How to Buy a House in a Million Easy Steps

Okay, perhaps not a million steps--but buying a house is a complicated process, and sometimes it seems like a million steps are involved. The first step is to meet with a lender to get prequalified or, better yet, preapproved (ask your lender about the difference). The next step, I would suggest, is to find a Realtor* to assist you.

What is a Realtor?

Anyone who passes their state's real estate exam becomes a real estate agent, or licensee. A real estate agent is a Realtor only when he or she becomes a member of the National Association of Realtors, the world's largest professional association. The term Realtor is a registered collective membership mark that identifies a real estate professional who is an NAR member and who subscribes to its strict Code of Ethics. Working with a Realtor is your best guarantee of receiving the most professional service.

In any real estate transaction, a Realtor acts much as the general of an army or captain of a ship. He or she will help coordinate the activities of your lender, inspectors, appraisers, the sellers and their agents, title companies and closing companies. You want to make sure you have someone on your side who can manage the complexities of even the simplest transaction.

How do I choose a Realtor?

The best way to find a Realtor to work with is to ask your friends. A personal recommendation provides fair assurance, but no guarantee, that a competent professional will be assisting you. I say it's no guarantee for good reason: while it is essential that you trust and feel completely comfortable with the person you're working with, that obviously can be different from person to person. A Realtor that did a great job for your boss or cousin may just not click with you, and that's fine.

Some Realtors specialize in a particular market niche, so you might ask around for someone who specializes in working with first-time home buyers, or horse properties, or fixer-uppers if that's what you're after.

I recommend that you find at least three Realtors to interview before you hire a Buyer's Agent, if you decide to take that path (see below). Find out what services they offer, see how well they explain the process to you, ask them for the names of previous clients, and, if possible, visit a couple of houses with them, get a feel for how they work. By then you should know whether you trust the person and feel comfortable with them. If not, move on to the next agent.

Should I hire a Buyer's Agent?

Everyone who is selling a house has a Seller's Agent--whether it's a Realtor if they've listed their house, or themselves if it's a "For Sale By Owner" situation. In other words, someone is looking out for the best interests of that seller. The buyer is not always in the same position. If you've been looking at houses, you may be working with a Realtor who does not, in fact, represent your best interests: the Realtor may in fact represent the seller, or she may represent no one, acting strictly as a facilitator (this is a very common situation in some states).

Whether your Realtor represent you or not depends on the agency relationship you've established--you can hire him as a Buyer's Agent, you can work with him as a non-agent (referred to sometimes as a transactional broker), and circumstances can arise leading to Dual Agency or Designated Agency.

A Buyer's Agent is someone you contract with to perform fiduciary duties on your behalf: they can legally advise you, they can negotiate on your behalf, and they owe you certain duties including disclosure and loyalty. Many states require all licensees to explain at first contact with you the various agency relationships, so the subject of Buyer Agency should come up immediately. And here's a good test: can the Realtor you're speaking with explain to you clearly the difference between using a Buyer's Agent, a non-agent or transactional broker, and the implications of Dual Agency or Designated Agency? If not, look elsewhere.

Much has been said on the subject of Buyer Agency, and this is without a doubt one of the most confusing issues you'll run into, but it's an extremely important one. You can certainly check with your state's real estate commission to find out what laws govern Agency in your area, but a good Realtor will be able to explain the advantages and disadvantages clearly.

Finding a House

You have probably been checking the weekend newspaper diligently, driving around looking for yard signs, and leafing through Homes and Land and The Real Estate Book, seeing what's on the market. These are fun ways to look, but they're not the most effective way to conduct your search for the perfect home.

A Realtor will know exactly what properties are available, what fair market values are, and can keep you informed of new listings much more quickly than any of the methods noted above. A good Realtor will check the Multiple Listing Service (MLS) daily to see what's happening in the market, and if he or she knows what you're looking for they can usually get you in to see suitable properties within a day. A Realtor can schedule showings for the properties you ask to see (which can be a real headache), and will sometimes show you houses you think might not be appealing. A buyer's requirements, desires, and tolerances change during the house-hunting process, and good Realtors stayed attuned to buyers' moods and are always looking for unexpected possibilities.

If you are tech-savvy, ask your Realtor about e-mail notification systems. Many MLSs are now equipped with such capabilities, some of the larger agencies have their own systems, and there are also third-party providers such as MLSPulse in New England. These allow you to receive e-mail notifications of new properties or price changes in existing properties in real time (sometimes up to the minute!), matching any search criteria you set, so that you are right on top of the market. Be aware that not all the information available to your Realtor in the MLS will be available to you through these systems--such information as how long a house has been on the market, for example, is generally available only to licensees--but these notification systems can still be a great way to manage your home search yourself.

Making an Offer

When you find just the right place, the moment of truth has arrived! You're ready to make an offer. That phrase, "make an offer," belies the gravity of what you will be doing. You are actually submitting a request that the seller join you in a legally binding contract for the sale of their property; you and the seller will be committing yourselves to perform certain obligations by certain dates, and if those obligations are not met, trouble ensues.

If you have a Buyer's Agent, that agent can assist in making your offer as attractive as possible, helping you adjust such terms as the offer price, the date you want to take possession of the property, how large an earnest money deposit you are willing to provide, whether you want to include any of the seller's personal property in the sale (how about that stainless steel grille?), what kind of inspections you want to have performed, what kind of financing you'll be using, how long you'll need to get that financing in place, etc., etc. All of these are negotiable points to the contract and will make your offer more or less attractive to the seller.

If you do not have a Buyer's Agent, the Realtor you're working with--depending on your state's laws--can neither advise you or negotiate on your behalf at this point. Sometimes you'll be the only bidder, but frequently you'll be in a competitive situation, where the seller has multiple offers to choose from. In this case a Buyer's Agent can be invaluable.

If your offer is accepted, then the fun begins. I hate to sound a note of doom, but there are many, many ways a contract can fall apart and cause inconvenience at best and great loss of time or money at worse, and a good Realtor has probably seen most of them. Remember the analogy to the general or sea captain? Once an offer is accepted and the contract is in force, a Realtor becomes especially important, coordinating all the different strands of the agreement and making sure that all the terms of that contract are fulfilled when they need to be. A Realtor's job is to get you and the seller from contract to closing as smoothly as possible, and if your Realtor has done their job well, you'll be able to savor that wonderful feeling when you're sitting at the closing table, you've signed all the papers, and the closing attorney says, "Congratulations, you're a homeowner!"

*Realtor is a registered trademark of the National Association of Realtors.