Home Buying 101

By: Andrew C. McGibbon

Disclaimer: The primary state that this article covers is New Jersey. Though licensed in New Jersey and New York, the author will primarily address the buying process as it relates to New Jersey, with the occasional reference to New York. There are many differences from state-to-state. This article is not intended to take the place of legal representation or a qualified Realtor®.

When you go shopping for a house and begin to work with a Realtor®, one of the first questions a good Realtor® will ask you is, 'are you pre-approved.' At this point I am frequently met with righteous indignation, 'my credit is perfect.' What you have to understand is that Realtors® dig a lot of empty wells. When a potential buyer comes to us and tells us they want to buy a house, having a pre-approval letter simply shows the Realtor® that the buyer is serious about their intentions. In addition, before we can make an offer we have to have that in hand so that when we make an offer, we can present the pre-approval with it.

The type of relationship you have with your Realtor is called an agency relationship. This means that your Realtor has certain fiduciary responsibilities depending upon in what capacity they represent you. The Realtor can represent just the buyer (buyer's agent), just the seller (seller's agent), or both the buyer and the seller (disclosed dual agent, not legal in all states but legal in New York and New Jersey.) In New Jersey and New York, agents are required to provide prospective customers with a Consumer Information Statement (NJ) or an Agency Disclosure (NY). These documents are required to be given to you and the Realtor® must acquire your signature so that (s)he can prove to the state Real Estate Board that you were given this pamphlet that describes these relationships.

A good Realtor® will be able to enter your criteria into their local Multiple Listing System (MLS) and that system should be able to generate listings on a daily basis based upon your criteria and then email them to you. This method is far preferable to you going and looking at Realtor.com. Realtor.com is a great tool, but its listings can also be a little stale. Things sell and they may take a bit of time before they come off of, or are updated on Realtor.com. Make sure you have a computer savvy Realtor®. If they are not, find another Realtor®.

After you have found the perfect house your Realtor® will help you write an offer. In New Jersey we do this with form contracts. In New York we do this with a letter of intent.

Once terms have been agreed upon, In New Jersey the contract goes into attorney review whereby each side's attorney reviews the contract with their client's interest in mind. In NJ, a contract is not valid until both attorneys have made their changes and agreed upon everything (in consultation with their respective clients, obviously). In New York, once terms have been agreed upon, you do a home inspection prior to actually having the attorneys draw up the contracts. In NJ the home inspection is not done until you get out of attorney review.

When your Realtor recommends a lawyer or a mortgage representative to you, chances are he is doing it with your best interest at heart. No ethical Realtor® or one who valued their license would receive any kind of 'kick-back' from such a party. We are prohibited from doing this. We recommend them because we have established relationships with them. We understand how they work and we know them to be reliable and ethical. We develop a style and method of working with these people that helps to keep the process moving forward. Transactions can fall apart due to simple lack of or mis-communication.

Once attorney review is completed, the buyer will frequently have agreed to the payment of a second deposit. This would have been in the contract. This is not always the case. This usually must be submitted within a certain number of days of the end of attorney review.

Even experienced real estate investors will rely upon the services of a professional home inspector. A home inspector can save you thousands of dollars by pointing out problems or potential problems with a home. This may involve something as serious as a bad electrical panel or wiring, to as mundane as the grade of the ground around the house. Something to remember though, just because the home inspector puts it on the report, it doesn't mean you are going to get a huge credit from the sellers or that they are going to repair every minor issue. Home inspectors are paid to find things wrong. Be realistic and realize you are buying a used house. Obviously this is different for new construction. In New Jersey there is a 10 year warranty on new houses.

Once attorney review is over, the buyer's attorney will order a title search and a survey. A title search looks back at the chain of ownership of the home to make sure that there are not any outstanding liens or claims on the home (also known as 'clouds on the title'). The title insurance policy you buy protects your and the bank's ownership of the home in the event that something is not found when the title search is done. It is as its title implies, insurance.

If you are relying upon a mortgage to purchase your new home, you will have a mortgage commitment date in your contract. This is the date when you must have your bank's or mortgage rep's commitment letter. This must be provided to the seller's, their Realtor and their attorney. Before this can be issued you will need to complete a lengthy application and provide proof of income and assets. They will also do a more thorough credit search.

A bank will also do an appraisal of the house. This determines the current market value of the house as compared to comparable local sales. The bank wants to make sure that you (they) are not over paying for the house.

The elapsed time from offer to closing can range anywhere from 10 days to 5 or 6 months depending upon the individual situation. Things that can move very quickly if the buyer doesn't have another house to sell first (a home sale contingency) or if the home they are buying is vacant.

Before closing you will do a walk-through of the house to ensure that the house is in the same condition as when you originally saw it and that it is being delivered in 'broom swept' condition as per the contract. You will also want to make sure that they have removed all of their personal belongings from the premises, unless otherwise pre-arranged.

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