Steps to Buying Property

Mike Capelle, Broker/OwnerMike Capelle, Broker/Owner

Most purchases of real estate property can be summarized into the following 8 steps to buying property.

1. Line up your funds. This day in age, sellers generally require proof of funds to be presented along with your purchase offer in order for it to be seriously considered. Proof of funds can be a financial statement showing the required money on deposit, or can be a loan pre-approval from a lender. A loan pre-qualification, which is just an estimate, is not sufficient. Real estate sales cannot be transacted with cash in hand. Your time looking for the right property will be better spent if you know beforehand what you can afford. And many properties for sale are offered with specific payment terms, so you cannot know which properties to look at unless you first know how you will be paying.

2. Make an offer. Once you find the property that’s right for you, a real estate purchase offer is written up, signed, and presented to the seller. The offer becomes a legally binding contract once it is accepted by the seller. However, the offer can contain contingencies that enable a buyer to opt out of the contract if they are not satisfied. Contingencies can include property inspections, review of disclosures by the seller, appraisal, and loan approval.

3. Disclosures. After your offer is accepted, the contract gives you a certain number of days to complete your investigations and approve all disclosures and reports provided by the seller. The seller is legally required to disclose material facts affecting the desirability and value of the property, including natural and environmental hazards. A preliminary title report will be ordered to check for any irregularity in the chain of ownership of the property. If there are significant issues, the seller’s agent would likely have brought them up before the contract signing. But if something is disclosed during your investigation period that is a negative factor for you, it is your “out” of the contract.

4. Appraisal. If a bank loan is part the financing of your purchase, the bank will likely require a professional appraisal, which the buyer pays for, to confirm that the contract price is in line with comparable sales. If the appraisal does not support the purchase price, the bank can deny the loan or change the terms.

5. Inspections. You have the right to inspect the property and investigate major systems and components. If you are purchasing a home, an inspection for wood-destroying organisms is a must, and a general inspection by a professional is recommended. You may also want specialists to check out major systems. If issues arise, you may be able to negotiate a fix or credit with the seller. And if something major is discovered that is not acceptable, you can exit the contract via the inspection contingency.

6. Loan approval. Once the bank receives a satisfactory appraisal, they will proceed to fully approve you and your credit for the loan, and approve the preliminary title report to verify there are no liens outstanding against the property. Once the bank is satisfied with its review, you will receive full loan approval.

7. Final walk-through. Just before closing the purchase, you should walk back through the property to make sure that it is in the condition that you expect. You’ll want to make sure that items have not been removed, trash is not left behind, and fixes have been completed.

8. The closing. In Northern California, the closing–final settling of all terms–happens with an officer at an escrow company. In other locales, an attorney may be used. The buyer and seller usually do not meet, signing their papers separately at different times. Prior to the closing, you should receive a statement of the final costs and moneys you must provide.

The purchase of real estate is a complex process–one more reason that you should engage the services of a real estate broker early in your pursuit of property.

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