Home Buying & Selling Process

Don't be Daunted, It's not Rocket Science

For most people, buying a home will be the largest purchase they make in their lives and often requires them to accept significant debt.  When this much money is involved we automatically assume it is very complex and thus very difficult to understand.  There is some complexity due to laws designed to protect ownership interest and to ensure the proper transfer of title etc but not so complex that it cannot be understood by the average adult.  Most of the "complex" issues are dealt with by the title company that is required anyway and they will certainly earn their fee.  

Some professions really do offer services and skills that are not easily understood with a little bit of research.  For instance, learning how to troubleshoot problems in your car or trying to fix an elevator on your own.  These skills require a lot of experience and time to understand, so it is understandable that you'd need to pay someone else to take care of those issues for you.  This isn't the case with real estate transactions, yet some Realtors will use your ignorance as a means to grossly overcharge you for the services they provide.  They also try to parasitically tie the value of their services to the cost of the home relying on the naivety of the seller and buyer to think services for such an expensive item must, in turn, by association also be expensive.  The National Association of Realtors has taken advantage of unwitting sellers and buyers by tying their compensation to a % of the final value of the property.  

In order to "pull back the curtain" on the processes in volved, below are the basic steps and requirements for selling and buying a property.  As I go through the items below, ask yourself if the advice below is worth tens of thousands of dollars?  Advice largely what you are paying for.  They call it expertise and yes, they do have more experience, as they've been doing it longer, but a little time spent online and talking with people or reading about the topic and you can easily skip the middle man.  If they can't show you how they are saving you at least as much money as they are charging you then do a hard pass.

How to sell your home:

1) Prepare the home for Sale: This is optional, especially in a Seller's market but the better presented your property and more "turn key" it is (ready to move in), the more appealing the home to buyers.  It is always good to make the home have as much curb appeal as possible: update fencing, power wash the house, sidewalks, driveway etc.  If you are living in there or have tenants, try to declutter as much as possible and remove personal photos and artwork to make the space open and available for claiming.  Fix all of the noticable broken things.  If carpets are gross, you might want to update them.  Clean everything or pay for a cleaning service, especially kitchens and bathrooms.  Do what you can to fix up the landscaping: the lawn, trim shrubs, lay down new mulch, fill in holes, patch what is needed.  Do touch up paint to the front door, wash out lamps and light fixtures. You might want to update light fixtures to LED or more modern fixtures.  Install new house numbers and paint the mailbox.  If the house is empty you might want to consider paying for a staging service, especially if your home is more expensive.  When taking photos, get a professional to do it or at least ensure there is good lighting in all your photos and use a wide angle lense to get more of each room into each photo.  If needed, touch up or repaint walls and clean up all of the molding, use neutral colors.  Fix leaky faucets, secure down anything that has become wobbly and any other relatively small thing you can fix that could potentially be a negative if seen by a buyer.  Anyone can easily learn how to do all of these things by watching a few DIY Youtube videos or hire a handyman.

2) Determine Price and List it: Determine how much you want to to receive for your home and let people know you are selling and find buyers.  This can be accomplished through a lot of means, especially since the advent of the internet.  You can find out the general worth of your home off of the Zillow Zestimate and by comparing the inside of similar homes to how updated your home is and adjust your asking price accordingly.  You can use word of mouth or simply post your home for sale on sites like Zillow.com, FSBO.com, Galleon.io, etc.  You can also choose to have a service online post your home for sale on the MLS system for as little as $100.  Here is a list of other alternatives you can look into.  Or you can pay the exorbitant amount of 3% the final cost of your home to do do this ($12,000 for a $400,000 home).  To be fair, Realtors through the MLS do have more metrics to help in determining a good price to list your home, but unless they can get you the value of what they are asking from you over Zillow's Zestimate (what every potential buyer in the market sees and assumes to be the current value of the home), then I'd argue it isn't worth the expense.  If you aren't in a hurry to sell it, that is ideal.  In some markets the longer the home is on the market the more people might think there is something wrong with it, but recently I saw a house up for about a year on a market because the sellers were getting a divorce and couldn't agree on who to sell the home to and they were constantly getting offers some well over the asking price.  It all depends on the market, but if you are patient, there is someone out there that will be interested in your house as long as it isn't an expensive unicorn.  

2) Negotiate the sale.  First, verify they have a pre-approval letter from a lender with enough money to purchase your home.  If they offer a "cash" sale, have them provide proof of means via an account statement or verification from a bank.  If they offer your asking price, ask them what their terms are for the asking price, if any.  If they give you your offer and the terms are agreeable then you can simply accept the offer and fill out the buyer-seller contract to lock it in. You can find a lot of examples of buyer-seller contracts online for free or reasonably priced.  If you don't like the offer, or it is less than you want, tell them that you'll think about it and give it a few more days to see if more offers come in.  Sometimes offers have time limits, just be aware of that, but even if it expires, you can always go back and try to negotiate later.  Wait for the best offer and then make a deal.  Decide before hand if and under what conditions you are willing to give compensation to the unfortunate buyers attached to buyer's agents and then stick to your decision.  Know that agents are less likely to encourage their buyers to buy your home if you don't offer to pay at least a little of their fee, but I'm hopeful that this leverage will dry up as we get this word out opening up honest negotiations directly between buyers and sellers increasingly going forward.  As a seller, you should also consider the condition of your home and how old the appliances are and the roof, fences, and other things as part of your price and that play into the negotiations and be prepared to have an answer if those things are brought up into the negotiation.  In a strong seller's market, you can say the price is firm "as is" and if the buyer accepts that term, there will be no concession despite findings in the home inspection except for maybe some serious issues like mold, infestations, or foundation issues.  If you have those issues, you'll need to do more negotiating or some serious fixing in most cases.  Some sellers push up the price of their home beyond what they really will settle for in order to pay buyer's agent fees.  You might want to consider offering to pay a year or two of a home warranty that will cover appliances, etc. to sweeten the deal and provide ease of mind to the buyers.  Some sellers offer to help buyers pay down their interest rate, meaning that they pay at or close to your asking price, but then as a concession, the seller will pay the fee for the interest rate points needed to lower the buyer's interest rate so they can afford the monthly mortgage payments within their budget.  That would be kind of you.  Or you can pay an agent a LOT of money to negotiate all of this for you and hope they don't botch it up like mine did.  If they do, there is no recourse or money back unless you were the one that were wise enough to add it as a condition to the contract.  Most likely though, you will pay no matter how well or poorly they perform.  No returns, no take backs- pay in full.  

3) Fill out your property disclosure statement.  This is a requirement by law in all states to my knowledge and you can find examples online or if one side of the deal has an agent, they will have one for use in your state.  Here is an example for NY for instance.  Sellers need to fill them out honestly and to the best of their knowledge.  If there is something you don't know, you need to indicate that you don't know, but you need to fill out every question and not miss anything on the form for it to be valid.  Once complete, you need to give a copy to your buyer for them to sign and acknowledge receipt.  This copy signed by both parties will need to be given back to the seller.  Then the title company and real estate lawyer will need a copy signed by both the seller and the buyer to close on the home.  

3)  Create buyer-Seller  Agreement Contract. Once you have an agreement, you will need to codify that agreement in a buyer-seller contract. Part of that contract will include a "small" down payment from the buyer to the seller for the home, called Earnest Money, usually 1 to 3%, as a "good faith" deposit that you as the seller get to keep in the event the buyer chooses to pull out of the agreement or can't come up with the funding.  That said, whether or not they pay the full amount or part amount can all be negotiated as part of the contract as considerations of "contingencies and forfeiture".  For instance, if there is a chance the lender will not give the money, the buyer might disclose this fact to the seller and ask the seller to grant him the contingency of only being required to pay 50% of the good faith deposit rather than all of it, etc.  If the deal goes through though, then all the good faith deposit will be credited to the sale or closing costs.  Another part of the contract would be to set a date for closing the deal, usually 30-60 days or the longest I personally know of is 4 months.  On the other hand it can go quick for a cash sale, I just did one in 10 days, it was so smooth and easy.  If you have an agent on one side of the deal (buyer or seller) then they will likely be the one to create the contract.  Read it word by word to ensure it matches your negotiation terms.  They are not lawyers and they just use their cookie cutter buyer-seller contracts that they have had real estate lawyers bless off on and you can get a similar contract online easily.  If you are blessed enough (IMO) to make the deal without agent representation then you can just find an example contract online (use the example link below), ensure all the negotiations are covered in there as well as fill out the rest of the info in there by default and then I'd advise taking it to a real estate attorney to have them verify it is good to protect both you and the buyer.  You can also just pay them a fee to do the whole thing if you want as well.   Using a real estate lawyer is optional in some states like Utah, but in Illinois and New York and other states it is required to hire them anyway so again, just skip the Realtor middle man.  Once the agreement is in place, then the seller waits for the buyer to work through the buying process of completing due diligence, lining up the title company, etc.  As they go through these steps, you need to be available to respond as necessary to inquiries of concern related to the home inspection, the assessment value, or other concerns about the property.  Be prepared to renegotiate or offer concessions on the price of the home if they feel the issues are serious enough to pull out of the sale.  A buyer might request an extension on the closing date if they are having a challenge arranging their down payment or if it took longer than expected to get an inspector over to inspect the property.  These changes to the contract must be agreed upon via written addendum and signed by both parties.  Using an online document signature website can smooth out the signature process.  

4) Close on the House. After the buyer has secured the loan and completed their due diligence efforts (inspections, appraisals, etc.) to include any further concessions negotiated with you the seller, then you go into the closing process where the title company's assigned escrow officer/signing agent and/or real estate attorney (depending on your state) will prepare all of the closing paperwork necessary.   The title company acts as the facilitator and manages the transfer of property ownership, ensuring all necessary legal documents are prepared and executed. They also handle the financial aspects, collecting funds from the buyer and distributing them appropriately, including paying off existing mortgages or liens and disbursing funds to the seller and other parties.   Specifically they do the following:

1. Deeds and other legal documents: Prepares the deed, which officially transfers ownership from the seller to the buyer. They also prepare other essential documents like settlement statements, affidavits, and releases. 

2. Closing statement: They create a detailed statement outlining all financial transactions related to the sale, including costs, fees, and payments. 

3. Review and explanation: The title company ensures all parties understand the documents and their implications.

4. Funds collection:  The title company collects funds from the buyer, including the down payment, closing costs, and any other required payments. 

5. Fund disbursement: They ensure funds are correctly disbursed to the seller, lenders, and other parties involved in the transaction, including paying off existing mortgages and other liens.  If you are still making mortgage payments, aka. have a lien, on the property, they will ask you for the loan account number and lender information as well as your permission to reach out to them and request a "pay off" amount.  They will apply this against your proceeds during closing and they will send those funds to your lender on your behalf.

6. Escrow accounts: They often hold funds in escrow until the closing is complete and all documents are properly executed.  An escrow account is just a financial arrangement where a neutral third party, like a lender or in this case a title company, holds funds or assets on behalf of two parties until specific conditions are met.  The most common example of an escrow is a typical mortgage payment.  Most peoples' mortgage payment is an escrow which combines taxes, insurance and mortgage payments into one payment so you don't have to pay them all separately.  In the case of a title company, the buyer and lender will send the down payment(s) and funds for the full purchase to the title company who will hold those funds in escrow ensuring all of the various entities that are included in the closing fees get paid from those funds.  The seller will give the title company his bank account and routing number of where he wants the proceeds to go.  In the case of a simultaneous 1031 exchange, the title company will move the funds of the old property directly into the new property without ever dispersing to the owner.

7. Scheduling and coordination: The title company helps coordinate the closing meeting, ensuring all parties (buyer, seller, lender, real estate agents) are present and prepared or they will reschedule.

8. Verification of documents: They verify that all necessary documents are available for review and signing.

9. Document filing: After the closing, the title company files the deed and other relevant documents with the appropriate authorities. 

10. Title policy issuance: They issue title policies to the buyer and lender, insuring the title against certain defects and claims.  

11. Ensuring a smooth process:  The title company oversees the entire closing process, ensuring it proceeds smoothly and efficiently.  As you can see, no buyer's or sellers agent is needed as you need to use a title company anyway.  There is no need to hire someone else to oversee the same process.

This whole list is what THEY do, it is good to know for awareness, but you are paying them to do it all on your behalf.  They will reach out to you if and as they need to get information from you to ensure the closing happens on schedule.  Call your title company representative that is assigned to you as often as you have questions and get peace of mind that everything is lining up as needed.  Fees you will pay to the title company for their services include $1600 or so (dependent on cost of home) for title insurance, click here for a full explanation on title insurance and why it is needed.   You will also pay about $650 or so for closing fee, $25 for courier fee, $80 for release services fee, and $30 for wire fee.  So they aren't cheap, especially the title insurance which covers the title search, examination, and the insurance policy itself, protecting against potential claims related to the title.  I think it is way too expensive for something that is extremely unlikely to be needed, but they say that up to 30% of titles have some form of issue so if that is the case, maybe it is a good value.  Regardless, they have a monopoly charging what they want as it seems like most title companies charge about the same amount.  That said, if you have time, feel free to call around to all of the title companies in your state to shop for the best rates on title insurance and fees etc. and you can always try to negotiate with them on their fees.   

When everything is prepared, up to a few days in advance or on the actual closing day they will have all the paperwork prepared for you to sign.  As a seller you won't have to sign any of the loan documents just the documents relative to releasing the title and final agreements.  Once signed you wait for the buyer to sign as well and then the transaction is complete.  Other things you finalize as part of the closing: exchange of keys (home and mail), transfer of Home Owner Association membership if applicable, determine what the utility companies are so you can sign up for electricity, gas, internet, garbage, water/sewage, etc.  If it is a rental property, you need to get copies of the leases if applicable or not already exchanged in due diligence or any other final details.   You can actually set up all these things before the closing date as well and have them "activate" on the day of closing to ensure no loss of service or just work out a deal with the buyer ahead of time especially in the case that you have tenants in a rental property to take care of. 

And that is it. It isn't rocket science.  I just went through this whole sales process in 10 days from initial conversation to money delivered as a seller.  Read more about my For sale by owner experience here: My good story.

How to buy a Home

1) Find a Home you want.  Use Zillow, FSBO, Gallion.io, and any other number of websites out there to find homes.  While agents might have access to homes before they go on the market, most everything out there will be on Zillow eventually.  There really isn't any reason, in my opinion, to get help from an agent unless you like the easy button concierge service of calling one person to set up all the visits for you.  In my opinion, that is very expensive personal assistant service unless you sign a non-representation agreement where they will show you homes but there is no expectation of compensation and no exclusivity agreement to use their services.

2) View the home.  Ask the owner if/when you can see it if it is For sale by Owner (FSBO).  Otherwise, schedule a time to see it with the selling agent or have your buyer's agent call for you if you have a non-representative agreement or if you are locked to one.

3) Secure pre-approval for a loan.  If you have cash, then you are good.  You'll need to have proof that you have the funds available to purchase the home such as a bank statement or letter from your bank.  If you need a loan for all or a portion of the purchase price, then you need to get pre-approved by a financial institution or a loan company that specializes in real estate.  Once you are approved, they will give you a letter stating that you are approved that you can then take to a seller as proof that you're offers for purchase are legitimate.  

4) Make an offer.  Once you find a place you want to purchase then you can make an offer.  You can offer to pay what they are requesting for the property or offer more if there are competing offers.  Or you can offer less than what is asking hoping that no other offers have come in. If you are negotiating yourself or with an agent you can point out faults (repairs needed, old appliances, old carpet, paint needed, old decking, landscaping needed, etc) you noticed in the walk through to justify why you are offering less than the asking price.  

5) Buyer-Seller Agreement - Once an offer is accepted, you then enter into a buyer-seller agreement as explained above in the Seller section where you will agree to put down a down payment "good faith" payment as explained above as well.  If you didn't write the agreement, ensure that you go through it line by line to ensure you agree with everything and that it matches all the terms you negotiated with the seller.  In my case, when I sold my home recently, all of the sections that discussed Realtor agents fees we just wrote in $0 because we didn't use any.  Most agreements in any given state will be very similar though and will not take too much time to read thoroughly and then sign and send back to the seller once you both have signed.

6) Due diligence is a thorough investigation a buyer conducts on a property before closing the deal. It involves gathering information about the property's condition, legal status, and financial aspects to ensure the purchase is a sound investment.  As part of the buyer-seller contract, you will have a designated amount of days to complete all of these steps.  Key aspects of due diligence in real estate include:

1. Property Inspections: This involves hiring professionals to inspect the property's structure, electrical, plumbing, HVAC, and other systems to identify potential problems.   Don't skip on this, get an inspection from a reputable inspector and it will cost you $300-700 depending on the size and complexity of the inspection and whether they need to do some specialty tests like for Radon etc.

2. Environmental Assessments: This checks for hazardous materials, soil contamination, and other environmental issues that could impact the property's value or require remediation. 

3. Title Search and Legal Review: This ensures the seller has clear title to the property and that there are no legal issues like encumbrances or violations.  The title company helps with this. 

4. Financial Review:  This includes assessing market value, reviewing property tax records, and potentially reviewing lease payment history (for income-producing properties).  You can pay for an assessment of value and if you are getting a loan you will likely be required to do this.  

5. Disclosure Statement Review: Buyers should carefully review disclosure statements provided by the seller to understand any known defects or issues with the property and they need to sign it to acknowledge receipt.

6. Review of Existing Agreements: This includes leases, maintenance agreements, and other relevant documents to understand the current state of the property and its financial obligations.  If there are existing leases, the new owner needs to honor them to completion, so you will need copies and to understand the obligations in full. 

So you might be wondering what an agent does with regard to this due diligence.  In my case, Agent X recommended an inspector and when I agreed to use him he scheduled the inspection for me and then walked around with him during the inspection.  That was it.  So if you are comfortable googling for a home inspector in your area and making a phone call you can save yourself thousands of dollars.  A good agent might actually try to use the faults found in the home inspection to help you seek concessions, Agent X did not despite claiming he could and would.  Again, for me, there was no recourse or money back, just a scam.

6) Finalize the loan.  If you are going to use a loan you need to work with your loan officer to finalize your loan.  You will give them a copy of your buyer-seller contract so they know the final cost of the transaction and then you will work with the loan officer to decide how much you will put down on the home as a down payment and how much you will actually borrow.  Be sure to ask about how much different down payments with affect the loan rate etc.  For instance, if you put less than 20% of the home price down as a down payment you will likely be required to pay PMI (private mortgage insurance) which is insurance that protects the lender from you defaulting on the loan.  This is another expense to calculate into your payments.  If you can pay 20%, that is ideal because you won't need to do PMI which in my opinion is quite expensive.  If you can pay 30% or 40% or more then your rate will also decrease.  Ask your lender how much.  I would also recommend that you don't just work with one company.  I'd recommend getting quotes from at least 3 different loan companies so that you can then find the best deal.  You will always do better in any deal when you can use one company's numbers to negotiate down rates of another company or simply go with the better value.  Most every company will try to maximize their fees if you just accept the first offer they give you.  It is like buying a car, the dealer is going to try and maximize fees and unfortunately use your ignorance against you, but if you shop around with multiple different places playing actually written quotes against each of the companies eventually you will find the real market value and know the best deal you can get.  The same works when shopping around for a home loan.  They will give you a disclosure sheet with all of the closing costs, the loan amount, the interest rate etc.  

Be very aware of if they added "discount points" to your loan rate or not.  If your closing costs are more than $10k, then there is a good chance your loan company has likely added a points fee to your closing costs to lower your interest rate to something that you are less likely to cringe at.   The gist is that you are paying a lump sum percent of the loan amount up front to "buy down" how much the interest rate is, so instead of paying 6% you can bring the rate for the duration of your loan down to 5.75% etc.  Some loan officers will be open and up front about any buy down points they add to actual current interest rate to bring that base rate down, but others will not assuming you don't want to know or care about the details.  I'd recommend you ask them about the points and learn more about the process.  Here is some information on interest rates and what it means to "buy down" the interest rate with "discount" points.  It is important to understand this process as you are going through the home loan process.  You can see the real time effect on your payment, future payments, amount of interest you will pay over time as you see how much up front you pay for points relative to long term costs of not paying for the points using this calculator I created.    Remember also that one of the incentives a seller can offer to help a buyer is to pay the full closing cost to buy down the interest rate for the duration of the loan or they can also offer to do a temporary buy down --be very aware of the difference as a temporary buy down lapses after just a few years!    If the seller does not offer to pay for the cost of the points, it will be required as a closing cost that the buyer will be required to pay up front at closing.  If you don't have much cash this can be problematic though.  This is negotiable though and can be discussed as part of the buyer-seller negotiations, especially if financing is tight and you are offering a very attractive purchase price to the seller.

Other things you will need to provide your loan company is evidence of employment, evidence of capability of down payment and other documents etc.  Your loan officer will walk you through all the information and documentation they need from you to complete the loan process.  They will also ask you go to out and find home insurance and send back proof that you have acquired that. You can buy it and have the closing date as the date that it will become active.    You will need to move the money around to get it into a single place to pay or you will need to do multiple wires (and fees) to the title company for each separate transfer.  

Your buyer agent will likely do nothing to help you in this process other than maybe to point you to a loan company.

7) Closing. Same as above for the Seller.  In addition to the title and final sale agreement paperwork, if you have a loan you will need to sign all the loan paperwork that the loan company passed on to the title company.  This can be hundreds of pages.  They will walk you through all of them or your mobile notary will walk you through each page and ensure you sign where you need to sign.  They will also have you initiate your wire(s) for your downpayments on the loans.  Be sure to take a close look at the closing disclosure that your loan company gives you to ensure it is accurate, it will be similar to the estimate they gave you in the beginning but have the actual numbers.  In my case they double charged me for home insurance.  Other things you finalize as part of the closing: exchange of keys (home and mail) and garage door openers, any warranty info remaining on any appliances or services, transfer of Home Owner Association membership if applicable, determine what the utility companies are so you can sign up for electricity, gas, internet, garbage, water/sewage, etc.  If it is a rental property, you need to get copies of the leases if applicable or not already exchanged in due diligence or any other final details.  

And you now have your home.