If you’re looking to buy or sell a home in today’s market, who you work with is crucial. This is true, especially if you’re new to the market and need clarification about how a real estate transaction works, what happens, and in what order to close.
Hi, I am Krista Mashore with eXp Realty and Homes by Krista, and I’ve sold hundreds of homes over the years, so let’s use that expertise to help you understand how real estate transactions work, what needs to be done, by whom, and when in order for the transaction to be successful.
The first thing to understand is that a transaction involves two parties, the buyer and the seller. Often one, or both, of these parties will work with a real estate professional to help them negotiate the contracts and get the best transaction deal.
The client hires the agent to represent the client’s best interests. The agent may only operate with instructions from the client and is required to do what’s best for the client.
In some instances, an agent may represent both the buyer’s and seller’s interests, which is called dual agency. In most cases, working under a dual agency is not recommended since representing both competing parties can be tricky.
That’s because real estate agents act as fiduciaries, which requires the agent to work in their client’s best interest and at the client’s direction.
Now that you understand the parties and their agents’ roles in the transaction let’s dive a little deeper.
Definition of Real Estate Transaction
If you’re curious about how a real estate transaction works, it can sometimes be smooth and straightforward, and other times may be challenging and complex.
By definition, though, a real estate transaction refers to the process of buying or selling a property.
This involves a series of steps taken by various professionals in the real estate industry to help finalize the deal.
The process begins with identifying the property and suitable buyers or sellers, listing the property for sale or purchase, and negotiating the terms and conditions, such as the sales price, earnest money, and contingencies.
Real estate agents, brokers, and attorneys guide buyers and sellers through the process to ensure that all legal and financial requirements are met.
Once a purchase agreement has been signed, the transaction moves on to the closing process, which involves a series of inspections, mortgage company approvals, and title searches to verify ownership and the absence of liens and encumbrances on the property.
This is a critical step in ensuring the smooth transfer of ownership from the seller to the buyer.
The final step is the closing, where all parties sign legal documents, funds are transferred, and the property’s ownership is officially transferred to the buyer. A title insurance policy is typically issued to protect the buyer from any legal claims or disputes involving the property.
A successful real estate transaction requires a team of real estate professionals, including real estate agents, attorneys, title companies, and mortgage lenders, to ensure that all legal, financial, and contractual obligations are met promptly and efficiently.
Now that you have a grasp on the process let’s dive into it a little more and help you grasp the importance of working with real estate professionals.
Overview of the Real Estate Transaction Process
A real estate transaction involves buying or selling a piece of property.
The process starts with finding a buyer or a seller and can take several months to complete.
There are three parties involved in most real estate deals, the buyer, the seller, their agents and brokers, and the third is the escrow company.
An escrow company is a third party to the deal; they hold onto all funds until instructed by either party to return or release them.
Real estate transactions involve several legal and financial requirements, so working with trusted real estate professionals is essential.
For buyers, this can include hiring a real estate agent to help search for properties that match their preferences and budget. They can also help negotiate purchase agreements and mortgage loans.
Real estate professionals can help sellers price their property correctly, market it to potential buyers, and negotiate offers.
The right agent will find you an offer or place a competitive bid that gives you a great chance of acceptance.
Once an offer is accepted, negotiations around the terms and counteroffers are customary, so who you work with matters.
Negotiating the Price and Terms of Sale
Negotiating the price and terms of sale is a crucial step in any real estate transaction.
The process involves the buyer and the seller discussing and agreeing upon the purchase price and other sale details.
Inspection reports and repairs, current market conditions, and financing options are some of the factors that can influence the negotiation process.
Inspection reports can reveal any potential issues with the property, such as structural problems or pest infestations, which can affect the property’s value.
Repairs required due to the inspection report can also be negotiated between the buyer and seller.
Current market conditions, such as high property demand, can also impact the negotiation process.
Finally, the buyer’s financing options can influence their ability to negotiate, as they may have to consider their budget and the cost of obtaining a mortgage.
Effective communication is vital to a successful negotiation process. Both parties should clearly state their objectives and concerns and be open to compromise.
Real estate professionals, such as agents or attorneys, can assist in the negotiation process by guiding the legal and financial aspects of the transaction.
Negotiating the price and terms of sale requires careful consideration of the various factors that can affect the process. With effective communication and the proper guidance, the buyer and seller can reach a mutually beneficial agreement.
Once a buyer and seller agree on a sales price, they enter into a purchase agreement outlining the transaction details.
Conducting proper due diligence, including a title search, property survey, and inspections for pests and other issues, is essential. The buyer will often need to secure financing from a mortgage lender.
During the escrow period, the buyer will submit an earnest money deposit, and the seller will provide disclosures about the property.
The title company will conduct a title search and issue a title commitment and title insurance policy. The mortgage company will provide a Good Faith Estimate and a Truth in Lending Statement.
The buyer and seller will sign closing documents and transfer property ownership at closing. Real estate transactions involve many steps and legal documents, so working with experienced real estate professionals is crucial.
Types of Real Estate Professionals
Now that you know how complex a real estate transaction may be, you need to understand all the roles people play in your deal.
A successful real estate transaction involves several professionals with unique roles and expertise.
Real estate agents assist buyers and sellers in finding and listing properties, respectively. They guide their clients through negotiations and offer important knowledge of market conditions.
Real estate attorneys review and prepare legal documents, contracts, and agreements to ensure the transaction is legally sound and provide legal advice.
Title companies conduct a title search to verify the property’s ownership history and guarantee its legal transfer to the potential buyer. They offer title insurance policies that protect the buyer and lender from any title defects.
Mortgage lenders provide financing and lend funds to the buyer to purchase the property. They assist with mortgage loans and offer a Good Faith Estimate outlining the closing costs and monthly mortgage payments.
Escrow officers serve as neutral third party in the transaction. They ensure that all contract terms are met and thoroughly review any contingencies. They also collect and distribute funds, including the earnest deposit and closing costs.
These professionals work collaboratively to ensure a successful transaction. Clear communication and coordination between them are essential to avoid delays and ensure a seamless transaction.
How to Find the Right Agent
Having the right agent by your side is essential when embarking on a real estate transaction. Here are some steps to follow when looking for the right real estate agent.
- Begin by using trusted resources: Start by researching local agents in your area using trusted resources such as real estate websites, the National Association of Realtors, or state-specific associations. These resources list licensed and experienced real estate agents in your area.
- Compare your options: Once you have a list of potential agents, take the time to compare their experience, services, and fees. This helps narrow your choices to agents who align with your needs.
- Schedule meetings: Before choosing an agent, schedule meetings with them. Be sure to do your homework and prepare questions to ask them. This lets you understand their personality, communication style, and expertise.
- Check for online presence: A strong online presence is crucial for any real estate agent in today’s digital age. Take the time to check their website, social media, and online reviews to make sure they have a solid online presence.
- Ask for recommendations: Lastly, don’t hesitate to ask friends and family for real estate agent recommendations. This can be a valuable resource, as they can provide insight into their past experiences with agents in your area.
Finding the right real estate agent takes time and research. Still, by using trusted resources, comparing options, having meetings prepared with questions, checking for online presence, and asking friends and family for recommendations, you can easily find an agent who will guide you through the real estate transaction.
Buying or selling a home is a big decision, and the real estate transaction process can be complex. However, by understanding the different steps involved, you can be better prepared to navigate the process and ensure everything goes smoothly.