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The Real Estate Process: Here’s a Fresh Look!

The Real estate process is complex for a variety of reasons. Learn about property prices and trends, home buying and selling.

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real estate process

A Comprehensive Look At The Real Estate Process From Beginning To End

The Real estate process is complex for a variety of reasons. First, it can be a time-consuming experience. Buying and selling real estate can involve a lot of paperwork and it can take a while to finalize.

If you’re not careful, you could end up losing money, wasting your time, and even end up with a bad deal. Most people are not familiar with all of the documents that need to be filed in order to close on a property.

That’s why it’s important to understand the real estate transaction process, so you can make sure you’re getting the best deal possible. This guide has broken down the processes in a real estate transaction into its basic components so that way people can better understand who is involved during each step of buying or selling a property.

How Does The Real Estate Process Work?

the real estate process in Miami

Real estate transactions require a lot of planning. The first step is understanding the type of property you wish to sell or buy. This includes understanding the neighborhood’s driving forces and understanding the market’s demand for the property.

The second part involves marketing, pricing, and negotiating the right offer. Pricing and negotiation could be one of the most time-consuming parts of the transaction process, and many sellers feel that it is the least fun to be involved in.

During negotiations, the seller has the right to review the offer and then counteroffer with the price and terms he/she would like to see. The buyer and seller work together to determine an appropriate sales price.

Then, there are the intricacies of a real estate transaction. Intricacies in a real estate deal may require that you ask yourself a number of questions such as:

  • Who are the people involved in real estate transaction processes?
  • Should I consult with an attorney or use a title company?
  • What is the lowest price that I will sell my home for?
  • What are the right contracts to use to sell my home or to purchase a property?

No matter what type of property you’re buying or selling, there are certain things you need to know.

Who is involved in a traditional real estate process?

The real estate process for buying a home.

There are many individuals involved in a traditional real estate transaction. This includes the listing agent, the buyer’s agent, the seller, the buyer, the lender or mortgage company, appraisers, inspectors, a title company, and attorneys.

In real estate, it is crucial that all parties involved work together to complete the transaction. The seller must be willing to list their property, the buyer must be willing to purchase, and the lender must loan the money to finance the sale.

The Listing Agent:

The listing agent represents the seller of the property. Listing agents are responsible for the initial marketing of the property, as well as providing updates to the listing on listing syndication websites. The listing agent’s main goal is to get the property sold, which requires that they facilitate negotiations between the buyer and seller to come to an agreement.

The Buyer’s Agent:

The buyer’s agent represents the buyer. Many buyer agents are responsible for finding a property that meets the buyer’s needs while ensuring that the buyer’s expectations are met. The buyer’s agent works with the buyer to come to an agreement and provides updates to the buyer on what comparable properties are selling for, yielding the buyer a reasonable deal.

Real Estate Teams:

A real estate team is generally made up of listing agents, buyer agents, and a transaction manager. The real estate team is responsible for making sure that the transaction goes smoothly and that the home is sold for the highest price. Real estate teams tour properties to keep informed when consulting clients about the industry’s dynamics.

The Seller:

The seller prepares the home for sale by doing things like cleaning the house, organizing the rooms, and making sure the property is well-maintained.

The seller may include a number of pictures of the property as well as a video tour.

The seller will list the home for sale at a price that he/she thinks will get the best possible return. They will also set a minimum price that will be considered and a maximum price that will be accepted.

The Buyer:

The buyer is the person that buys the house. The buyer will usually engage agents to help preview properties that meet the buyer’s needs and desired location. Once the buyer has decided on a specific set of properties, the cooperating agent will communicate with the listing agent to make sure the home is ready to be seen and to coordinate a time to show.

If the buyer is interested in buying a home, the buyer and the agent will draft an offer that sets out the price that the buyer is willing to pay and any special conditions that the buyer will agree to.

If an offer is accepted, the buyer may be required to deposit a certain amount of money into an escrow account, called earnest money. This is to act as a guarantee that the person buying or selling the property will actually go through with the sale.

Technology:

Technology has a significant impact on the real estate market by making it easier for people to find and purchase homes. Technology also allows people to see homes that are available for sale even if they are not located in the area that they are looking for. As the role of tech evolves in the real estate process, we may begin to see a shift towards blockchain real estate, including the management and verification of property ownership.

What happens after signing a purchase agreement?

Upon the execution of a purchase contract, buyers and sellers become legally bound. This means that all terms and conditions must be met or else legal consequences will ensue.

If the buyer is financing a property, the contract will be sent to the lender for review and loan approval.

How Does Mortgage Lending Work?

the real estate process mortgage lending

The Lender or Mortgage Company:

Once a purchase contract has been signed, a lender or mortgage company will begin its underwriting process. Underwriting a loan means that a lender does a check on a potential customer to ensure that he or she is qualified to borrow money for the specific property that they want to purchase.

Lenders or mortgage companies will usually have a list of home loan products that they can offer to their customers. These products include loans that can either be secured or unsecured. Some of these products are often referred to as fixed-rate mortgages and variable-rate mortgages.

In order to make sure the borrower is properly equipped with the money they need to pay off their debts, it’s important to know some of the key differences.

Mortgage Underwriting Process:

The purpose of the underwriting process is to determine the borrower’s ability to repay the loan and to determine what sort of credit risk a person may pose if the loan were to default.

Borrowers must pass a series of steps to be considered for a loan. Each step in the process must be satisfied before the next step can be considered. This process can take several weeks or months.

Steps in the Mortgage Underwriting Process Include:

  1. Mortgage Application
  2. Mortgage Underwriting and Review Process
  3. Appraisal of The Subject Property
  4. Protecting the Property
  5. Mortgage Decision

1. Mortgage Application:

The first step in the underwriting process is the mortgage application. The mortgage application is the process of submitting information about the borrower’s financial situation to a lender or mortgage company. According to Investopedia, a lender or mortgage company will want to know the borrower’s income, debt level, borrower’s credit score, and repayment history.

The applicant’s employment history and future work plans will also be taken into account.

2. Mortgage Underwriting Review Process:

After a lender receives a borrower’s mortgage application, it’ll be processed as quickly as possible. The process involves initiating a packet of documents for the borrower. These documents include information about the type of loan product offered, a statement of the terms and conditions of the loan, an estimated itemized statement of the closing costs, a list of the documents required to close the loan, and a credit report. Common types of home loan products include:

Fixed-rate mortgages:

Fixed-rate mortgages are those loans that have a fixed interest rate for the entire term of the loan. They are the most common type of home loan and are generally the least expensive type of loan.

Fixed-rate mortgages are typically used for borrowers who plan to live in their homes for a long period of time.

Variable-rate mortgages:

Variable-rate mortgages are loans that have a variable interest rate. They are the second most common type of home loan and are generally more expensive than fixed-rate mortgages.

Variable-rate mortgages are loans that have an interest rate that can change during the term of the loan. The interest rate will not be locked in at a fixed rate, and the interest rate can go up or down during the duration of this product.

Variable-rate mortgages are typically used for borrowers who plan to live in their homes for a short period of time.

Hybrid mortgages:

Hybrid mortgages are a combination of fixed and variable rates.

Hybrid mortgages have a fixed interest rate that applies for a certain period of time. This is followed by a variable interest rate that applies for the remainder of the loan.

Some of the terms of a hybrid mortgage may include:

  • The length of the fixed rate
  • The length of the variable rate
  • The initial interest rate
  • The interest rate at which the variable rate starts
  • The interest rate at which the variable rate ends

3. Appraisal of the Subject Property:

The lender or mortgage company will want to know about the property’s location, size, age, construction, and whether any problems exist with its valuation. To do so, the lender will contract a licensed appraiser to produce a valuation report on the subject property.

4. Protecting the Property:

A lender will want to make sure that they have the legal right to foreclose on the property and that they are protected if a borrower defaults on a loan.

A lender may require that the buyer consults with an insurance agent. Title insurance is designed to protect the lender and buyer from any financial losses or legal issues that might arise from title defects.

Mortgage insurance is typically required for borrowers making a down payment of less than 20% of the purchase price of the home. It’s also often required on FHA and USDA loans. The purpose of mortgage insurance is to lower the risks for lenders making loans to borrowers who might not otherwise be able to qualify for a loan they want.

After deciding on what product to go with, the lender or mortgage company will proceed to a loan decision.

5. Mortgage Decision:

The mortgage decision is the final stage of the mortgage underwriting process.

In this stage, the lender will make a decision on whether or not to approve the loan. If the loan is approved, the lender will send the borrower a loan commitment letter informing them of the approval. The letter will include the amount of the loan, the interest rate, and any other terms of the loan.

If the loan is not approved, the lender or mortgage company will notify the borrower of the reasons why the loan was not approved.

What Do Appraisers Look For in Valuing Real Estate?

real estate process - appraising a home

Real Estate Appraisers:

When a buyer is financing real property, the mortgage company would like to make sure the home appraises for the price the buyer wants to pay. This is usually accomplished by the mortgage company contracting an appraisal company to assess the value of the property and to produce a complete report.

An appraiser is an expert in the valuation of a property. The most common valuation method is the sales comparison approach, which relies on the average value of comparable properties. The income approach relies on a property’s estimated annual earnings to determine the property’s value.

The appraiser’s job is to provide the lender with an estimate of the property’s current value by looking at comparable nearby properties in the market. The appraiser is not there to help you decide if you should buy the property. Instead, they are there to give you an objective, reliable opinion of the property’s value.

A good appraiser can explain their findings in a way that lenders and mortgage companies understand. After an appraisal is complete, the lender will provide the buyer with a written report that includes the appraised value of the property. The appraisal report will inform the buyer of any variations relating to the value of the property and the buyer’s purchase offer. Lenders will then use the information in this appraisal report to make decisions on what value to lend.

What Do Home Inspectors Look For?

inspecting a home during the real estate process

Property Inspectors:

Before a home can be purchased, a home inspector will need to be hired to assess the condition of the property.

A home inspector is a professional who inspects a property to make sure that the property is safe and that it is in good condition. A home inspector will look at the property from the outside and will check windows, foundation, electrical, plumbing, heating, and cooling systems, the roof, and the roof structure.

Home inspectors will inspect the exterior of the house to see if it’s in any kind of distress.

After the inspection is complete, the inspector will produce a report informing the buyer if the property is safe and in good condition. The inspector will also make recommendations on any problems that need to be considered or repaired.

If a repair is needed, negotiations should occur between the buyer and the seller. The buyer may choose to request that the seller make the repairs or ask for a contribution towards the costs.

If the seller refuses to make any required repairs, the transaction may void.

If the agreed-upon repairs are completed, and receipts have been granted, the transaction can proceed to close.

What Does A Title Company Do?

Title agents can be described as an intermediary between the buyer and the seller of real estate. The title company will check to make sure that the seller is the rightful owner of the property. They verify that the property is clear of liens or other problems before signing off on the transaction. This helps the parties feel more confident with their purchase.

They will do so by analyzing if the seller has not had any liens placed on the property and by checking public records. If a lien or title defects are found, the title company will advise that any liens are paid off or that title defects are resolved.

What Does An Escrow Attorney Do?

An escrow attorney will keep the process moving along. They’ll also act as an intermediary between the buyer and the seller, making sure all agreements are in order and that the property transfers smoothly.

Escrow attorneys serve as neutral parties to the transaction and will be able to resolve any problems that may arise. They can also make sure that the buyer and the seller are aware of any liens or problems that need to be cleared up before the transaction can be finalized.

Generally, the buyer’s attorney will act as an escrow attorney.

Which is better: Using A Title Company or An Escrow Attorney?

Title agents and escrow attorneys will be able to manage similar transactions. They will be able to keep transaction processes moving forward, ensure that the seller is the rightful owner of the property and that any problems with title or deeds are resolved.

Deciding who to use may vary on the type of transaction and the type of property that you are purchasing. For example, if you are buying a home that has a title problem, an escrow attorney may be able to help you to get the property transferred.

Similarly, a title company will be able to provide you with a clear title report, so if you’re buying a home that doesn’t have any issues such as unpaid taxes, liens, or mortgage issues, you can probably use them.

What Are The Steps For Closing A Real Estate Transaction?

Closing:

It is the responsibility of a title company or a lawyer to prepare all closing documents on behalf of the buyer and seller to ensure a smooth closing and transfer of ownership.

As mentioned previously, a title search will be conducted to make sure the owner has the legal right to sell the property, and that there are no issues on the title that could restrict 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. It is when the issuance of a mortgage is in order, the financing period is complete, and the funds are in place to transfer to the seller.

Sometimes, a closing may take place in a different area from where the home is located. This makes it difficult to have a notary come to the home. In this case, a title company sends the documents to the buyer, who then finds a notary in the buyer’s area, and returns the signed and notarized paperwork to the title company.

As the closing process is undeniably an essential part of the real estate transaction for all parties involved, it is wise to know every step in the closing process.

Steps in the Real Estate Closing Process:

  1. Receive a Clear to Close
  2. Pay Closing Costs
  3. The seller receives the funds, the buyer receives the keys, and the title company/attorney files all necessary paperwork to the appropriate jurisdiction for recording.

Clear to Close:

When the buyer receives a “clear to close”, the buyer then proceeds to conduct a final walk-through. During this walk-through, the buyer can inspect that the negotiated repairs or work were completed and the seller remained true about the condition of the house.

If all of the necessary repairs have been completed, the buyer and seller will sign a final closing statement. This document will contain the sales agreement, the mortgage contract, and any other documents that are required for the closing. The buyer and seller will sign this document in the presence of a notary public.

Who Pays For Closing Costs?

Closing costs may be negotiated throughout the transaction between the buyer and the seller. Closing costs can make up about 3 – 6% of the price of the home.

It is customary that the seller pays for the following at closing:

  • Seller attorney fees
  • Documentary stamp tax, transfer taxes, or recording fees
  • Potential fees for HOA
  • Title insurance
  • Credits towards closing costs (if any)
  • Escrow money promised to the buyer (if any)
  • Real Estate Agents commission
  • Prorated property taxes

Closing costs that buyers may expect to pay:

  • Lenders Application, origination, or discount points fees
  • Mortgage insurance fees (if submitting less than 20% down)
  • Buyer attorney fees (if any)
  • Title search, lenders title insurance, owner’s title insurance

How long after the closing date will the seller receive the money?

After closing costs are paid, the mortgage company releases the funds to the seller, and the buyer receives the keys to his or her new property.

Disbursements of funds may be available right away or within a few days depending on the transfer method used (e.g. wire transfer, ACH, etc.).

The final step to closing a transaction is for the title company or escrow attorney to file all necessary documents with the appropriate jurisdictions for recording.

Tying It All Together

It’s important to understand that the entire process of buying and selling a property is not a simple transaction. It is a complex process that involves legal, financial, and emotional aspects. And this complexity is compounded when there are non-traditional elements added to the transaction or asset class such as when a buyer is purchasing a property from a seller who is facing foreclosure.

Homeowners may opt to sell on their own or simply work with real estate agents, title agents, escrow attorneys, and other intermediaries to help facilitate the process.

Both the buyer and the seller need to be aware of the pitfalls that are associated with the entire real estate transaction process and make sure that a solid plan of action has been formulated to ensure that the transaction goes smoothly.

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Real Estate

Affordable Housing: HUD and NAR to Tackle Crisis in America

HUD’s “Our Way Home” expects to advocate for zoning changes, and host roundtables to engage local and state officials to provide affordable housing solutions.

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Affordable Housing Crisis in America

The U.S. Department of Housing and Urban Development (HUD) has announced a new program designed to boost affordable housing and help the nation’s housing supply shortage.

The goal of HUD’s program is to increase the U.S. housing supply by aiding local communities in the growth and affordability of housing in their area, including rentals and homeownership. HUD’s “Our Way Home” expects to include several initiatives, like advocating for zoning changes, and holding roundtables to engage local and state officials to provide solutions.

The National Association of Realtors® (NAR) welcomed HUD’s announcement to combat the housing supply challenge.

“As NAR has long recognized, a collaborative approach that involves local partners is critical to building strong, thriving, and inclusive communities,” NAR President Leslie Rouda Smith said in a statement about HUD’s new initiative.

“‘Our Way Home’ promises to not only provide tools and resources necessary to address the supply shortages plaguing the country, but it will also improve vital HUD programs based on feedback gained through this effort.”

One of the largest Pandemics in history has led to a boom in housing. An estimated 80,000 homes worth $50 billion were purchased by institutional buyers in the fourth quarter of 2021, according to Redfin. Moreover, families are facing tougher competition from buyers who have a lot of cash and are securing single-family homes, converting them into rental properties.

With record-high home prices and ultra-low inventories, homeownership has become increasingly difficult to achieve, NAR citing that Americans of color and first-generation home buyers are affected the most. The U.S. will likely take over a decade to resolve a housing shortfall of over 5 million units.

In efforts to circumvent disadvantages among traditional homebuyers, NAR proposes to support increased allocations to foster new home construction, expanded financing opportunities, and tax incentives for investors to convert unused commercial spaces into residential units.

“The shortage of affordable housing has been growing for decades – but this is a solvable crisis,” says HUD Secretary Marcia L. Fudge.

“Across the country, we are seeing many communities ending exclusionary zoning, building affordable housing in communities that previously did not allow it. We are seeing communities use innovative building models and materials, and design homes that are sustainable and resilient. And we’re seeing communities tackle homelessness by building permanent affordable housing with services. These are the types of community wins that we want to elevate with ‘Our Way Home’ and encourage others to follow.”

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Real Estate

The Housing Market Is Cooling: Should Sellers Worry?

Signs that the housing market is cooling. Lumber costs, new and existing home sales, are all plummeting. Inventory is increasing, and homes are sitting.

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The housing market has been on a steady rise since bottoming out in 2008. Since the beginning of the pandemic, record surges in home prices have prompted many economists to calculate the imminence of a housing bubble. With real estate prices growing at a rate of four times the national average income, experts are now warning that the housing market is cooling.

A Housing Bubble?

Real estate bubbles occur when demand greatly outstrips supply, resulting in an escalation of home prices, according to Rocket Mortgage.  In like-markets, buyers are often forced to settle for limited overvalued properties.

By historical comparison, overvalued homes have a large effect on the housing market. In the past decade, the price of real estate increased steadily. Recently, workers were required to stay and work from home, indirectly affecting the valuation of properties during the Pandemic. In some places, like Miami and Austin, home values have surged so greatly that it has outpaced the national average.

In April, Realtor.com reported a slow down in housing demand. The real estate internet company realized an increase in inventory, citing that more homes have sold in 4 of the 5 weeks that ended that month.

What Does the Data Show?

CoreLogic, a real estate data firm, assessed that 67.9 percent of 392 U.S. regional housing markets were overvalued. With housing price reductions hitting several markets, the company now reports that only 24.5 percent of U.S. housing markets are normal and 7.6 percent are undervalued.

Among the 392 regional housing markets measured, CoreLogic has found only four markets to have a “very high” likelihood of a price drop: Bend, Oregon; Prescott, Arizona; Lake Havasu City, Arizona; and Bridgeport, Connecticut.

Opposing CoreLogic’s analysis, Moody’s Analytics believes that 96 percent of the 392 regional housing markets are “juiced-up,” stating the markets that are most likely to see price drops include: Markets in Colorado such as Colorado Springs, Fort Collins, Greeley, and Denver; Boise, Idaho Falls, and Coeur d’Alene, Idaho, Las Vegas; Jacksonville, Tampa, and Lakeland, Florida; Atlanta; Sherman, Texas; Longview, Washington; Charleston, South Carolina; Albany, New York; Clarksville, Tennesee.; Greensboro and Charlotte North Carolina.

In May, the average household income in the U.S. was $87,864, according to data by Zippia. Mortgage rates have been hovering at 5 percent compared to its 3 percent average rate in January.

Lumber costs, new home sales, existing home sales, and mortgage applications are all plummeting. Inventory is increasing, while homes sit in the market much longer, all indicative that the housing market is cooling.

The Housing Market is Cooling – Should Homeowners worry?

Naturally, the answer is no. However, a slow down in housing demand does indicate that home prices may not continue to rise at the same pace as they did since the pandemic. Additionally, while home prices are falling, there are still many areas that are undervalued.

Homeownership is a popular choice for many Americans. And although U.S. home prices have become more expensive than the average household income, experts suggest that the market will grow by another 5.9 percent over the next 12 months.

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Real Estate

Wall Street Investors: A Threat To The Housing Market?

Wall Street investors mobilize into the single-family housing sector, driving up the price of real estate. Thinking outside the box may help buyers compete.

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Wall Street Investors Snatch Up Real Estate in Bulk

The home-buying market is getting more competitive as Wall Street investors mobilize into the single-family housing sector, driving up the price of real estate.

Research by the National Association of Realtors indicated that institutional buyers accounted for 15 percent of residential home purchases in 2021. Texas had the highest fraction of purchases with a market share of 28 percent, followed by Georgia at 19 percent.

Moreover, eighty-four percent of states have seen an increase in the number of investors buying residential homes from 2020 to 2021, including Mississippi, Colorado, and Florida.

As families look to buy new homes, they’re facing tougher competition from buyers who have a lot of cash and are securing single-family homes to make them rental properties.

An estimated 80,000 homes worth $50 billion were purchased by institutional buyers in the fourth quarter of 2021, according to the latest data released by Redfin. Homes in the mid-priced range have gained popularity with investors, representing 32.3 percent of their purchases in the fourth quarter, up from 24.1 percent a year earlier.

Wall Street Investors Buy Real Estate in Large Quantities

While rental-ready opportunities garner the interest of investors, there are a number of other factors that attract deep pockets to a specific real estate market.

Markets yielding a 40 percent appreciation in the last decade and an average of 12 percent in sales activity are highly considered. Additionally, investors are attracted to markets where rents have increased more than 30 percent on average in the past decade and where households earn more than $60,000 annually.

Buyers are battling multiple offers as institutional investors storm through the competition.

Yesterday, U.S. Senators Elizabeth Warren (D-Mass.) and Jack Reed (D-R.I.), sent a letter to the Secretary of the Department of Housing and Urban Development (HUD), calling to preserve homeownership affordability for American families as Wall Street firms expand their activity in the housing market.

According to the letter, the market conditions are favorable for large investors. More than 75 percent of investor home purchases were paid with cash. Senators Warren and Reed suggest that:

“These investment activities will make home ownership less available and affordable for American families and jeopardize HUD’s ability to meet its mission “to create strong, sustainable, inclusive communities and quality affordable homes for all.”

Families are increasingly feeling the impact of rising housing costs and a lack of inventory, even as our market begins to swift.

There were more homes for sale in 4 of the 5 weeks that ended in April, according to Realtor.com. Experts say that as inventory increases, thinking outside the box may help buyers stay competitive.

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