Purchasing real estate is no trivial task, and for many people buying a home will be the biggest investment they ever make. It is imperative, therefore, that it be done correctly and with the right advice. The KL Team will offer this advice and a full ancillary service at no cost to the Buyer.
In order to focus your thoughts, KL Realty offers you a Buyer Questionnaire which you can have sent to you by clicking here.
Real estate contracts get more complicated every year. Here in Colorado, the Standard Contract is drawn up by a panel of legal experts and the task of the realtor is to fill in the blanks in the main, thereby minimizing the expense of legal counsel. However, a thorough knowledge of local parameters from building codes to well permits is necessary to satisfactorily draw up these contracts, and occasionally it will still be necessary to engage the services of an attorney.
2. The Role of a Buyer Agent (here, in Colorado, known as a Buyer Broker).
A Buyer Agent will represent you, protect your interests and negotiate on your behalf using the training and accumulated skills he or she has acquired. The agent will be able to determine the value of a property, the true number of days it has been marketed and what the dangers and potential pitfalls might be.
3. The Advantages of an Exclusive Buyer Agent
An Exclusive Buyer Agency requires signing a contract for a negotiated period of time, which says little more than that the agent will be your sole representative in identifying and purchasing a property – at no cost to you, the Buyer. With this agreement, the agent is more likely to really work for you, search the market, do the legwork and generally go the extra mile. The Buyer becomes a client, not a customer.
A Buyer Agent will…
· negotiate on your behalf
· provide true facts as to value, the neighborhood and market conditions
· assist with the contract negotiation
· assist with the inspection process
· help with and advise on the loan
4. The Disadvantages of an Exclusive Buyer Agent
Sometimes a personality clash can cause an EBA relationship to sour. The agent may be misreading the Buyer’s intentions or something. In such a case the Buyer should withdraw from the agreement. This is easily accomplished by signing a terminating agreement. It is KL Realty’s policy that if a Buyer becomes dissatisfied, the contract is nullified.
5. Steps in buying a home.
Somewhere in the steps outlined below, you would be advised to engage a Buyer Agent. The agent will be able to assist you with all the steps and probably hasten, and certainly facilitate, the whole process.
a. Figure out how much you can afford.
Speak to a professional — possibly your primary bank first as an institution you can trust — to get all your questions about financing answered. Identify a Lender you want to work with and determine the outline parameters of financing: purchase price, loan amount, interest rate and terms of a loan. Get a Pre-approval letter if possible, but certainly a Pre-qualification letter. Getting pre-approval would qualify you as a cash buyer, but it is more common to make an offer on a property with pre-qualification only since too many unknowns exist at the early stages.
b. Choose the right property profile for you.
It is not uncommon that a Buyer’s perception of needs changes once the searching begins. A great deal of time and effort will be saved if a determination of your short and long term real estate needs are considered. The agent will guide you through the issues.
c. Find a home.
The perfect property that fits the profile under b., above, probably does not exist, so you need to do an extensive search and spend hours looking at available properties. Narrow the possibilities down to a few, then make a rationalized choice, but never be caught wondering what else you may have missed.
d. Attorney or no?
Attorneys are experts at reviewing, interpreting, drawing up and revising contracts, so their participation is always recommended. However, their fees will be to your account and if the transaction is simple, you may wish to forego their involvement.
e. The Offer.
Your agent will help you establish the true value of the property by drawing up a Comparative Market Analysis (CMA) and will advise you with the terms, price and details of the offer. Note that there may well be personal property involved. Personal property would include removable and unattached items like refrigerators, or fencing panels, say. The more comprehensive the offer, the less likely a dispute may arise later. With the offer a sum of money will be deposited in trust as ‘Earnest Money’ to show good faith and will be applied to the purchase or refunded to the Buyer in the event of a failed contract with no prejudice.
f. The Contract to Purchase.
Once both parties agree on the terms, copies of the signed contract will be sent to the Title Company and the Lender in preparation for the loan and transfer of title. Your agent will steer you through all the steps in the process leading to closing, the main ones of which are listed below.
An inspection is part of the buyer’s prerogative and is an important part of the buying process. The purpose of the inspection is to establish that you are not buying a ‘lemon’ with hidden defects and the process can become quite emotional if misconstrued by either party to be an opportunity for financial gain. The agent will be able to steer you through the process.
h. Mortgage Application
The contract will specify a deadline by which time the Lender must furnish the buyer with a commitment or declination. Without due care given to this date, the Earnest Money is at risk if the contract falls through. The Lender will be processing the loan from the time of receipt of a signed contract.
Once the loan commitment is secured the Buyer, having previously checked that cover is available, will need to purchase homeowner’s insurance before the loan can be finalized. With insurance in place, the Lender and Insurance Company will communicate with the Title Company who will receive and distribute the funds and issue new title at closing.
j. Closing and Title Transfer.
A few days before closing a settlement statement will be made available for review. It will lay out all charges, fees and adjustments pertinent to the purchase and can be quite a complex document which the agent can assist in explaining and checking. At the closing itself a mountain of paperwork needs to be signed. These involve disclosures and transfer documents all required by law, before the keys can be handed over. As a Buyer you will need to bring two forms of identification and a certified or bank check for any additional funds, unless a prior wire transfer has been made.
6. Things you should know
Definitions. (These are not rigorous definitions, but are meant to assist with your understanding of terms you are likely to encounter).
· Buyer’s Broker (in Colorado) or Buyer’s Agent (some other states)
An agent or agency (depending on the office structure) working on behalf of the Buyer.
· Selling Agent (or Broker)
The agent who is responsible for bringing the buyer. Yes, it is a bit confusing, since this person is probably the Buyer’s agent!
· Listing Agent
The agent who has the property listed for sale, and whose sign would be advertising it.
· Transaction Broker
Sometimes a Listing Agent also brings the Buyer. Under these circumstances the agent becomes a Transaction Agent and his or her duties are to mediate the contract, not to solely represent either party.
An appraisal is an opinion of value given by a licensed professional, most often for mortgage valuations.
A Comparative Market Analysis is an opinion of current market value of a property based upon comparable properties, and is not necessarily undertaken by a Licensed Appraiser, and is never used for mortgage valuations. The current trend is to use the term Broker Price Opinion instead of Comparative Market Analysis, but the terms can be considered interchangeable
· ILC (Improvement Location Certificate)
ILC’s are used to locate the improvements on a parcel of property. Typically mortgage or title companies require them for the buying and selling of homes. An ILC shows the size and shape of a parcel of land according to the description provided in the deed, and the easements and encroachments found within the parcel being surveyed.
· ALTA Survey
An Alta survey is a boundary survey showing improvements, easements, rights-of-way, and other elements impacting the ownership of land. A current title commitment is required before an ALTA Survey can be completed. The surveyor will refer to the title commitment for the legal description of the property and for the legal description of any encumbrances. An ALTA survey is more likely to be required in transactions of large rural and commercial properties.
· Title Insurance
Title insurance is indemnity insurance against financial loss from defects in title to real property and from the invalidity or unenforceability of mortgage liens. Title insurance is principally a product developed and sold in the United States as a result of the comparative deficiency of the US land records laws. It is meant to protect an owner’s or lender’s financial interest in real property against loss due to title defects, liens or other matters.
· Closing Costs
As a Buyer, at closing you can expect to pay for the items listed below. Your Agent should be able to give you an estimate of approximate charges early in your search, and an accurate figure will be available a few days before a normally-scheduled closing. The balance of the down payment less earnest money amount already paid On the Loan (these vary from lender to lender)
· Tax reserve
· Interest (on the loan pending the first scheduled payment)
· A tax service fee
· Homeowner’s Insurance (flood hazard insurance may also be necessary)
· Lenders processing fee
· Underwriting fee
· Cost of appraisal
· To the Title Company
· Mortgage Title Premium
· Closing fee (normally split between Buyer and Seller)
· Common Endorsements
· Courier fees
· State documentary fee
· Recording fees
· Recording the Deed of Trust
· Recording the Warranty Deed
· Homeowner’s Association adjustments (if any)
· Water and Sewer adjustments and transfer charges (if any)
· Building Restrictions
Boulder County and possibly Boulder City are currently in the throes of revising the building code. This will have a significant impact on what may be allowed in terms of style, height restrictions, size and energy efficiency. Buyers would be well advised to ensure they are familiar with the current regulations.
· Septic Systems
Boulder County is in the process of ensuring all septic systems are permitted and up to current, or acceptable standards. A sale or building permit will now trigger a check on the system’s permit status, so it is advisable to check with your agent, who will be versed in the requirements, with the implications as they may affect you, the Buyer.
7. Points to ponder
· The true total number of days a property has been listed may not be apparent from a quick glance at the MLS listings, but its MLS history is available to an agent.
· Using a professional Realtor is like using an accountant for your tax returns: not essential but a great deal easier and probably more effective.
· A CMA is a service your agent will provide you to determine the current market value of a property.
· Your Exclusive Buyer Broker may have some “pocket listings” ( properties he or she knows may be available but are not publicly advertized for sale. The would be inclined to only disclose these to their clients.
· As a Buyer, you normally would not be financially prejudiced by engaging the services of a Buyer Broker. All commissions are normally paid by the Seller.
· KL Realty offers the services of a team. The advantages to the buyer are:
- The collective input of each member. We have a broad skill set including MBA’s, a registered appraiser, an engineer and long-service realtors.
- A Buyer always has access to a team member stationed locally. Vacation breaks need not frustrate a deal or even a showing.