The basics of home buying and selling
By: Coral Dworaczyk
For those not involved in the real estate industry on a regular basis, the process involved with buying and selling property may seem complicated and intimidating. Industry professionals such as brokers, agents and realtors (the title varies with the type of licensing through the state of Texas and organization memberships), title companies, mortgage officers/lenders, inspectors and more are all involved in navigating the traditional real estate transaction, but even seasoned home buyers and sellers may need a refresher on the roles of these players and the general process.
For sellers, the first step is to locate and hire a listing agent (unless you are attempting a “for sale by owner” situation) to help you value, market and sell your property for the best reasonable price. The agent is then responsible for using his or her expertise to market the property to the widest pool of potential buyers to attract a financially qualified buyer.
For buyers, the process also starts with selecting an agent, but includes obtaining prequalification from a lender if the home purchase will be financed, and viewing prospective homes for sale. Once a home is selected, the agent prepares an offer, terms are negotiated between parties and all sign the final contract.
The contract and the buyer’s earnest money (which works as an indication of a buyer’s good faith and ability to purchase the property) are then escrowed at a title company. The title company is an independent party in the transaction that manages and holds the earnest money, completes the title commitment and deed work on the property and ensures that the transaction’s terms are fulfilled as outlined in the contract.
The buyer may decide to utilize the opportunity of the “termination option.” This is one of the most time-sensitive periods in the process, and the listing and selling agents are heavily engaged with their clients during this period. This option gives the buyer the unrestricted right to terminate the contract for any reason during the negotiated timeframe for, typically, a relatively small fee. Among other things, this allows the buyer the opportunity to have the property inspected by a licensed inspector(s), to attempt to negotiate a price change or needed repairs if issues are discovered during the inspections or simply, to change his or her mind.
If the buyer backs out during this period, he or she will only lose the option fee and any monies spent on inspections. After the termination option period passes, the buyer is more obligated to perform to the terms of the contract and cannot back out without more severe penalty. Please note that the termination option does not allow the seller to back out of the contract, even if the seller were to get a better offer from another buyer.
Near the end of the termination option period, the lender (if a loan or mortgage is being used to purchase the property) will order the appraisal and continue collecting documentation needed to complete the loan approval process. The appraiser is randomly selected from a pool of lender-approved licensed appraisers to value the property under contract.
If the property appraises at or above contract price, the process should move forward easily. If the property appraises below the contract price, the lender will not proceed with loaning the funds to the buyer to purchase the house. If this is the case, the buyer and seller may need to challenge the appraisal and renegotiate the price of the property, or the buyer may need to plan to bring additional cash to closing to cover the difference. If the buyer and seller cannot come to an agreement, the parties can terminate the contract.
Again, the buyer’s and seller’s agents will typically be the individuals responsible for best advising their respective clients on how to proceed through these challenges, should they arise.
During this entire process, the seller’s agent, the buyer’s agent, the lender and the title company’s representatives are in regular communication with one another to keep the transaction on track and proceeding toward a successful closing. Once the title work on the property is completed, the lender has issued final approval for the loan and prepared closing documents, all necessary repairs have been made as agreed upon in the contract and the seller has vacated the property, the buyer and seller will schedule their closing appointments with the title company.
The title company will collect the down payment and closing costs from the respective parties, disburse payments, arrange to pay-off any existing mortgage on the property and file forms to register the transfer of ownership with the county. After all documents have been signed, the lender will fund the purchase of the new home. After funding has occurred, the property officially belongs to the buyer.
Rarely does a transaction go perfectly. Even in cash-only transactions, there is often an unexpected hurdle to overcome. If questions arise, buyers and sellers should always seek the counsel of their agents or lawyers.
For more information, contact Coral Dworaczyk, M.S., realtor, at www.realestatebycoral.com.