An important step in your home search is to first find and hire a broker. There are many reasons to hire a broker including:
- It’s Free When Buying! – The common industry practice is for the seller to pay not only their broker fee, but also the buyer’s broker fee (the buy side and sell side broker split a commission fee that is generally in the range of 4-6% of the total purchase price).
- Inventory Access – The central brokerage system, which brokers use, has up-to-date inventory. While online sites like redfin.com, realtor.com, and Zillow.com have caught up, occasionally something may be missed. Note that the broker system does not pick up inventory of homes for sale directly by owner through sites such as forsalebyowner.com. While it doesn’t hurt to check out these direct sale sites, you will find the inventory tiny compared to what is available through the traditional broker model.
- Advice – A good broker will help you navigate the process and provide you important tips along the way…though since you are smart enough to be on Loan Compass you may not need this!
Statistics show there are nearly 400,000 real estate brokers in the country! So how do you find the right one for you, especially given most work at small firms? Fortunately there is a company we found called HomeLight that has figured out a clever algorithm to analyze over 27 million real estate transactions to match you with a local broker that fits your desired criteria. The best part is the service is free!
If applicable, be careful with the pressure you may feel to work with a family member or friend who is a real estate agent; remember that this may be the most important purchase of your life so it is important to find the agent that is most experienced for what you are looking for.
Important Knowledge / Experience Requirements
- Choose an agent that has experience in your preferred neighborhood
- Also make sure that agent has a history of houses in your price range and type
- Ask what kind of experience they have in buying homes; similarly, gauge how competent your broker is in local laws, taxes, loan process etc.; ask plenty of questions and hear their answers!
- Check your state’s licensing agency (often times called The Department of Real Estate) to see if there are any disciplinary actions on the agent’s record
Important Personal Requirements
- Does not rush you! Unfortunately the incentive system is not aligned in your best interest as a broker only gets paid when you buy (therefore they would rather you pick a place quickly). Ask the broker how many listings on average they show before a transaction occurs.
- Really tries to understand what you are looking for – You can usually tell this based on the quality of the listing the broker is showing you. It’s ok if they show you a couple of bad places, but is he or she adjusting what they show you to match the feedback you provide him or her?
- Strong online reviews (though use this only as one data point as it’s not that hard these days to have your friends write a ton of fake reviews for you)
- Remember to not be afraid to ask the agent for references!
Click here for a list of potential interview questions to ask your broker.
Don’t believe the myth that the brokers with the highest annual sales are always the best choice to go with. Experience matters, but these brokers may be busy to devote the time you desire for your own search (in addition to potentially having an ego to deal with!)
In this section we’ll go through budget, legal and other considerations when making an offer on a home.
Found your dream home? Wonderful…we just need to win it now! The first thing we recommend you do in order to put together your bid is create a budget for your anticipated costs beyond the actual mortgage payment in order to ensure you are not over stretching your budget. With a property address in hand, a google search or a visit to a site such as redfin.com will be able to provide a good estimate for these additional costs related directly to your future home. Click here to use our affordability calculator.
Costs related to your future home:
- Property taxes
- Homeowners insurance
- HOA (Homeowners Association) fees
- Utility/security system/maintenance estimates
- Remodeling costs
Your budget should also include all of your future expenses, which may include:
- Vehicle costs
- Schools/childcare expense
- Monthly expenditures
- Vacation budget
Before jumping into making an offer, it is important you consult with your attorney or advisor on important legal protections you may want to include in your offer. The below is not an exhaustive list by any means, but highlights some of the most important points you will want to negotiate in your offer. Bear in mind that your negotiation success will certainly have a lot to do with how competitive your local housing market is at the time.
- Appraisal – Your bank will send an appraiser out to inspect the property and make sure it is worth what you are paying for it. If the appraisal comes out significantly lower, your bank will likely reject the loan. It’s not a bad idea to have language in your contract specifically for an appraisal contingency.
- Closing Date – There should be a time period in the contract to get everything closed (usually 45 to 60 days) as this is what most title and bank companies need to finish their work.
- Deed & Title Condition – Your contract should state what condition the title needs to be in to close, along with what actions the seller must take to deliver a good title by settlement (along with what recourse you have should that not occur).
- Deposit / Earnest Money – Upon signing the contract, it is not uncommon for the seller to ask for a deposit. Typically this deposit is not refundable if you back out of the deal, but will be refundable if the seller fails to carry through on the transaction. The amount of the deposit will vary by market but a common range is 1% to 10% of the purchase price. We recommend making sure this money will be deposited with a neutral third party such as a title company or an attorney’s escrow fund. We recommend receiving input from your attorney before putting down any deposit.
- Final Walkthrough – You should have the right to do a final walk through of the home the day before you close.
- Financing Contingency – These two words will be your best friend! So what does it mean and why such a big deal? Having a Financing Contingency means that you commit to the deal as long as your bank comes through with the loan. If the bank rejects your loan, then you will be able to get your deposit back. Without having a financing contingency in your contract, it means you must close no matter what (and that means if your banks rejects your loan and you don’t have the funds, you will lose your deposit!). Some real estate transactions, such as when buying a new construction condo from a developer, may not accept a finance contingency.
- Inspection Clause – This is critical in our opinion as you should never commit to buying a home without a proper home inspection by a professional. Your contract should have clauses that allow you to pull out of the purchase if the inspection findings are different from the home you thought you were buying. Some sellers will not accept this clause and instead have the home inspection done before you go into contract (and therefore your contract will state you accept the condition of the home “as is”).
BUYING & SELLING SIMULTANOUSLY
If you are selling your existing home and planning to use those proceeds to purchase your new home, it can be a tricky process. Click here to learn how to buy and sell simultaneously.
Most sellers will start with a purchase template that your city or state often provides. Whether they use the template or not, it’s not a bad idea for you to familiarize yourself with what is in the template prior to the negotiation.