Meet the Cast of Characters in a Home Sale
Q: My husband and I are in the market for our first house. We think this is a good time to buy, especially when mortgage interest rates are still quite comfortable. We know that once we find a house we like, we have to enter into a contract with the seller. Who prepares this contract? What kinds of real estate professionals should we work with, and when do we get them involved in the transaction?
A: Those are excellent questions. Often, those of us in the real estate business tend to forget that many people -- especially first-time home buyers -- have no real understanding of the process.
A number of players are involved in residential real estate, each of whom has different functions. Let's look at this cast of characters:
If you are buying with a friend or domestic partner, there are two ways to take title: joint tenants or tenants in common. You should discuss your personal situation with your lawyer to determine the best route.
This sounds complex, and for the novice it is confusing and often intimidating. But the various real estate professionals listed above can be helpful. You have to keep in mind, however, that with the exception of an attorney specifically retained by the buyer, most of the other players have one objective: Make the sale and get the commission.
You have asked when you should consider hiring a professional. Here are my suggestions.
You should first contact a mortgage lender and determine how much you can comfortably borrow. You don't want to find your "dream house," only to learn after the fact that you cannot qualify for a loan on that house. Many lenders will give you what is known as a "comfort letter" -- a statement that you are qualified to purchase a house up to a certain amount. I caution you not to show that letter to anyone (other than perhaps your attorney) until after you have signed a sales contract.
Why? Let us assume that the comfort letter says you can qualify for a purchase of up to $500,000. Why provide that to a seller? If the seller knows you can qualify up to that amount, your chances of negotiating a lower price are significantly reduced.
Next, look around and find the house you like. If you want to hire a "buyer's broker," that is your choice. But make sure that the agreement you sign with that broker does not obligate you to pay him or her; should you sign a contract, the seller will pay the buyer's broker, through a split of the commission with the listing broker. Additionally, I strongly recommend that your buyer's broker/agent not be with the real estate company that has the listing from the seller. Although this practice is legal, the possibility of a conflict is just too great, so why take that chance?
You have now located the house you want to buy. Your broker/agent (or the seller's broker, if you are not represented) will prepare a sales contract for you to sign. That's when you should retain an attorney to review the contract. The attorney will assist you in understanding the contract terms, as well as include protections for you. For example, is the contract contingent on your obtaining a satisfactory home inspection from an inspector of your choice? Is the contract contingent on the house appraising at the contract price? In today's market, the appraisal ordered by your lender may be lower than the contract price, and you may have to come up with more money to go to closing.
The process takes time, patience and knowledge. A good professional can smooth the path toward a successful purchase.
Benny L. Kass is a Washington lawyer. For a free copy of the booklet "A Guide to Settlement on Your New Home," send a self-addressed stamped envelope to Benny L. Kass, 1050 17th St. NW, Suite 1100, Washington, D.C. 20036. Readers may also send questions to him at that address or contact him through his Web site, http:/