First time Buyers - How does the offer process work?
Picture this: I have shown you a number of houses but today we saw a house and wow, fireworks went off in your brain. You are ready to move forward. What next? Here is how the process works.
First, Take a breath. There is a lot of paperwork to get through but it's all online and we are really in a paperless world now. So if you would rather not deal with a stack of paper we are good with that. If you still like books and paper, hey! we are about that too!
Next we have to be clear about our business relationship. I would be a buyer’s agent in this transaction. That would mean that I represent you, the buyer, in this process. The seller has an agent representing his interest, and they have his sign posted in the yard. In the Atlanta area there is generally a buyer’s agent and a seller’s agent in nearly every transaction. The Buyer’s agent looks out for the buyer and the listing agent looks out for the Seller. So, we would have to have a signed agreement that I am representing you in this purchase.
If you are wondering about how I get paid, I will cut to the chase, not by you! 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/or the FMLS. So, if the house is listing in one of the MLS’s, the Seller pays the listing agent and the listing agent pays the buyer’s agent.
What do you need to make an offer?
The prequalification letter.
In nearly every purchase the listing agent will want to see a letter from a lender (dated within 30 days of the offer) 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 listing agents insist that you get prequalified with their lender. That is not something I like. If the house is perfect okay maybe you can do that. It’s rare.
The earnest money.
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, financing or appraisal contingencies, 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 earnest money deposit is around 1% of the sales price, but it is negotiable. Personal checks are typical. Generally, the Buyer’s agent’s company holds the funds in traditional sales.
The Purchase and Sale Agreement
Most offers are made on a form that has been agreed upon by the Georgia Association of Realtors (GAR) 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 fill out a counteroffer form. In the old days they would strike out whatever they didn’t agree with and write in their counteroffer, initial and date. Today we mostly use the counteroffer forms and all amendments and exhibits provided by the GAR. There will be a time limits for getting financing, appraisal and inspections. The times can be negotiated. When we make the offer, we can 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.
Many foreclosure sellers, corporate sellers (like relocation), new home builders and some investors have their own contracts. We have a lot of experience with these and can help you navigate those contracts.
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! :)