First Time Homebuyers - Where to Start

Well this weekend I met a young couple at a home that they found on my website. It wasn’t one of my personal listings, it was listed with another company. They walked through and liked what they saw. This was a foreclosure that was listed for sale for $79,000 and it had three bedrooms and two baths on the main level. As we opened the door the first impression was pretty good. The home had a split foyer so there were steps going up and down from the front door. Up to the main living area and down to the garage level. We went up and the house looked pretty good. The carpet and paint were in pretty good shape. There were still all of the appliances in the kitchen and the home was basically clean. There were three bedrooms and two baths in decent condition. Not your typical foreclosure.

We moved on to the lower level and found a nice surprise. There was a family room and another bedroom and bath, in addition to the two car garage. They liked the whole package. Then, the big question: “How do we get started”?

Well that is a question that defines a Realtor and is not the easiest to answer. I thought it would make a good subject for a blog post. ,

So when you find the house of your dreams, how do you get started?

When I am trying to explain the process of making an offer on a house like this, here is where I like to start.

What is our relationship?

I am a buyer’s agent in this transaction. That means that I represent you, the buyer, in this process. The seller has an agent representing his interest, and they have their sign posted in the yard. In the Atlanta area there is generally a buyer’s agent and a seller’s agent in every transaction. It is my sworn duty, as your buyer’s agent, to protect your interest in the process. In the offer process there will be a form that establishes this buyer’s agency.

How do I get paid?

We have an agreement in the Atlanta market that any home listed in either of the two big Multiple Listing Services (the FMLS and GA MLS) has an automatic agreement in place that the listing agent will share their commission, whatever it is, with the Buyer’s agent. Generally it is a 50/50 split but whatever it is, is disclosed in the MLS and FMLS. So if the house is listing in one of the MLS’s, the Seller pays both agents, even though only the Listing agent represents his interests.

What do you need to actually make an offer?

The prequalification letter.

In nearly every purchase with a foreclosure seller or a regular Seller, they want to see a letter from a lender stating that they have pulled your credit report, and have interviewed you and based on normal lending guidelines, you are qualified to get a loan to purchase the property. In the interview, they find out about your job history and your current debts. They find out how much money you can put down and where it is coming from. Lenders are normally concerned about the source of your funds. They traditionally do not want you to borrow your down payment. The letter is not a guarantee, but states that you should qualify for the mortgage. Some of the foreclosure sellers insist that you get prequalified with them. (Countrywide and Wells Fargo are two that generally require this) This can be aggravating because they pull a credit report before they look at your offer. Even if there are multiple bids and you don’t end up winning the bid, they still want to check your credit. As we all know every time someone checks your credit it impacts your credit score. The only way around this is to find a different house, or have a fully approved loan subject only to appraisal. Even with that there is no guarantee that they will look at your offer.

The earnest money.

In order for your offer to be considered there must be earnest money. Earnest money is like a security deposit, in some ways. It is there to guarantee that you will perform as promised. There are several ways that you can get it back; if your house fails inspection or appraisal, the earnest money would normally be returned to you. If the Seller cannot deliver clear title, or if the property is substantially damaged before closing, then there are provisions in the contract to have your earnest money returned. When you go to closing the earnest money you have put down becomes a part of your down payment. Generally the minimum earnest money deposit is $1,000.00 for a foreclosure (except with a HUD foreclosure under $50,000, in that case the earnest money is $500). I have seen earnest money of $500.00 accepted in normal non foreclosure homes under $100,000, but generally only in the 100% financed transactions where the Purchaser may not have funds available. Those 100% loans are few and far between these days.
Earnest money is made out in the form of a check. Generally the Buyer’s agent’s company holds the funds in traditional sales. In foreclosures, many times the Sellers insist that the listing agent or the closing attorney hold the earnest money. They will frequently ask for it in certified funds. In foreclosures I suggest that we add a stipulation that the earnest money will be paid to the holder of the Seller’s choice within 48 hours of verbal acceptance of the offer.

The Purchase and Sale Agreement

Most offers are made on a form that has been agreed upon by the Georgia Association of Realtors and is used by all Realtors in the state of GA. When you fill in the blanks and sign it, it is an offer. If the seller accepts it “as is” and signs it, it becomes a contract. If the Seller doesn’t accept it and chooses to counter offer, they will either fill out a counter offer form, or strike out whatever they don’t agree to and write in their counter offer. For example they would draw a line through the price offered and write in a price they would accept and “initial” the change. When dealing with normal (non foreclosure ) sellers, the forms and amendments and exhibits drafted by the Georgia Association of Realtors will be used.
Most foreclosure sellers have a set of unique addendums that basically restate everything in the contract. They attach these to the contract and send it back. It generally is a large document with 10-20 pages. It must be gone over carefully and understood. 9 times out of ten, it takes a week to 10 days to get the contract signed and returned.
The basic contract is all cash at closing, and we add exhibits if the Buyer is going to get financing. There is a provision for inspection or a choice for “as is”. There will be a time limit for getting financing, appraisal and inspections. The times can be negotiated. When we make the offer we sit down and go over the contract and make sure you understand every provision. I would allow a couple of hours for the process, especially on your first offer. There are all kinds of issues to consider.

So that is a snapshot of the beginning of the offer process. This is just the beginning, there is still the disclosure, the inspection, the appraisal, the loan, the title search, the walk-through, and finally then, the closing. I will cover the explanations of the rest of the process for other blog posts!