The Home Buying Process

 

How should I get started?

Most buyers will just be spinning their wheels until they take a few hours to sit down and talk with a real estate agent or two and a lender or two. You need to know what you can afford to buy and what kinds of cash and monthly payment that will require. You can learn a lot about this on the web, but you’ve got to sit down and go through things with a knowledgeable loan officer if you really want to know what you’re doing. And if you’re going to approach the home search and purchase process systematically and effectively, you need to talk with some people who know the market and know how to help you through the process.

Should I meet with the lender or the real estate agent first?

The important thing is that you talk with both to get a clear plan in place, but I would start with the lender. Your initial conversation with a real estate agent will probably be more productive if you know what you can afford and how much strain you’ll be feeling on your budget at various price points.

How can I get a clear picture of what I can afford and where?

You can actually learn a lot by looking at our pricing stats on various home sizes in the various communities we cover, but to get a full picture we’d have to put together a comprehensive printout and mapping of homes matching your search criteria. You can stumble into a good home by scanning the web or driving neighborhoods, but this isn’t the most efficient or most effective approach to the home search process.

How can an agent help me in the home search?

Any good agent will provide you with information on all listed homes meeting your search criteria and can set up showings on potentially interesting homes, allowing you to go through 5 or 10 or 15 homes in a morning. We’ll go substantially beyond this basic level of assistance, as outlined in our FAQs on Our Team and Services and in our section on Our Game Plan.

What’s involved in making an offer on a home?

In Colorado, an written offer specifying the purchase price, earnest money, and dates for things like inspections, loan approval, and closing is submitted to the seller. Generally, this offer is put together using the standard Colorado form, modified by completing the blanks and deleting or adding key provisions. This offer and an earnest money check is submitted to the seller. If they sign this offer, they have agreed to sell their property under the terms outlined in the offer. In most cases, counteroffers will be sent back and forth between buyer and seller as they negotiate the contract. In Colorado, these will typically be completed on standardized forms as well, modifying the terms of the original offer.

Do I need a lawyer?

Some states require that attorneys handle certain parts of the legal transaction. In other states, they are not required, but given the complexities of drafting contracts and other legal documents, it is difficult to complete a home purchase without them. In Colorado, the Colorado Real Estate Commission has produced standardized contract forms that are used by real estate agents to negotiate and establish contracts for the purchase and sale of homes. As a consequence, attorneys play little or no role in most real estate sales in Colorado. This doesn’t mean that you shouldn’t have an attorney involved, however. Real estate agents generally have limited knowledge of the law and have very limited skills in contract drafting and interpretation. If you do decide to hire an attorney, make sure that they have expertise in real estate law and practice and make sure that your attorney and real estate agent have a clear understanding of how they will coordinate their work over the course of the purchase process.

How do I decide what to offer?

There are a few pieces to this answer and they depend on what type of market you are purchasing a house in. In a slower market we first consider the current value of the home. We’ll pull up information on the sale prices of similar homes in the same neighborhood or community, which combined with the information you’ve gained by looking at other similar homes, should give you a fairly clear picture of the market value of the home. Second, we consider strategic issues. If you’ve been looking for six months, this is the first home you’ve seen that you like, your kids need to be in school next month, and there are already two or more offers on the home, you may want to offer near the top of the market value range.  We usually explain this as a price that you would be ok winning the bidding war (as in you will not have buyer’s remorse, concerned you overpaid) and comfortable losing the bidding war (you did the best offer, the best price and terms you could). If you’re an investor with a year to look and you’ve seen dozens of homes that would meet your needs, you may want to make a low ball offer and see what happens.

What is earnest money?

When you submit an offer to the seller in Colorado, it is typically accompanied by a check for several thousand dollars which is held by the listing company or title company and forfeited if you default on the contract. Where you have a contractual right to terminate the contract, the earnest money should be returned to you. If all goes well and you get to closing, the earnest money is brought to closing and pays all or part of your down payment and/or closing costs. But if you just back out of the deal after all of your deadlines to properly terminate the contract have passed, the seller may keep your earnest money as compensation for you’re having failed to live up to the terms of your contractual agreements.

What rights do I have to terminate the contract?

The standard Colorado purchase contract has evolved to be very buyer friendly in this respect. Though limited by strict deadlines, you will generally have the right to terminate the contract if you’re not satisfied with the results of an inspection of the property, if you can’t get a loan your happy with, if you can’t get insurance that’s satisfactory to you, or if you are unhappy with the rules for using the property or with HOA fees and assessments.

Can the seller terminate the contract if they get a better offer?

In general, the seller has no right to terminate the contract once accepted. There is one exception under the standard Colorado contract. Primarily with FHA loans, the lender will sometimes require that certain repairs be completed on the home before closing. If the lender requires such repairs, the seller may have the right to terminate the contract.

Can we do inspections of the property before submitting an offer?

With the seller’s permission, you could. But this makes little or no sense under the terms of the Colorado contract, which allows you to terminate if you find anything unsatisfactory in your “sole subjective discretion.” Why pay money to inspect the property before you know whether you and the seller can reach agreement on price, when you have an open ended right to terminate under the contract anyway.  The only time that this could make since is in a really hot market.  Let’s say a house hits the market on a Wednesday and the seller is going to look at offers on the following Monday.  Having an inspector do an inspection before writing an offer could potentially allow you to make an offer not contingent on an inspection, thus, making it more attractive.

What happens if we find problems with the property at inspection?

You WILL find problems with the property if you hire a decent inspector. When you do, you do have the right to terminate the contract as indicated above. In most cases, however, you’ll submit a list of objections to the seller indicating what you’re not happy with and what you want them to repair or compensate you for. Once that objection is submitted, there is typically a negotiation process which ends in an agreement regarding what the seller will do and won’t do. If you don’t reach agreement by a specified date, the buyer has the right to either let the contract terminate or take the house “as is.”

Should I be doing inspections beyond the standard building inspection?

We consistently recommend a video scoping of the main sewer line going out of the house to make sure it is draining properly and a test of the radon (radioactive gas) levels in the home. We also heavily push for a meth screening.  In the state of Colorado a house can be considered a meth lab if someone has smoked in the house only a few times.  To clean the house of meth it can be $20k-100k.  That is a bill that you do not want to get stuck with! If the home is on a well and septic system, you’ll want to evaluate the quality and quantity of water you can expect from the well and the septic system. Beyond this, there are many other issues that you may want specialize inspectors to look at on a case by case basis.

Do we do anything beyond an inspection to evaluate the property?

No question. Routinely, we’re looking at any restrictions on the use of the property that are important to you, having an appraisal done in order to make sure that the property is worth what you’re paying, and making sure that when you complete the purchase of the property you’re not assuming debts that the current owner has. If the property has a home owner’s association, we’ll be looking into the finances of the association and looking at the minutes of meetings of the association so that we’re aware of any important issues there.

Do I have to do an appraisal and what does it cost?

If you’re getting a loan, your lender will require an appraisal of the value of the property to make sure that it is worth what you’re paying for it. If you’re not getting a loan, it’s up to you whether you have an appraisal done or not. If an appraisal is done and the appraiser indicates that the value is less than the purchase price you’ve agreed to, you’ll have the right to terminate the contract if you’d like. Appraisals generally cost between $350 and $450.

How do we discover restrictions on the use of the property or debts?

In Colorado, the seller routinely pays for what is called a “title insurance” policy on the property to cover the buyer. The title company will conduct a search of legal records related to the property and issue a title commitment. This commitment will disclose any restriction on the use of the property and anything that is owed against it. You’ll have the right to review this and to terminate the contract if there are problems that can’t be resolved. If you close on the property, the title company will insure your ownership of it under the terms disclosed in the commitment.

How do we evaluate the home owners association if there is one?

Under terms established by covenants (agreements) that were recorded when a neighborhood or condo complex was first built, a home owners association (HOA) may have powers to set rules for the neighborhood, control alterations to homes or landscaping, and assess fees to maintain the neighborhood and/or the buildings. We you buy a home under the jurisdiction of an HOA, you’re effectively buying into a corporation which may have rules you’re not comfortable with and which may have debts that you’re assuming part of. We’ll routinely obtain the minutes of HOA meetings, the financial statements of the HOA, and the rule, regulations and covenants which govern the HOA to make sure that you’re not buying into unknown problems.

How and when will I know how much money I need to bring to closing?

Once you have found a home and have written a contract, your lender can give you an estimate of how much money you’ll need to bring to closing. This estimate should be within a few hundred dollars of the actual amount you’ll need. If there is no loan, we can provide that estimate. Settlement statements, which provide a precise statement of what you’ll have to bring to closing, a compile by the title company in collaboration with the lender in our market. You’ll generally have these final numbers 2 to 5 days prior to closing.

When will I see all the documents I’ll need to sign at closing?

Except for the settlement statements outlining the fees and costs that you’ll have to pay at closing, the first time most buyers in our market see the 2-4 inch stack of papers they are expected to sign at closing is at the closing table. While most of these are standardized documents that you’ll either have to sign “as is” or not buy the home, it is profoundly disturbing to be asked to sign 50-100 pages of documents that you have no time to read or even scan fully. We push hard to get all documents to the buyer several days prior to closing so that they have a chance to review them and ask questions.

Where is the “closing” held, what happens, and how long does it take?

The closing is generally held at the title company. If there is a loan involved, the lender will wire funds to the closing or bring a certified bank check. You will also bring a certified bank check for any additional funds required from you. A “closer” who works for the title company will work their way through a stack of papers, asking the buyer and/or seller to sign the appropriate documents and answering any questions about them. The agents for the buyer and seller are generally there. The loan officer is also sometimes there to address any questions on the loan documents. The signing generally takes about an hour. The seller is given a check for the proceeds of the sale. The buyer is given the keys to the house which they now own.
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