So You Want to Buy a House…

Now What??? 

Frequently Asked Questions for Homebuyers

Q: Why do I need a realtor?

A:  Some people feel that a realtor’s main job is to help you to find a house.  Although a realtor has the best and most updated access to homes for sale in your area, in fact, a realtor’s knowledge and resources are your best reasons for needing a realtor.  Most people purchase homes just a few times in their lives and could use someone on their side who knows how that process should go. Since each state has different regulations regarding the sale of real estate, you need a realtor who is licensed to know those laws for your state and particular county or city.  Realtors go through the home buying process many times a year and they are always taking continuing education to stay on top of their ever-changing field.  They are familiar with all of the legal contracts that need to be used and are aware of what needs to be included and what needs to be disclosed.  In addition, realtors belong to a brokerage which has an expert realtor who reviews all contracts to insure your protection.  On top of the extra resources that the brokerage provides, realtors also belong to the national and state association of realtors.  The association provides support and legal advice from real estate attorneys.

Top realtors are professionals in their field.  They are truly a part of the community and can help get you information about the area, the schools, the taxes and the local economy.  They also have a circle of proven professionals they work with.  Your realtor should be able to refer you to mortgage companies, inspectors, appraisers, contractors and title companies whom they trust.  All of these professionals will have a hand in helping you making a smooth transition—you’ll want the best. 

In summation, your realtor is your safety net and there to protect you.  There are people who sell homes without realtors and without title companies.  Often these cases involve fraud, and buyers are swindled out of their money.  More often they just involve contract mistakes and recording mistakes.  Many people end up in a “nightmare” because they didn’t know what they should include or ask to be disclosed in a real estate contract.  Buyers may even have difficulty getting financing without a proper contract.  Many buyers lose earnest money or get pushed around by aggressive sellers.  Formerly amiable buyers and sellers end up with a bad taste in their mouth or worse, in costly legal battles.  The biggest purchase of your life is not a do-it-yourself project.  Let an expert navigate for you.

Q:  How does my realtor get paid?

A:  The best news for buyers is that realtor services are usually free. Every seller who has a home listed for sale has already contracted to pay a commission to your real estate agent.  Your expert navigator receives a commission when you purchase your home—paid for by the seller. 

Q:  What are the forms I should sign?

A:  1) The Exclusive-Buyer Broker Agreement states that you are using a specific realtor.  It is inappropriate to have several realtors “working for you.”  Your realtor will spend time, money and resources to help you find your home.  They don’t want to step on the toes of another agent that may already be working with you.  This agreement states that this is the agent you have chosen to work with and you are not already using another agent.  This agreement also protects you from inadvertently waiving your rights to having an agent.  Utah State law R162- requires an agency agreement. “To avoid representing more than one party without the informed consent of all parties, principal brokers and licensees acting on their behalf shall have written agency agreements with their principals.  The failure to define an agency relationship in writing will be considered unprofessional conduct and grounds for disciplinary action by the Division.”

 2) The Buyer Due Diligence Checklist informs you that your realtor strongly recommends that you engage the services of appropriate professionals to conduct inspections, investigations, tests, surveys, and other evaluations of the property.

Q:  I want to make sure I am making a good decision about the house I buy, but how can I sort through all of the possible homes in an effective manner?

A:  Let your realtor know what you are looking for in a home.  Answer at least the following questions about your future home:

  1. 1.      Price Range
  2. 2.      Age of the home
  3. 3.      Number of bedrooms and bathrooms
  4. 4.      Size of the lot
  5. 5.      Which cities or neighborhoods
  6. 6.      Any other special features you do or do not want

These questions will help your realtor to narrow down your selection of homes to a list.  Your realtor will be able to email this list to you (or print the list for you if you do not have access to the internet). 

Next, look over the list.  If it is a large list, consider what is most appealing to you and narrow your criteria.  There may be features you hadn’t thought to consider.  If the list is small find ways to broaden it.  Have your agent suggest similar cities or neighborhoods or you may want to slightly widen your price range—you may be able to negotiate into it.  You may also want to try something slightly smaller, older or less expensive.  You may be surprised to find a home that is “everything you didn’t know you wanted”.  At any rate, looking through a good list of possible homes is the perfect way to start firming up what you are looking for.  Be sure to check out the listings that include additional pictures or a picture tour. 

Next, select the homes that look the most interesting to you and drive by the house.  How is the curb appeal?  Many people will drive up to a house and know right away if this is “the one” or not.  Check out the neighborhood to get a feel for the area.  You may even want to knock on a few doors and talk to the neighbors.  Remember that your home is not an island. 

Lastly, narrow your list down to 3-6 homes that you are interested in making an appointment to see.  Your realtor will set up the appointments.  Continue the process until you have found a home you would like to make an offer on.  Keep in mind that homes can be snatched up quickly and that if you spend too much time weighing your decisions you risk the chance that a house you are interested in may already be off the market.

Q: What is the proper protocol for touring homes?

A:  When you’ve narrowed your list down to about 3-6 homes you are interested in seeing, your realtor will set up the appointments.  Be sure to give your realtor enough time to make a courteous call.  People like to have enough time to prepare their homes for you to see.  Don’t over schedule yourself by seeing more than 3-6 homes at a time.  Seeing too many homes at once can be exhausting and you may overlook homes with good potential just because you are weary.  It becomes especially difficult with impatient, fussy, children and it may be better to leave the kids at home.  If you do choose to bring them, remember you and your realtor have an obligation to respect the home of the sellers.  Don’t allow children to bother the seller’s belongings.  Be considerate and remember you are a guest in someone’s home.

Allow about 20-30 minutes to tour each home and get the next one.  Be sure to write down any special notes about the home to help you remember it, also write down any questions you may have.  You realtor can find out the answers.

Q: How can I know if there are new listings on the market that may be right for me?

A:  Your realtor can alert you regularly by email to the new listings that come on the market which fall within your guidelines.

Q: What if I see a house I am interested in while I am driving around?

A:  First of all, realize that the days are gone where you need to drive around looking for homes.  Technology makes it possible for your realtor to get you the most up-to-date information right to your computer.  If you happen to see a home that is listed for sale that didn’t come up in the list your realtor sent you, there is a good reason.  Most likely, it falls outside of the guidelines you have selected—i.e. it is outside of your price range.  The house could also already be under contract.  Most “For Sale” signs are not removed until all the final paperwork is signed and the keys are turned over to the new owners.

However, if you see a home you would like to know more about, copy down the address and the phone number and your agent will obtain more information for you. 

Q:  Can my realtor help me negotiate on homes that are For Sale by Owner?

A:  Yes.  Just like a listed home, copy down the address and the phone number.  Your agent will find out about the house for you.  Most sellers are willing to negotiate a commission for your agent as part of the sale and are relieved to have someone guiding the sale who knows what they are doing.  Having an agent on these transactions is most valuable.  The seller is most likely not knowledgeable about real estate sales and you can both get into trouble if the sale is not handled properly.  If the seller appears to be familiar with real estate sales and you are not, your inexperience may leave you vulnerable without an agent.

Q:  Does my realtor need to accompany me to see model homes in new developments?

A:  Absolutely.  Many model homes or developers require you to sign in when touring them.  The small print often says that if you are not accompanied by your agent they may refuse to compensate your agent for representing you.  Many buyers feel as though their right to be represented has been waived.  They may feel bullied and defenseless against the agents of the builder.  In reality, buyers could still request a realtor to negotiate for them, but they would be paying the commissions out of their own pocket.  Signing the Exclusive-Buyer Broker Agreement may be a defense for this coercive practice of developers.  To be on the safe side always have your realtor accompany you when touring model homes or new developments.

Q: How can I know what a fair price is to offer on the home?

A:  Your realtor can produce a Comparative Market Analysis (CMA) for the home you are interested in.  It will show the sales prices of similar homes in the area.  This should help to guide your offer.

Q: What makes a good offer?

A:  A good offer contains several components.  Obviously, a fair price is one element, but there are a few other things that sometimes outweigh the price.  First of all, an offer should always include an earnest money deposit and a pre-approval letter.  Secondly, dates for loan denials, inspection completions and settlement deadlines should be reasonable for both buyer and seller.  Good offers usually contain short, simple deadlines.  For example, if a seller has to wait until the buyer sells their current residence then the seller may prefer a different offer—even if the sales price were lower.  Buyers need to be sure they can meet the deadlines of the contract.  If not, they may jeopardize their earnest money and/or the entire contract. Lastly, a simple offer is more easily accepted.  If there are defects in the property, the best way to address them is through a price adjustment and not an endless list of repairs. 

Q:  What is earnest money?  How much should I pay?  Under what conditions could I forfeit my earnest money?

A:  Earnest Money is a deposit on the house and ultimately goes toward the buyers’ closing costs or down payment.  It shows a seller that the buyer is making a serious offer on the house.  If the buyers back out of the contract they could forfeit their earnest money as damages.  Similarly, if the sellers back out, damages to the buyers are usually equal to the amount of the earnest money. 

Earnest money is usually around $1,000.  HUD homes require $500 earnest money for offers under $50,000 and $1,000 for offers over $50,000.  Luxury homes may be better secured with a deposit from $2000-$5000.  Any more than that amount is not usually necessary.

Well-written purchase contracts provide many protections that allow buyers to back out of the contract and still recover their earnest money.  Some examples include: (1) when the buyer cannot qualify for a loan on the house, (2) when the house cannot appraise for as much as the sales price, or (3) when the home inspection comes back with major defects the buyer is not willing to accept.  All of these conditions will have deadlines that make the earnest money unrecoverable.  This means that loan approvals, appraisals and inspections need to have time to be completed otherwise buyers risk losing their earnest money.  In addition, if the settlement deadline passes and the buyers are not able to close in time, they are out of contract and the sellers are no longer obligated to sell to them. If, at that point, the sellers choose not to extend the deadlines and complete the contract, the buyers would forfeit their earnest money.  Any of the deadlines can be extended at any time, but both sellers and buyers must agree in writing. 

Q:  What is a pre-approval letter?  What is the difference between pre-qualified and pre-approved?

A:  A pre-approval letter is from your lender.  It states that you have a loan approval and have turned in all of your documents to fill the conditions of the approval.  If you have not yet met all the requirements of the lender or if you have unusual circumstances that may require underwriting exceptions your lender may issue you a letter of pre-qualification.  This states that you have met credit guidelines for a loan, but may not have had all of your supporting documents reviewed and approved by an underwriter.  A pre-approval letter is stronger when submitted with an offer, but you should at least be pre-qualified before making an offer on a home.

Q:  How long can I expect to stay under contract?

A:  One should expect about 3-6 weeks to complete all the proper inspections and the loan preparations.  Check with your lender for expected turn times for your particular loan.  Some areas or seasons may find inspectors, appraisers or underwriters inundated with a heavy workload.  Be sure your realtor coordinates your contract dates with your lender. You don’t want to cut those times too short and end up forfeiting your earnest money.  Remember to save yourself some stress and leave time for unexpected hold-ups.  As always, your poor planning doesn’t constitute someone else’s emergency.  Lenders need time to process your file.  You can not wait until the last minute to meet their conditions and expect them to have your documents ready on time.  Be sure to work closely with your lender and realtor to make sure they have everything they need as soon as possible and that you are all aware of the contract deadlines.

Q:  How much cash will I need to close?

A:  This is something that you need to discuss with your lender.  There are many different factors that are specific to each buyer.  As a minimum, buyers will need funds for the earnest money deposit and inspection fees.  Generally, buyers may also need money for down payment, closing costs, or prepaid interest, taxes and insurance (pre-paids).

The buyer will need to come up with the earnest money deposit when the offer is made on the house.  This deposit will go towards down-payment and/or closing costs and pre-paids.  If the buyer has a credit for closing costs from the seller and no down payment, the earnest money may cause an overpayment from the buyer.  Although this rarely happens, any overage will be returned to the buyer when the loan funds.

Inspections on the property are generally not considered part of the closing costs and are paid by the buyer at the time of the inspection.

There are some no-money-down programs still available for special areas (rural housing areas) or veterans, but they will require that you have good credit and that you intend the property to be your primary residence.  FHA loans require at minimum 3.5% of the sales prices as a down payment.  You may be able to receive gifted funds from a relative for the down payment.  There are also a variety of programs with a down-payment that may reduce your interest rate and/or monthly payment.  Your lender will discuss the options available for you and make suggestions to fit your needs. 

Most closing costs are not able to be financed on a purchase.  Your lender will give you a breakdown of estimated costs to close your loan on a form called a Good Faith Estimate (GFE).  These costs may vary with the type and the size of your loan.  The GFE will also include an estimate of pre-paids—the estimated money you will need to set up an escrow account so that your taxes and insurance will be paid at the appropriate times.  Although most closing costs may not be financed on a purchase, the buyer can request that the seller pay all or part of their closing costs as part of the negotiation on the contract. 

Q:  How does it work if the seller pays closing costs?

A:   As part of the negotiation a buyer can request that the seller pay all or part of the closing costs and/or pre-paids.  Most lenders will allow the seller to pay up to 3% of the sales price towards closing costs and pre-paids.  So that it is very clear to both the buyer and seller a specific dollar amount is usually agreed upon for the seller to pay.  The buyer is responsible for the difference.

Buyers can still request that the sellers pay closing costs even if the time for negotiations has passed.  For example, if the sales price of the house is agreed to be $200,000 and the buyer wants the sellers to pay $5,000 in closing costs they can raise the sales price to $205,000 and the seller will pay the extra $5,000 in closing costs.  Be sure to discuss this option with your lender—the new sales price MUST be able to be supported by an appraisal on the property.

Q:  What kinds of inspections do I need?  What should I worry about?

A:   It is recommended that you get a general home inspection.  General home inspections cost about $300.  It is the job of the inspector to scrutinize every detail of the home.  You should get a good idea of what needs repaired on the home or what may soon need repaired.  It is not uncommon to have a lengthy list of details from the inspector.  What you need to be concerned with are the deal breakers.  Is there anything on the list that you feel hasn’t been adequately addressed through the sales price.  Is there something that concerns you enough that you would want to back out of the contract?  

If you have found a concern that you were previously unaware of, you have a few options.  First of all, there should be a date in your contract by which you can notify the sellers that you have found something in the inspection which is not acceptable.  You have the option to either back out of the contract (recovering all of your earnest money) or to renegotiate.  Negotiations can take on two forms.  There can be compensation by reducing the sales price, or the seller can remedy the problem to the satisfaction of the buyer.  Problems are best remedied with a dollar amount for compensation or a payment made to a third party to accomplish the work before the sale is complete.  You don’t want their teenager repainting the deck or repairing the roof.  The details will be worked out through your agent to best protect you.

Q:  Is it different if I buy a foreclosure or pre-foreclosure property?

A:  Distress sales resulting from bank foreclosures often represent a great way to get a fantastic deal on a home. Your realtor can inform you of these opportunities through regular emails when these properties become available.  They often move quickly, so you will need to jump on the opportunities promptly.  Be aware that there will usually be several offers on the home, so you will want to place your best offer.  Haggling here could cost you the deal.  Make a simple, respectable offer.  Be sure to have your financing in place and all your ducks in a row.

There are several types of homes that may fall into the foreclosure or pre-foreclosure categories, but there are three main divisions: 

HUD homes: When someone with an FHA insured mortgage defaults on the loan, the lender forecloses on the home. FHA pays the lender what is owed and then HUD takes ownership of the home.  Purchasers must use a broker or agent who is registered with HUD to place a bid on a property. HUD takes bids for the first ten days of the listing only from those who intend to occupy the home.  Owner Occupants must live in the house as their primary residence for at least one year and may not purchase another HUD home as an Owner Occupant for two years. If there is not a satisfactory bid in the first ten days, the homes are made available for investor bids.  HUD will not simply accept the highest bid; they will only accept the highest satisfactory bid.
HUD will allow some seller paid closing costs, but not all of them.  HUD will deduct the costs from the bid in determining the best “net bid” on the property. You will need to work closely with your lender and realtor to make sure you know what HUD may or may not cover so that your realtor can make an effective bid for you.  HUD homes require $500 earnest money for offers under $50,000 and $1,000 for offers over $50,000.  Closing a loan on a HUD home takes about 2 weeks longer than usual and requires additional paperwork.  HUD homes must be closed with a HUD approved title agent—this may not be conveniently close to where you live.  You will also need to have the home re-keyed when you move in.

Bank-owned homes:  Similar to HUD homes, when someone defaults on their loan, the bank forecloses on the home. Banks want you to be ready with your financing right away, but they reserve the right to drag their feet as long as they deem necessary.  It is sometimes a frustrating, long process to even see if the bank has accepted your offer.  Buying a bank-owned property requires great flexibility on the part of the buyer.  Every bank is a little bit different in how they handle the process, but realize they make the rules under which they will accept an offer.  Be sure that you can meet their specific guidelines.  For example, some banks require you to be able to close within 15 days.  Keep in mind that many banks refuse to pay any of the buyer’s closing costs. 

Short Sales:  In a short sale (or pre-foreclosure sale) the lender(s) agrees to sell the property for less than what is owed; it requires permission from all lien holders.  Banks may agree to the sale because it will save the expense of foreclosure proceedings and resale costs.  This becomes more complicated if there are multiple lien holders because all of them must agree to the sale.  You may not be able to get financing for the entire purchase, because you may be required to pay some of the lien holders in cash.  You will have to move quickly on the sale, or the bank may move forward with the foreclosure proceedings.  Again, the banks may refuse to approve a contract that pays any of the buyer’s closing costs. 

Q:  What is a home warranty?

A:  Nothing dampens the excitement of buying a home like the discovery of major repairs and fix ups, especially after you’ve spent your last dollar on down payment, closing costs and major moving expenses.  For a one-time charge (about $250-$500), handled at closing, a home warranty protects the buyer for one full year after closing against failure due to normal wear and tear of your home’s major plumbing, electrical, appliance and operating systems.  Optional add-on coverage may also be selected for air conditioners or evaporative coolers, built-in whirlpool baths, outdoor swimming pools, second kitchens, central vacuum systems, well pumps, and more.  The home warranty company pays for the warranted repairs, less a small service call fee paid by the homeowner at the time the work is done. 

Home Warranties may be paid for by either the buyer or seller.  Many sellers offer it as an enticement to buyers.  As you apply for the home warranty, you must list all covered items which have known defects or are otherwise not in good working order at the time of the application. Your home warranty plan only covers problems that arise after the time the home warranty goes into effect.  Unknown pre-existing conditions are covered if, at the time coverage begins, the defect or malfunction is not known or could not have been reasonably observed by looking at or operating the system or appliance.

Q:  When can we expect to move in?

A:   If the house is vacant, you can usually get the keys to the house as soon as the loan funds and records (usually 24-48 hours after signing).  If the sellers are still living in the house, it is common for the sellers to request a few additional days to move out.  The timeframe should be agreed upon by contract.

Q: Is there a difference if I am looking to purchase an investment property?

A:  The major difference is in the financing.  If you are not using the property as your primary residence the lender may require better credit, more down payment and higher interest rates.  The criteria become even more stringent if you are purchasing a 2-4 unit property.  If you purchase a property with more than four units you will need to get commercial financing—again, even more stringent.  Check with your lender for the specifics for your situation.  Keep in mind that if you are buying a real “fixer-upper” you may not be able to get normal financing.  Lending institutions will only lend on a home that is habitable.  You may need to look into private financing options until the home is up-to-code.

Let your real estate agent know what your goals are in purchasing investment properties.  Are you looking to fix-up and resell, or are you looking to buy rental properties?  Maybe both?  Your agent can guide you in finding the appropriate property to meet your needs.