The Complete Real Estate Transaction Guide
Whether buying or selling a home, the real estate transaction process can seem overwhelming and confusing. Who are the people involved, and what is each person’s role in the real estate transaction process? What does a real estate transaction actually mean?
A real estate professional will assist with questions and concerns along the way, but knowing who is involved and what to expect will alleviate many potential worries.
What Is a Real Estate Transaction?
A real estate transaction is the process that occurs when a seller offers their home for sale, and a buyer agrees to purchase that property.
There are many steps involved in buying a house, and the steps vary depending on the type of transaction and state regulations. Before the closing can take place, and before the title of the property transfers to the buyer, a multitude of activities and tasks must be completed on time.
The real estate agents involved are primarily responsible for these tasks; however, the buyer and seller must complete their tasks expeditiously.
Who Are the Parties Involved in a Real Estate Transaction?
The following people play a role in the successful closing of a real estate transaction:
- Real Estate Broker
- Real Estate Agent
- Mortgage Lender
- Home Inspector
- Title Company or Lawyer
What Are These Parties’ Role in a Real Estate Transaction?
- The real estate agent or real estate broker works typically for either the seller or buyer during the transaction. On occasion, the agent can work for both the buyer and the seller during the same transaction. Traditionally, the buyer and seller will each have their own agent to help them through the steps associated with transferring real property.
- The seller formally agrees to list his home for sale with a real estate agent and authorizes the agent to market his home to attract buyers and negotiate a satisfactory home sale.
- The buyer usually works with a real estate agent and can be asked to sign an exclusive agreement (called a Buyer-Broker agreement), promising they will work only with that agent. These agents help the buyer negotiate through buying a home and preparing the purchase offer when the buyer finds his perfect home.
- Mortgage lenders assist the buyer with all the paperwork necessary to apply and be approved for a mortgage. It is best to visit the lender before looking at any homes with a real estate agent. The lender will pre-qualify the buyer for the amount of money he is financially qualified to borrow and supply the buyer with a “pre-qualification” letter.
- Home inspection companies are essential when buying a home. The evaluation provided ensures the property is in good condition and up to the code required by the county or state.
- Title company or lawyer. Some states allow title companies to do all the paperwork and close the transaction for the buyer and seller; some require an attorney to close the sale. One of the most critical functions of this group is to search the home’s title and confirm there is a clear title available to transfer to the new buyer. They make sure the seller legally owns the property and can transfer the title. After this process, the title company will issue a Title Insurance policy confirming the clear title. The title company usually requires two to four weeks to complete the title process and prepare all the closing documents. They are also present at closing while the buyer and seller sign all the necessary paperwork.
How Do Real Estate Transactions Work?
The steps of a real estate transaction differ depending on the customers involved; however, they all have a beginning and, if everything goes as planned, they have an end or closing!
- List a home for sale/search for the perfect property: The seller makes his property available for sale, and the buyer searches for his ideal property. The buyer should already have a pre-qualification letter from the lender stating how much money he can borrow to purchase his house, and his down payment should already be in the bank.
- Offers: The buyer has his real estate agent prepare a sales agreement stating price, terms, and timelines that he wishes to offer. The price the property is listed at, called the “listing price” is not necessarily the buyer’s price to pay for the home.
- Negotiation: This is usually the scariest part of the transaction process. The seller has the right to review the offer and then counteroffer with the price and terms he would like to see. Will the buyer agree to a higher price or walk away? Will the seller accept a lower price or decide not to sell to this buyer? The seller can only negotiate with one buyer at a time. Still, there may be multiple offers on the home, and the seller will choose the offer most advantageous to themselves, causing the other buyers to begin the search process again. The “purchase price” is the price agreed upon after negotiations. The final counteroffer’s date is agreed to by both parties is called “the effective date of the contract.”
- The title company or lawyer: The buyer or seller can select the title company or retain separate representation. The buyer pays an initial deposit, usually called “earnest money”, and gives it to the title company who will hold it in their non-interest bearing escrow account until the home’s closing. The person responsible for taking care of this money and having it available at closing is called the escrow officer.
- Appraisal, inspections, and repairs: Now begins the next step of the transaction with all its pitfalls and concerns. The mortgage company wants to make sure the home appraises for the price the buyer wants to pay, so they will send a “third-party” appraiser to do a complete report on the price of the home compared to other similar homes in the area. Home inspections are ordered and completed, and the list of repairs needed is given to the seller. Next is the negotiation between the listing and selling agents, to determine how many discovered repairs the seller is willing to fix and how many the buyer is willing to repair himself. If the seller does not agree to complete the repairs or give a credit to the buyer on the closing costs, the offer can usually be rescinded by the buyer, and the whole process starts over again.
- Contingency Removal: There are many dates involved in the real estate process that must be strictly adhered to. Financing always has a time by which the buyer must secure funds and release the financing contingency. Inspections have contingency dates that require everything to be negotiated by a specific date. Agreed upon repairs must be completed, and receipts given before the transaction can proceed to closing.
- Closing: It is the title company or lawyer’s responsibility to prepare all the closing documents for the buyer and seller to sign to transfer ownership of the property. A title search will be conducted to make sure the owner has the legal right to sell the property, and there are no issues on the title that could hold up closing. The mortgage company will give what is called “a clear to close” that makes everyone breathe a sigh of relief because the buyer’s mortgage is now finalized, and the funds are in place to transfer to the seller. It is necessary to have a notary present to notarize the documents that the buyer and seller are signing. Often, closings are not done in the area the home is located. In this case, the title company sends the documents to the buyer, finds a notary in their area, and sends the signed and notarized paperwork back to the title company. Closings not done in the same area are called a “mail-away” close.
What are the Steps for Closing a Real Estate Transaction?
Because the closing process is undoubtedly an essential part of the real estate transaction for all parties involved, it is good to understand each step in the process:
- Choose the title company or attorney.
- Give the initial deposit to the escrow agent to be retained in the title company escrow account.
- Research homeowner’s insurance and find the best price and terms for the coverage you need. The mortgage company will require proof of insurance before closing.
- Check with the title company to make sure they are issuing title insurance on the clear title.
- Meet the conditions of the mortgage. The mortgage company will give the buyer a list of items that must be completed before they provide the “clear to close”.
- Prepare to move. Don’t forget moving day is coming up, hire movers and start packing early.
- Review the closing disclosure. The title company sent the disclosure before closing and outlines all the closing costs associated with the home purchase. The final amount due from the buyer must be wired to the title company before closing.
- Do the final walk-through of the home. The real estate agent will arrange and accompany the buyer on a walk-through of the house before closing. The walk-through is to verify that all the repairs are done, and the home is in the same condition as it was during the offer period.
- Prepare the documents for closing. Photo identification, preferably a driver’s license, proof of the wire transfer to the title company’s escrow agent, and a checkbook will be required for closing.
- Get the keys! Closing takes place at the title company’s or attorney’s office. If the buyer is obtaining a mortgage, there is a mountain of paperwork to sign. At least an hour should be allowed for this process. After everything is signed and the title company has received the mortgage company’s funds, they will give the buyer the keys, and the home is officially transferred to the buyer.
- Don’t forget if this home purchase is a primary residence, homestead exemption can be claimed on the property taxes in most states. In some states, it is necessary to apply, and some are automatic. This is a significant benefit of homeownership. In a Google search, type homestead exemptions, and your state and you should be directed to the information you need to apply.
- Remember that the new mortgage payment is due each month on the 1st of the month. It will take a few months for the mortgage company to send out monthly coupons. It is a good idea to set up an automatic bank withdrawal each month for the mortgage payment. The worst thing that can happen after closing is missing a mortgage payment.
What Is Required For a Real Estate Transaction?
Many State and Federal guidelines must be adhered to during the real estate process. Both the seller’s and buyer’s real estate agents must follow many procedures set up by the Government to protect buyers and sellers.
There are many steps to remember and complete. In response, many brokers and agents use an itemized checklist with multiple tasks and dates due to remind them to keep the transaction in compliance.
In most states, agents have a fiduciary duty to their client, either the buyer or the seller. Along with loyalty, full disclosure, obedience, due diligence, and accounting, the agent is also responsible for their client’s confidentiality. In states where the agents are Transaction Brokers, they owe all the duties except confidentially and work for either the buyer, the seller, or both in the same transaction.
Real estate brokers are responsible for their agents and their behavior during the transaction. Real estate compliance exists at the local, state, and federal levels and helps protect buyers and sellers by holding brokers accountable to their fiduciary duties.
How Can a Real Estate Transaction be Simplified?
The entire real estate transaction process can be overwhelming and frustrating for all parties involved. There are many rules and regulations, several deadlines, and countless tasks to be accomplished.
Many real estate professionals like to use real estate transaction software. By creating checklists, task lists, and to-dos, they can simplify the procedure and keep all their deadlines on track.
Paperless Pipeline offers the ability to prepare individual checklists that suit the transaction and can be updated with deadlines and critical information that the agent must not forget. Our checklists can also be integrated into calendar systems and email notifications. The broker of the company has access to all the information to confirm that his agents are staying on track and that critical tasks are being completed promptly. This way, the broker can make sure he stays compliant with State and Federal guidelines and protects his clients, the buyers, and sellers.
Real estate agents and brokers can try Paperless Pipeline absolutely free to see how it works and how it will help them simplify this complex process. A live demo can also be scheduled to speed up the learning process and get started quickly. With Paperless Pipeline, no deal will ever get out of hand, and no deadline will be forgotten in any transaction. Peace of mind is only a click away!
Visit Paperless Pipeline here