BUYING REAL ESTATE

A good purchase process relies on the integration of several factors: the buyer’s clarity re: his/her own needs, the buyer’s grasp of current market dynamics, and the buyer-broker relationship as a vehicle for garnering strategic information and expertise. A buyer must navigate a broad range of potential obstacles, including impersonal market forces, time sensitive demands, process uncertainties, and lateral competition from other bidders. The complexity of the process makes it imperative that the buyer command key information influencing the purchase decision and sale process.A thorough due diligence review on the part of the broker-buyer team and should enable the buyer to proceed with conviction and thus to negotiate tactically – yielding what is insubstantial and positioning for what is critical. Knowing how a property in its current or potential state fits one’s aspirations; where value and price diverge; and when a specific property must be vigorously sought to the final acquisition step of deed conveyance is the marathon effort of a healthy purchase process.

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Buying: an overview of the challenges

In our role as a real estate brokerage, we are called on regularly to advise clients in the buying process and enjoy serving as buyer’s agents. The objective is always to find a home that delights one, that meets a range of needs and does so as efficiently and comprehensively as possible. Because a home purchase is a complex human experience and a process of search and discover, it can be intense, unpredictable, and confusing. There are landmines, if one is poorly informed; and the process can involve extremely competitive dynamics– multiple bidders, closed auction uncertainties; and various levels of due diligence (re: condo by-laws, zoning, seller profile, and structural as well as architectural issues, to name a few). Real estate is not simple. And each piece of real estate is unique, being informed by distinct factors of light, layout (and volume), design lines and sight lines, materials, color, systems, and context. A buyer must call upon expertise in the range of factors that make any particular real estate attractive or unattractive, sound or inadequate. For instance, failing to observe traffic patterns, diurnal natural light characteristics, or condo by-laws that constrain contingencies can be a serious oversight and result in unfortunate complications. A buyer needs to have the knowledge, judgment, and ultimately conviction to proceed or hold back.

Buying: focusing on and balancing what is important

Clients experience property through many facets, simultaneously: architecturally, pragmatically, financially, and emotionally. Best fit must be sought in each of these areas. Questions arise as to a range of matters, and the answers are not often obvious, may be contingent, and at times highly subjective. In addition to the perspective afforded by experience and judgment of our brokerage, our clients benefit from having a working frame that balances their subjective property search experience with the broad realities of the market. This is where the insight and expertise of a professional advisor is extremely valuable. A good real estate broker should be able to assist a client in ways similar to a consultant, attorney or interior designer, whilst caring about the relationship and the quality of the experience.

Buying: market dynamics

The purchase process varies based on the situation of any specific buyer as well as the dynamics in the market at any given point in time(confusing topic sentence – you want to make market dynamics make a little more sense). A slow market, a fast market, a market with limited inventory, a market with diverse and full inventory – these varying characteristics make for very different experiences for the buyer. Moreover, depending on the buyer’s circumstances, this engagement between buyer and market can have widely different needs and issues. An experienced broker can anticipate specific issues and opportunities, tailoring options and solutions efficiently. One support in this regard is the fact that markets are statistical pictures, set against market trends, cycles, and shifts. It is important for the buyer to be well advised regarding size of inventory, inventory replacement rate, days on market, and seasonal variances. These quantitative measures auction parameters, and how a particular property lines up based on value, development potential, and appreciation potential relative to inventory (market) forecasts. Finally, wise real estate decisions reflect a buyer’s demographic knowledge. Location, location, location is really short hand for demographics.

Buying: value versus price

It can be a challenge to appraise value, as real estate values have no strict relationship to prices. Individuals set prices, as do market moods, but the value of real property is fundamental. It abides, notwithstanding fluctuations.This point bears some deeper reflection. It is not too much to say that the price of a property is in facts a misleading symbol, as it is without a doubt always and everywhere an oversimplification of value. Of course, the property’s value is far more complex than the familiar digits that encode prices in our culture. In part, value is comprised of the consensus that buyers-bidders indicate. It is also comprised of the supply-demand trajectory. Further, it is comprised of material and labor costs in that the economic spread, or difference, between as-built structures and new construction is a measure of the build versus buy decision in real estate. To build a home one really gets a look at the fundamental value, in that the cost elements are dissected upfront.Importantly, mortgage rates, economic perceptions, and human passions (and tastes) jostle these elements. How then does one soundly grasp financial value so as to understand suitability of any given list or purchase price? Good judgment should be based on historical perspective on valuation metrics, such as $/square foot by location and similar property types–and price forecasts, with the latter based on serious political economy insight and demographic forecasts. Psychological biases and carelessness make for considerable variation in how party A views value versus party B. These fundamentals of value should not be overlooked; they control, even as prices fluctuate.

Buying: financing process

If a buyer is to finance a purchase – and certainly many homes are bought via all cash offers these days – there are demanding, changeable, and nuanced lending criteria, ratios, and documentation requirements that a buyer must confront. For a first-time buyer or one who has not purchased a property for some time, the requirements can seem onerous, especially for a self-employed borrower. Our brokerage has relationships with numerous loan officers, mortgage brokers, and underwriters and can advise buyers throughout the process. Knowing when and how far one must go to satisfy a lender is both a pragmatic and an emotional matter. Doing so well and, where necessary, providing alternative solutions, can be the difference between a clean and supportive lending arrangement and a frustrating dead end.

Buying: high-level process outline

At a high level, a purchase consists of a three-step process: search, offer, and facilitation. In more detail, these elements are seen as:

Search:

In consultation with the broker, the buyer evaluates locations broadly then narrows location preferences. The buyer evaluates property typology (single family, condo, type of… and variations thereto…). Next they buyer establishes and refines his/her budget. If financed, the buyer obtains a bank pre-approval letter (indicating maximum loan amount and indicative terms). Next the buyer examines some number of properties at open houses or by appointment.

Offer:

Eventually, in consultation with and through the broker, the buyer makes an offer to purchase including any contingencies. The offer contains certain process milestones: inspection, P&S (purchase and sale), closing date (regulatory and bank forms as well as deed conveyance). The offer is commonly but not always followed by inspections. Additionally, condominiums need to be reviewed for adequacy of reserves, owner occupancy, recent and pending assessments, and ongoing building/community issues.

Facilitation:

The seller’s and buyer’s attorneys work out terms for the P&S, with the principals (buyers and sellers) and their agents involved around key issues, large and small. Typically one to two weeks from the accepted offer date, a purchase & sale agreement is signed by the parties, with customarily 5% of the purchase price delivered by the buyer via the buyer’s broker to the seller’s broker, to be held in escrow. If a bank/lender is involved, an appraiser will visit the subject property to provide a price. A walk through is typically conducted on or just before the day of closing. Just prior to the closing, title work is done by the buyer’s attorney. The new deed is registered at the registry. To make for a smooth and effective process, active deal leadership is deeply important. This consists of relationship-based negotiation, cooperation, and creative structuring between the broker and all parties involved.