Fundamentals of the Real Estate Transaction

The home buying process involves many steps for both the seller and the buyer from the home listing to the closing on the mortgage loan and transfer of ownership.  The fundamental steps involved in a real estate transaction are; the home listing, marketing of the property, the offer and acceptance, real estate sales contract, the mortgage loan financing and settlement.

Listing

The real estate transaction begins when an owner decides to sell a property.  The owner may sell the house on their own or more frequently, will enlist the services of a real estate professional through a listing agreement.  The listing is a contract wherein a property owner employs a real estate firm to market a property for an agreed period of time at a given price and terms.  Under this contract, the real estate firm becomes the agent of the seller.  Real estate professionals are generally trained to prepare a competitive market analyses (CMA) and to analyze the prices of recent property sales, current home listings, and properties that have been pulled off the market without being sold.  This information is used by the real estate agent to help the seller set an asking price for the property on the listing.

Real estate professionals continue to play a central role in real estate transactions.  The most recent statistics show that over 75% of all home purchases involved the use of a Realtor.

Marketing the Property

The real estate broker’s expertise essentially lies in the marketing of the property for the seller.  The broker will employ a marketing plan, which often includes the property to be entered on the MLS or multiple listing service with the listing agent, conducting open houses as well as advertising the home in various advertising media.  While the listing agent implements the marketing plan, other real estate professionals may assist buyers in locating properties that meet their requirements.  Whether a broker is the designated agent of the seller or of the buyer is defined both in common law and in the real estate license law of many states. 

Offer and Acceptance

Once the property is made available for sale and marketed, prospective buyers will review and evaluate the property to comparable housing opportunities within the region.  Prospective buyers will then narrow down their search and inspect the seller’s property.  If the property appeals to one of the buyers looking at houses in the region, one or more of the prospective buyers will make an offer to purchase the property.  The buyer’s agent or attorney will prepare an offer to purchase.  The offer to purchase will state the buyers offer for the property and the contingencies or conditions upon which the buyer is making the offer including any mortgage or financing contingencies.

Financing

After the acceptance of the offer, the buyer applies for a home loan or financing.  The mortgage lender underwrites the loan which entails a detailed risk evaluation of the mortgage applicant and the property.  The mortgage lender verifies the borrower’s employment, income assets and completes a credit check to determine the creditworthiness of the borrower.  The mortgage lender is also concerned with the property to be used as collateral and whether it will warrant the amount of home loan the borrowers are seeking.  An appraiser will provide the mortgage lender with information about the property’s features, condition and value. 

Title Examination

While the mortgage lender is underwriting the home loan request, the attorneys in the transaction or sometimes the mortgage lender, will hire a professional called an abstractor or a title insurance company to search the public records on the property.  The title search process or search of documents recorded in the public record will reveal how the seller came to be vested in the property and what liens on the property need to be paid at the settlement or closing. 

Settlement

After the mortgage lender has underwritten the home loan and the attorneys or title company representative have reviewed the title search, the buyers and sellers are ready for the closing.  At the closing , the closing agent will make sure the funds for taxes and other costs have been properly prorated between the buyer and seller and the proper escrows set up for the payment of future real estate taxes.  The seller’s attorney will have the seller execute the deed and deliver it to the buyer.  The buyer’s attorney will make sure the deed is recorded.  Many legal documents are exchanged among the seller, buyer, and mortgage lender including the mortgage and note that details the terms of the home loan.