Once a buyer knows how much
house he/she can afford, and what kind of mortgage best suits his/her needs,
the buyer is now ready to find the property that not only fits his/her practical
needs, but emotional needs as well. When searching for a house, it is recommended
that the buyer consult a professional real estate agent.
We shall use our hypothetical
buyer, Mortimer Gage, to illustrate this step of finding and securing the
right property. When we last left Mortimer Gage, he decided that after talking
to his father-in-law, Homer Lones, that he wanted to obtain a balloon loan
to finance the purchase of his dream house. Now let's take a look back in
time when Mortimer and his wife, Morticia, were looking for their dream home.
When they were first married, they drove around the suburbs every Sunday looking
at houses, hoping that someday they would be able to afford a home of their
own. Through hard work and perseverance, Mortimer and his wife were financially
able to purchase a home. Now they face another challenge - where to find the
dream home.
The Gage's worked hard for
their money, they wanted to make sure they were completely satisfied with
their purchase. Mortimer decided to get advice from an old college friend
Reil S. Tate. Mr. Tate is a professional realtor serving the greater suburban
area, and knows all the details involved in selecting a house. After exchanging
pleasantries, the first question that Mortimer asked Reil was, "What is the
most important thing I need to consider when selecting a house?" Mr. Tate
told Mortimer that he needs to become an educated buyer. To do this, Mortimer
needs to find an area that is appealing to him and his wife. Once they find
the area, they need to acquaint themselves to the sale prices of homes in
the area. The best way to achieve this is to do what Mortimer did, obtain
the services of a real estate agent.
Although most agents are
paid by and work for the seller, some agents choose to work for the buyer.
To eliminate any uncertainty, the state law requires that an agent must disclose
to the buyer, in writing, that the agent's best interests lie with the buyer.
This disclosure should take place prior to viewing any homes. Mr. Tate also
told Mortimer to always make interior inspections of homes of interest. A
buyer doesn't need any unpleasant surprises when moving in. Mortimer took
Mr. Tate's advice and learned to average prices of homes in the area he was
interested in. Mort and his wife also inspected the inside of houses they
were interested in. After two weeks, Mort and his wife found a house that
was everything they wanted. So they went back to Reil S. Tate and asked for
further advice - how to negotiate a price.
Tate told Mort that this
phase needs to be handled patiently and logically. If the property is listed
at a realistic price (according to what similar homes have sold for in the
area) an initial offer price of 90-95% of the list price is normal. The seller
will then respond to the buyer's offer by either accepting it, rejecting it,
or in most cases making a counteroffer. The buyer then has the option of accepting
the counter offer, rejecting it, or making another counteroffer. Although
there is no limit to the number of counter offers that can be made, the second
round of negotiating is usually the last. Reil Tate also informed Mortimer
that everything regarding the property can have a perceived dollar value,
and is therefore negotiable. This includes the price, the down payment, the
financing, the closing date, personal property included in the house, possession
date and occupancy details. For example, a lower purchase price might be of
set by lower use and occupancy charges, less personal property or a quicker
closing date.
Mortimer also needs to consider
obtaining the services of an attorney, or at least an attorney's approval
rider (which allows both parties the advice of their respective attorney,
before the contract is finalized). An attorney can be very helpful when questions
regarding the sale contract arise. Topics that might arise are the need for
a home inspection or hazardous material inspection. A final advantage of using
a real estate agent that Mortimer should consider is that real estate agents
are not personally involved in the purchase. Agents are able to objectively
point out good points and bad points in property and the resulting contract.
Mortimer was so impressed by Reil S. Tate's knowledge on this matter, that
he decided to officially obtain his services to help purchase a home. Mortimer
also decided to call his lawyer, Seymour Cash, to help with all legal matters
that can arise. Be sure to read our next issue when we will jump back to the
present and describe how Mortimer's loan application will go through the loan
processing department, and underwriting departments of his chosen lender.
This step will determine if Mortimer can borrow the money he needs to purchase
his dream home.
Go
to Part 5: Loan Processing & Approval
