Buying a home is a daunting proposition, whether you've bought and sold properties in the past or this is your first foray into real estate. Despite (or perhaps because of) all the information and online tools available to help buyers search for a home, even a savvy buyer easily can become overwhelmed. So where to begin?
Step 1: Find the "Right" Agent
Step 2: Signing a "Buyer Broker" Agreement
Step 3: Arrange for Financing
Step 4: Look for a Home
Step 5: Write an Offer
Step 6: Complete Contingencies
Step 7: Settlement
Step 1: Find the "Right" Agent
There is an old adage that an attorney who represents him/herself has a fool for a client. The same can be said of those who chose not to hire a licensed real estate agent. Finding a home is just the first step in buying a home. With the growing availability of information on the Internet, some buyers think it's not necessary to hire an agent. But regardless of who found the property (whether you did or your agent did), writing an offer that is likely to be accepted and navigating the resulting ratified contract to settlement is fraught with potential pitfalls -- all of which you need professional knowledge and experience to avoid.
Buyers who opt to go it alone think they will "save" on the cost of commission, but at what price? Hiring a licensed agent cannot only save you money but time. An experienced agent can not only help you focus your search but can also tell you about properties that may not even be officially on the market yet. Indeed, not every home is available online, and it's not uncommon for some properties to be sold before the public is ever aware that they were available for sale. Licensed agents also are familiar with the obstacles in buying a home and can help you successfully circumvent them.
That said, not all real estate agents are created equal. So savvy buyers need to do a little work to find the "right" agent for them -- and buyers beware: the "right' agent for a buyer is never the same agent who represents the seller of the property in which you are interested.
The real estate agent who represents the seller of a property is contractually obligated to get the most most money and the best terms for the seller from the buyer -- in other words, you! Yet, some buyers opt to write offers on properties with the agent who represents the seller of the property, thinking they'll either "save" on commission or increase the likelihood that their offer will be accepted. Instead, what these buyers are doing is forfeiting representation.
If you decide to use the seller's Realtor as your own, remember that you are the Realtor®'s customer and not his/her client. This distinction is key because a Realtor® owes first allegiance to his/her client, in other words: the seller. So while the Realtor® has an obligation to maintain client confidentiality with the seller, the Realtor® has no such obligation to the buyer. Quite the contrary, the Realtor® has an obligation to report any concerns the buyer may express about the transaction, as well as the buyer's negotiation strategy, to the seller. (To learn more about broker relationships, contact us to request a free copy of the brochure: "Buyer's Agent: Why Every Home Buyer Needs One".)
Another key issue to consider when hiring an agent is whether the agent is familiar with the process of buying a home in the area in which you are interested. An agent who is primarily experienced selling urban properties may not be the best pick if you're searching for waterfront land, which has different land use rules, zoning, septic and well issues to name but a few of the matters to consider.
When you interview potential agents, ask them where they work primarily. Ask them to provide you a list of their most recent sales (don't be shy about requesting the dates those properties settled, either), and be sure to ask them to specify whether they represented the buyer or the seller (or both!) in those transactions.
Your agent also should work full-time in the industry. This is critical. What degrees and/or certifications do they hold? Are they a REALTOR® and are they active in the local real estate community? A REALTOR® is a member of the National Association of REALTORS® (NAR), which requires members to abide by a higher standard of practice known as the "REALTOR® Code of Ethics."
The agent you hire also should be someone with whom you feel comfortable enough to share your concerns and desires. Ask friends, relatives and colleagues for recommendations. But take those recommendations with a grain of salt. Your cousin (or someone else you know) may be a licensed Realtor®, but that doesn't mean that they would make a good Realtor® for you. Above all else, experience -- and most importantly recent and relevant experience -- matters.
When you find an agent you believe will be a good fit, arrange a meeting to discuss your needs and desires, the marketplace, and how the agent works. If that meeting goes well, you should discuss signing a "Buyer Broker" agreement to hire the agent and officially begin your home search in earnest.
For more on what makes Best Address® Real Estate, LLC different from other firms, click here. To learn more about our agents, click here.
Step 2: Signing a "Buyer Broker" Agreement
What is a "Buyer Broker" agreement, and why should a buyer sign one? A "Buyer Broker" agreement (also known as a buyer agency agreement) is an agreement between a prospective homebuyer and a real estate agent. The agreement does not obligate a buyer to purchase a home but rather spells out who represents the buyer, what the duties of the real estate agent are and how much the agent will be compensated if the buyer purchases a home.
As a prospective homebuyer, it is critical that you have a signed "Buyer Broker" agreement with the agent you have chosen. That's because in the District of Columbia all agents by law are in fact sellers' agents unless they have a written "Buyer Broker" agreement. If you are "working with" an agent who says he or she represents you, but you don't have a signed "Buyer Broker" agreement, the agent you are "working with" is in fact actually working for the seller and you do not have an advocate in the real estate transaction.
Many prospective buyers are rightfully concerned about the length of such agreements, fearing that by signing one it will lock them into working with an agent they may later discover is not a good fit and be unable to purchase a home without that agent until the agreement expires. That is in fact a valid concern, but it is one that is easily addressed by reputable firms. At Best Address® Real Estate, LLC, for example, our "Buyer Broker" agreements always include a 24-hour satisfaction guarantee. That means that if you as a prospective buyer are dissatisfied with our services at any time during the term of your "Buyer Broker" Agreement, you may terminate the relationship.
Some buyers chose not to sign a "Buyer Broker" agreement under the misguided perception that they are better off working with several agents. After all, if one agent is good, three would be great, right? Wrong. The reality is that agents work on commission. If an agent doubts they will be compensated for their time, they're less likely to make you a priority.
Without money, it’s difficult to buy a home. If you are like the vast majority of buyers, you need to get a loan to purchase your home. If you need a loan, it’s important that you find the right loan officer. Your agent should be able to supply you with the contact information for several loan officers.
As a buyer, it is important that you ask your agent whether any/all of the lending institutions he/she recommends are in any way affiliated with his/her real estate brokerage. It is growing increasingly common within the real estate industry for real estate brokerages to own or have a strong financial interest in lenders, among other service providers, and in fact "encourage" clients to use their affiliated service providers. But when you use a service provider affiliated with a specific real estate brokerage you must ask yourself whether you are getting the best possible pricing or whether you are being shoehorned into a financial relationship that does not benefit you. This is particularly important should any conflict of issues arise.
In stark contrast to some real estate brokerages, Best Address® Real Estate, LLC, does not have a financial interest in any service provider. This is a core part of our mission to eliminate any potential conflict of issues (whether actual or perceived).
To learn more about applying for a loan, click here.
Once you’ve found your agent and you’ve got your financing arranged, it’s time to go shopping! Whether you chose to view homes on your own or accompanied by your agent, you and your agent should discuss the homes you intend to visit prior to visiting them. This is critical particularly in light of what's known as "procuring cause" -- just one of the myriad issues that your agent should educate you about long before you set foot in a single property.
If a buyer attends an open house and does not explicitly tell the Realtor® who is hosting the open house that he/she is working with another Realtor®, then the agent holding the open house is considered to be "procuring cause."
Being the "procuring cause" means the Realtor® is entitled to the full commission from both the purchase and the sale of the property. What that means to you as a buyer is you won't have anyone solely representing your interested in the transaction should you decide to write an offer on the property. Instead, the Realtor who is representing the seller of the property will become your agent as well, which often is not in the buyer's best interest. (To learn more about procuring cause, contact us to request a free copy of the brochure: "Buyer's Agent: Why Every Home Buyer Needs One".)
Procurring cause, though, is just one of several reasons why it is important to stay in close contact with your agent. Experienced agents will be aware of homes available to preview before they are placed on the market officially. There are also times when buyers are only provided access to a property when accompanied by an agent. So stay in contact with your agent and meet with him/her on a regular basis.
For some, searching for a home is a quick process. For others, it can take weeks, if not months. But at some point you will find the home you are looking for. This can be the scariest part of the process. It is common to get over-excited about a home, and it’s at this exact moment that you need an agent's knowledge and expertise to assist you.
In other parts of the country, an attorney becomes involved at this stage, but in the Washington, DC-Metro area it is your agent who writes the actual offer to purchase a property.
The first time you sit down to write an offer with your agent can be a lengthy process, during which your agent should discuss the recent sales nearby, review the appropriate disclosures that have been provided by the seller and walk you through all the major concerns that should be addressed in any offer.
Your agent will then submit the offer on your behalf and negotiate the contract for you. This process can be as short as a couple of hours or as long as a week typically. Your agent should keep you informed about what is happening, and you should be readily available during this time period to field any questions/concerns raised by the seller and his/her agent. Your agent should notify you know when you’re offer has been accepted, and you have ratified a contract.
Step 6: Complete Contingencies
Many buyers think that once their offer is accepted, their work is done. Nothing could be farther from the truth. Getting your offer ratified is just the beginning. There are many hurdles to overcome in between the time a contract is "ratified" (in other words, signed by both the buyer and the seller) and the glorious day of settlement when the seller hands over the keys.
As soon as your contract is ratified there will be deadlines that must be met. These deadlines are called "contingencies." These contingencies frequently include a home inspection, financing, appraisal and termite inspection. Each contingency requires careful coordination and most likely further negotiations with the seller.
Your agent is your advocate and should guide you through the various steps, procedures and options you have as the contract proceeds. There are many considerations during this period of buying your home -- thus, the importance of selecting an agent you trust.
Upon completing all of the outstanding contingencies within the contract, it's time for "settlement," which is also known in other parts of the county as "closing escrow" or "closing." The day of settlement is when you sign all the papers required to transfer the property from the seller to you.
In many parts of the country, buyers bring a personal attorney to settlement, but that is not the case in the Washington, DC-Metro area. Instead, your agent will arrange for the settlement and usually attends the settlement with you.
The actual settlement process takes about an hour and is conducted by an attorney who will make sure all the appropriate steps are taken to legally transfer the property into your name. The attorney is a representative of the settlement company overseeing the transfer of the property -- and does not represent either the buyer or the seller.
Many prospective buyers are surprised to learn that buyers and sellers frequently never meet at settlement, opting instead to sign papers at different times or dates. But regardless of whether the buyer and seller sign papers together or not, at the completion of settlement the buyer is given keys to the home.