Buyer's steps for a real estate transaction.

May 26,2023 | Posted By Flavia Brown in Real Estate

Buyer's steps for presenting an offer, and the entire transaction – in order:

Analyze your finances to be sure you can afford to buy a home. Include property taxes, homeowners insurance, house maintenance, payments of long-term debt like car payments, student loans, as well as your down payment, closing costs, and monthly mortgage payments. For condo and townhouse buyers, include monthly HOA fees and probable special assessments. Don't buy a home at the maximum price you qualify for; don't be financially chained to your home. Generally, not more than one-third of your monthly household gross income should go toward mortgage payments and other house expenses.

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. The lender or mortgage broker will preccisely calculate how much house you qualify to buy, and most Realtors can calculate the affodability.

Get a list of buyer dos and don’ts from lender or Realtor. For example, don’t buy big-ticket items on credit, like a car or furniture until after COE. Don’t change jobs during the escrow period.

Arrange for homeowners insurance to begin on the recording date (the date you get the keys and take possession).

Contact utilities companies and give estimated COE.

Documents your lender will ask for:

The last two years’ tax returns
Pay stubs or other documentation of income for the last two months
All bank statements, plus brokerage and investment account statements, for the last two years
Proof of funds for down payment and closing (or a gift letter, if someone is giving you the money)
Letter of recommendation from previous landlord, if you’ve been a renter
ID (preferably a driver’s license or passport)

The lender may have more documentation requests as they process your loan, but these are the basics and will get you started.

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 preferred criteria, which will include the city or specific neighborhood, 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 lots of deferred maintenance, etc.).

Choose a seasoned and knowledgeable Realtor who will look out for your best 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) to suggest an accurate fair market value list price.

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 down payment and closing costs. 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 approx. 95% of all real estate transactions because it protects the buyer and seller more than all other, but mostly it protects the buyer. No more "buyer beware." Note on the EMD: It can be any amount up to 3% of the offered price (3% is the maximum amount allowed by the State of California (per the liquidated damages clause in the RPA). However, the more the EMD (up to 3%) the stronger the offer will be. The EMD becomes part of your down payment, which will be due one or two days before close of escrow.

Become familiar with the purchase agreement and transaction steps. Your agent will: 1) explain every paragraph (or at least the most important ones) in the purchase agreement; 2) give you a sample copy of the agreement with written explanations of each paragraph; and 3) give you a copy of the transaction steps for sellers and buyers.

Make an offer. After analyzing the comps and establishing an offered price, your Realtor will compose the offer and email a rough copy to the buyer, who will make any corrections or changes. Upon the buyer's approval of the offer the 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 accept, counter, or reject the offer. If your offer is accepted, the listing agent will open escrow. If the seller counters your offer, the listing agent will prepare and email a counter offer to your agent. The buyer will either accept the seller’s counteroffer or counter it. 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 a day or two and present another offer a little higher. (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. No upfront money may not be appicable or acceptable in some areas or states or in a hot seller's market (low inventory, greater demand than supply, rising prices, multiple offers, etc.).

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 the buyer, for you to forward the instructions to your bank. Next, you or your Realtor will order a property inspection. You will have 17 calendar days (the contract's default which can be changed) to investigate the property, which will include inspections, reviewing the seller’s mandated disclosures, and studying any city reports. For condos and townhouses, the HOA documents will be reviewed by the buyer and agent. Within the 17 days you and the seller (through the two Realtors and using the buyer’s Request for Repairs form) will negotiate over any needed repairs and cost, including termite/pest control Section 1 damage, or you will remove all contingencies and agree to move toward close of escrow (COE). Typically, 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 legally required to disclose everything known 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. The seller can also give a credit to the buyer for 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 big-ticket items on credit, like furniture or a car until after escrow closes.

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 from moving heavy furniture out of the house. Also, there will often be termite fumigation (tenting) for a house, but not for a condo or townhouse. Fumigation is usually done before close of escrow, but sometimes after closing if proper arrangements are made.

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 clerk, 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, and the buyer (new owner) gets the house keys and a few days later the deed of trust is mailed to the buyer.

After close of escrow the buyer’s Realtor contacts the new owner to be sure everything is in good order. The Realtor will coordinate 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 entered onto the contract:

+ Names(s) of all buyers.
+ 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.
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