1. Determine Price and Secure Financing

The first stage in buying a new home is to determine your price range and secure financing. To assist you in pricing and financing your new home, there are several resources available to you:

Real estate agent
After identifying your buying objectives, our agents advise you on current pricing trends in the neighborhood(s) you are interested in. In addition, we provide guidance on the cost of your purchase including closing costs to determine your anticipated monthly mortgage payment. By consulting us prior to your home search, we are able to tailor your home search to reflect your pricing objectives. This results in a targeted and efficient home search that won’t waste your time.

Mortgage lender/broker
If you plan to finance your home purchase, it is important to consult your lender prior to beginning your home search to understand the financing options available to you. We advise you to consult several different mortgage brokers and lenders to learn about available loan programs and to understand your purchasing power. When consulting a home lender, it is quite important to obtain a “Good Faith Estimate” that sets forth the interest rate and APR, along with the costs of the loan, such as: origination fee, discount points, appraisal costs and other loan administration fees. Be careful to review all loan documents thoroughly and retain a licensed attorney to review these documents if you have any questions.

• How much can you borrow? Assuming the Buyer has a superior credit score, a lender usually allow a Buyer to borrow a “housing expense” equal to 28% of a Buyer’s gross annual household income. The housing expense includes your monthly principal and interest mortgage payment, real estate taxes, hazard and mortgage insurance, and association dues (for condominiums). Therefore, if a Buyer’s household annual income is $100,000, a Lender may approve a home loan for an annual housing expense of $28,000. This equates to a monthly housing expense of $2,333.33. Given a 30-year fixed rate mortgage with an interest rate of 7.5%, the Buyer in this scenario would qualify for a mortgage loan in the amount of $250,000-$300,000.

Financial adviser
Although your loan officer is available to advise you on financing, a certified financial adviser may also prove helpful in providing you with an independent opinion on the home loan that best fits your financial needs. A licensed financial adviser listens carefully to assess your goals, affordability factors and risk tolerance. After taking into account these and other factors, the financial adviser then evaluates your income, assets, liabilities and other relevant information when advising you on the right mortgage.

The pre-approval
Once you have arrived at your desired purchase price, you must obtain pre-approval for your home loan. A pre-approval is an actual certificate that your Lender will provide to you to certify that you qualify for a certain mortgage amount. A pre-approval, however, is not the same as a mortgage commitment because before a commitment can be issued the bank must be able to appraise the property being mortgaged.

The pre-approval is included with the Buyer’s offer to demonstrate to the Seller that the Buyer is financially able to finance the home purchase. Please note that a pre-qualification is not a pre-approval. A prequalification typically refers to situations where a mortgage broker or real estate broker, using income figures provided by a buyer, estimates the maximum mortgage that the buyer should be able to obtain.

2. The home search

After identifying your price range and securing financing, the next step is to search for your new home. In today’s information age, locating a home has become an incredibly efficient, yet competitive process. Thus, it is important to conduct targeted research into homes that meet all of your home purchase needs.

Before beginning your home search, there will be several things you will want to take into account:

• Neighborhood/desired home location
• Home specifications such as square footage, lot size, interior features
• Schools and neighborhood amenities
• Desired commuting time
• Price appreciation goals
• Current and historical market conditions and growth rate(s)
• Market competition
• How long you plan on living in the home
• Number and timing of home sales in neighborhood and area
• Affordability factors

After narrowing your area and neighborhood choices, the actual search begins. This process involves:

• Comprehensive and targeted search of the multiple listing service database, as well as print and online home search media;
• Private home tours;
• Performing pricing research and comparative market analyses of homes you are interested in to ensure the homes are properly priced;
• Research on sales volume and the length of time homes are listed for sale prior to selling to assess market demand and to formulate your offer;

3. The Offer

Once you find a home you are interested in, the next stage of the home buying process is to carefully design and draft your offer. Your offer will contain not only the price you wish to pay for the home, but also the earnest money, length of escrow, sale contingencies and various other provisions.

If the Seller has multiple offers, he or she may utilize factors other than price such as the financial strength of the Buyer, earnest money, down-payment, and/or the waiver of contingencies in choosing which offer to accept. Price adjustment tools such as escalator clauses may also be utilized by a Buyer when a Seller has multiple offers.

Be advised, ANYTHING YOU SIGN COULD LIKELY BECOME A BINDING CONTRACT.

Market and Valuation Analysis
When making an offer, it is important for you to be educated on the market and neighborhood in which your home is located. So if you express interest in making an offer, it is imperative to conduct a comprehensive market analysis to ensure that the home’s sale price is consistent with comparable home sales, listing prices and market conditions existing in the area.

The purchase-and-sale agreement
If, after reviewing the market research, you decide to move forward with an offer, a document entitled “Purchase and Sale Agreement” (PSA) is submitted to the seller’s agent. The PSA sets forth the price and other sale terms that you propose to the Seller. Specific provisions contained in an Offer include, but may not be limited to:

• Offer price
• Legal description of the home you are making an offer upon
• Contingencies such as financing and inspection
• If financing, then the down-payment and type of loan for which you have been pre-approved
• Earnest money
• Appliances, furnishings and personal property that the Buyer will retain
• Closing date and apportionment of closing costs
• Agency disclosures
• A loan pre-approval will be provided along with the purchase and sale agreement

A short note about earnest money
Earnest money is a sum of money you pay when the seller accepts your offer. Your earnest money is like a deposit made with the Seller to secure the performance of your obligations in the purchase and sale agreement. It is usually between 3% - 5% of the offer price. You should be fully advised on the events leading to earnest money forfeiture or refund if your home purchase fails to close. Also, you must make an election in the purchase and sale agreement as to whether the forfeiture of the earnest money is the only legal remedy for the Seller to pursue in the event the Buyer fails to close the sale without cause.

Seller Contact
At the offer stage, it is important to make an early contact with the Seller’s agent to inquire into the Seller’s position on the offer. A clear understanding of the Seller’s objectives results in a strategic advantage to the buyer when competing against other offers.

Offer presentation
The presentation of a Buyer’s offer is an invaluable, yet often overlooked aspect of a home purchase transaction. The submission of a competitive offer, combined with an accompanying letter describing the offer and the Buyer can assure the Seller that he or she is selling to a qualified and quality Buyer.

Escrow
After the Seller accepts your offer, escrow is established to ensure that all obligations contained in the Purchase and Sale Agreement are fully performed by all parties. Such obligations include the performance of sale contingencies, as well as the satisfaction of the various lender requirements necessary for the bank to loan you the money to purchase the home.

4. Sale Contingencies

A sale contingency is a condition included (as a separate in the Offer that authorizes the Buyer to cancel the home sale if a stated condition is not met. The sale contingency must be stated in writing and submitted together with the Buyer’s offer in order to be effective.

For example, if the Buyer needed to sell his or her home before closing on a new home and included this requirement as a sale contingency, the Buyer could cancel the sale if the Buyer’s home failed to sell within a certain number of days after Seller’s acceptance.

A Buyer may utilize numerous different contingencies in his or her home purchase. We have outlined select contingencies below:

Home Inspection
A home inspection contingency is a legal document included in the Offer that authorizes the Buyer to obtain a home inspection. Within an agreed-upon number of days following the Seller’s acceptance, the Buyer may pay for a licensed home inspector to conduct a thorough investigation into the condition of the home.

• The Inspection. The inspector should thoroughly check the house and its systems, including the foundation, roof, heating, water and plumbing system, electrical system, windows, insulation and structural elements. To ensure objectivity, an inspector should never offer to perform any repairs. Additionally, the inspector should be duly licensed and maintain insurance coverage to protect your interests. A home inspection costs between $300 - $500.
  
  
• Other inspections. Other inspections include: water and septic tests, a termite inspection, a radon test, and a check for the presence of asbestos-containing materials, lead paint and urea formaldehyde insulation. In addition, if the house was ever heated by oil, an inspection should be conducted to check for possible ground contamination caused by leaking underground oil-storage tanks.

Title Contingency
A title contingency allows you to rescind your Offer and cancel your home purchase if the title to the home you are offering to purchase is defective. Specifically, the title contingency makes your home purchase subject to your acceptance of a preliminary title report on the home and property. A preliminary title report must be provided to you (by your title insurance company) after your Offer is accepted by the Seller. The title report will identify mortgages, liens, easements, restrictions, assessments, covenants, etc. that may affect the value of the home and which may prohibit you from using the home/property in a certain way.

Home sale contingency
A home sale contingency is a condition in the Buyer’s offer that allows the Buyer to cancel the contract in the event his or her existing home does not sell in a certain number of days following the Seller’s acceptance of the Buyer’s Offer. This contingency requires the Buyer to list his or her home within a certain number of days following Seller acceptance and to sell within a certain number of days after being listed.

Survey contingency
A survey contingency allows the Buyer to obtain a Survey. A Survey is a series of measurements performed on your property by a licensed surveyor to determine whether the lot dimensions are true and correct. Unfortunately, it is not uncommon to find that a driveway or a fence crosses a property line. If a Survey is performed and a problem is identified, it is the Seller’s problem, however if a Survey is not performed and a problem is later identified then it is the Buyer’s problem. A survey costs $500 - $1,000.

Feasibility
If you are purchasing property to be developed for a particular purpose (i.e. subdivision or re-zone) or have questions regarding a property’s previous use, it is important to include a feasibility contingency in the Offer. This allows the Buyer to conduct feasibility studies of the property to determine if the property fits the Buyer’s future needs. If it does not, a feasibility contingency will allow the Buyer to cancel the purchase and move to the next property.

The Agent’s Role
Our role in the sale contingency period to ensure that notice of the results of the contingency are delivered to the Seller within the time period stated in the Purchase and Sale Agreement. To this end, you are provided with a transaction timeline and regular updates on the pending deadlines on any sale contingency.

However, in the event a problem arises in connection with a contingency that forces you to cancel or rescind the sale, we promptly advise the Seller of your intentions. If the contingencies are met to your satisfaction then the attention turns to closing.

5. Negotiation

“The way to convince another is to state your case moderately and accurately. Then scratch your head, or shake it a little and say that it is the way it seems to you, but that of course you may be mistaken about it. This causes your listener to receive what you have to say, and as like as not turn about and try to convince you of it, since you are in doubt. But if you go at him in a tone of positiveness and arrogance, you only make an opponent of him.” – Benjamin Franklin.

After your offer has been delivered to the Seller’s agent, the negotiation stage begins. Here are some strategies and perspectives to accomplish your goals in the negotiation stage:

Everything is negotiable
It is a mistake to operate under the assumption that a Seller is unwilling to negotiate. Every offer term is negotiable, including but not limited to price, terms, inclusions, exclusions, disclaimers, and contingencies. The Seller has one home to sell, while the Buyer has the option of choosing among numerous different homes, so this should be utilized to the Buyer’s advantage during the negotiation process.

Market Research
A good negotiator has done his or her homework on the market where the Buyer is purchasing. By researching market conditions, the savvy negotiator will utilize favorable recent home sales, current listing prices and other market conditions to educate the Seller. When presented with such information, a Seller is more likely to be willing to negotiate the sale terms.

Avoid showing your hand
Not unlike a poker game, it is in the Buyer’s best interest to avoid disclosing any position in the early stages of negotiation. If a Seller believes that the Seller’s home is the Buyer’s “dream home”, it is unlikely the Seller will be willing to negotiate. So, the Buyer should inform the Seller that the Seller’s property is merely one of several comparable properties that the Buyer is interested in. Absence of interest by the Buyer usually makes the Seller’s heart grow fonder.

Determine the Seller’s position
While it is important to avoid revealing the Buyer’s position, it is equally valuable to identify the Seller’s objectives in the home sale. Try to learn whether the Seller is facing a deadline such as job relocation, divorce, other pending offers or a pending purchase of another home. Identifying such deadlines impose time and other pressures on the Seller that can be leveraged by the Buyer in negotiations. To identify the Seller’s position, the Buyer may wish to meet face-to-face with the Seller. The information gleaned from such discussions may then be utilized by the Buyer to tailor his or her negotiation strategies.

The red herring
By agreeing to concede on less important offer details, the Buyer enables the Seller to feel as if he or she has achieved a certain level of success in the negotiations. So, it is oftentimes wise to include a red herring (a term or provision that the Buyer knows the Seller to have wanted) in the negotiations, so as to achieve success on other, more important sale details. However, never concede without first winning a concession and be reluctant to concede as Sellers attach significant weight to a Buyer concession.

The likeability factor
Put simply, Sellers want to sell their home to a likeable Buyer. It is more difficult for a Seller to say no to a likeable Buyer, even if the likeable Buyer is proposing an inferior offer. Again, by meeting the Seller in person, the Buyer puts a face and personality to the Offer and negotiations.

The inspection
Sometimes the leverage of an inspection report may be used to negotiate substantial price and offer term concessions. In most cases, an inspection will reveal some type of problem with the subject home or property. From minor cosmetic issues to major structural defects, the thorough understanding of the problem and the cost to repair can be used to significantly bolster the Buyer’s leverage in negotiations.

Be willing to walk away
This is an excellent way to test a Seller’s bottom line. Sometimes, walking away is a good reality check when you are unable to achieve success on an important offer detail. However, when walking away do so amicably and always leave the door open for the Seller to come back if he or she has a change of heart.

6. Escrow and closing

After the Buyer and Seller have negotiated the various purchase terms, the final contract is delivered to an escrow agent, who will be responsible for closing your home purchase. The escrow agent is a neutral third party charged with ensuring that all contractual obligations and lender requirements are met by both Buyer and Seller.

Sale contingencies and lender requirements
The reason for the delay between the Seller’s acceptance of the Buyer’s offer and the actual transfer of ownership revolves around sale contingencies and lender requirements. Sale contingencies such as home inspection and financing must be satisfied before escrow can authorize title transfer. Accordingly, timely notice must be provided to Escrow of the satisfaction or failure of any sale contingency. Furthermore, lending requirements such as home appraisal, insurance and income and liability verification must also be satisfied before escrow can authorize the transfer of title from Seller to Buyer. Thus, it is important to closely track your transaction after Seller acceptance to ensure that deadlines are met and results are delivered to escrow.

Communication
Inevitably, the escrow agent responsible for closing your transaction will identify an issue or have questions regarding your home purchase. It is important to act quickly to answer questions and resolve concerns regarding your transaction.

Sign final agreements, obtain keys and ownership transfer
The last stage of your home purchase is the Signing. The Signing is the event where you execute loan paperwork and other documents necessary to convey the home from seller to buyer. The Signing date, also called the Closing date, is specified in your Purchase and Sale agreement but may occur on a different date if your sale must be expedited or delayed for any reason.

On the closing date, you will travel to the escrow agent’s office to sign all loan paperwork and documents conveying property ownership from the Seller to you. If the Possession date specified in your Purchase and Sale agreement is “at closing” then you will also receive the keys to your new home at Signing.

Once you have completed all steps in this purchase process, you will be the proud owner of your new home. Please be advised, this information is provided to you for illustrative purposes only.

Questions
Your specific transaction may vary dramatically from this roadmap, so if you would like to receive a roadmap tailored to your specific transaction, please contact us at: (206) 909-8777 (toll-free: 1-800-206-6612) or by email at: info@navigationre.com.