an offer is presented, the seller will either accept the offer, counter or reject the offer. If your offer is accepted the listing agent will open escrow. If the seller wants to counter your offer the listing agent will prepare and email your Realtor the counteroffer form. The buyer will either accept the seller’s counteroffer or counter the counter. This could go back and forth several times. Each counter is numbered, beginning with number one. If your offer is rejected, and if you still want the property, you can wait for a day or two and present another offer with a small increase of the offered price. (Several times I have done this in increments up to four times until the offer is accepted). Your EMD will be due within three days after your offer is accepted. Therefore, you won't need any upfront money when making an offer. However, including the EMD with your offer will help make the offer stronger.
After an offer is accepted and ratified, escrow is opened. The buyer will instruct the bank to wire the EMD to the escrow company. The escrow company will email wiring instructions to you, and you will forward the instructions to your bank. Next, you or your Realtor will order a property inspection. You will have 17 calendar days to investigate the property, which will include inspections, reviewing the seller’s mandated disclosures, and studying any city report. For condos and townhouses, the HOA documents will be reviewed. Within the 17 days you and the seller (through the two Realtors and the buyer’s Request for Repairs form) will negotiate any needed repairs, including termite/pest control Section 1 damage, or you will remove all contingencies and agree to move toward close of escrow (COE). The three contingencies to remove are loan, appraisal, and property condition. Note: The seller has 7 days to provide the buyer with all required documents, and the buyer has 10 more days to respond (17 days after acceptance of the offer). All offers state that buyers are purchasing the property “as-is” in its present physical condition subject to buyer’s investigation rights. Therefore, if a seller advertises that the property is being sold “as-is” it means only that the seller doesn’t want to deal with any repairs. The seller is still obligated to disclose everything that affects or might affect the value and desirability of the property, and the buyer still has the right to investigate the property and negotiate with the seller over needed repairs. Therefore, "as-is" doesn't carry much weight. Two things buyers should do the day after Acceptance: Order a property inspection and arrange for a homeowner’s insurance policy. Important: During the 17-day investigation period and right up to COE the buyer’s and seller’s agents should contact the buyer’s lender every few days to see how the loan process is progressing and if there are any financing problems. Many transactions fall through because buyers don’t follow certain lender rules, like don’t buy furniture or a car on credit until after escrow closes. Transactions running into financing problems are common enough that they are called a TFT (transaction fell through).
A few days before COE the buyer and buyer’s agent will do a final walkthrough of the property. This formality is to see that the property is in the same physical condition as it was when last seen by the buyer. It isn’t a contingency, but any issues will probably delay closing escrow until the issue is resolved. An example of unexpected damage is a cracked door jam caused by moving furniture out of the house. Also, there will often be termite fumigation (tenting) for a detached (stand-alone) building, but usually not for an attached condo or townhouse. Fumigation is usually done before close of escrow.
Two days before COE the buyer's bank wires the balance of your down payment to the escrow company. The EMD which was wired soon after the offer was accepted becomes part of the down payment. Therefore, the balance of the down payment is due. Next, the buyer signs many documents, including loan documents. The escrow company will make the signing arrangements and meet with the buyer. The escrow company will often send a notary to the buyer for the signing.
Close of escrow day. After escrow officially closes the transaction is recorded with the county recorder, which will be on the same day as COE or the day after. All parties to the transaction will be notified via email that the recording has been completed, When that occurs the buyer becomes the new owner and the buyer’s Realtor presents the keys to the new owner, and a few days later the deed of trust is mailed to the new owner.
After close of escrow the buyer’s Realtor contacts the new owner to be sure everything is in good order. The Realtor will handle any remaining issues.
Your questions are always welcome.
To your success,
Flavia Brown, Realtor (17 years)
P.S. When the time comes for you to present an offer, the following items are needed on the contract to get the offer going:
+ Names(s) of buyer(s)
+ Purchase price you want of offer.
+ Amount of earnest money deposit (EMD). It can be any amount up to 3% of your offered amount. (State law-liquidated damages limits EMDs to 3%). The EMD becomes part of your down payment, which isn’t due until a day or two before close of escrow (COE). 3% makes for a stronger offer, especially if the offer is low. But it can be any amount.
+ Amount of down payment. It could be any amount, depending on the lender's requirements. Usually, it is 5 to 20% of the purchase price.
+ Proof of funds (POF) – sufficient to cover down payment and closing costs if financing, or sufficient to cover an all-cash purchase and closing costs.
+ Escrow period: 30-45 days is most common.
+ Financed or all-cash offer.
+ Buyer shall occupy or buyer shall rent the property after close of escrow.
+ Any special terms you want to include.
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