At some point after you have a ratified contract, your lending company will order what is called an appraisal to determine the value of your first home buying objective. This is not the same thing as the assessment your local municipality conducts annually on each parcel within the jurisdiction to determine its value for tax purposes, although the appraisal that is conducted when you buy a home can be used to dispute your assessment if you feel it is inaccurate.

An appraiser is similar to an inspector, except that his task is to gather a more general overview of the size and condition of the property and its improvements, and then to assign it a monetary value based on current market conditions. An appraisal usually costs a few hundred dollars. If you don’t pay for this yourself beforehand, the cost of the appraisal will be factored into your costs at the closing table.

Why Is The Appraisal Important?

What makes the appraisal such a key step in the home buying process is that your lender will use it as the letter of the law when it comes to the maximum size of your loan. Most lenders will never allow you to take out a mortgage in an amount greater than the home’s value. So if you have agreed to a purchase price of $250,000 in the contract and then the property (land and all buildings and improvements) only appraises for $220,000, your lender will say “okay, we’ll let you borrow $220,000; you’ll have to come up with the other $30,000 yourself.”

How Can I Avoid This Situation?

I know this might sound a little crazy, but don’t pay more for a home than it’s worth. Your agent can easily provide you with a list of comps – similar properties that were recently sold and their sales prices – for the purposes of comparison. If you do find yourself stuck up a creek, don’t lose hope! At least, not yet. There are a few different ways you can go here.

Borrow the Difference

Borrowing the difference from a family member is a possibility for some people. A wealthy uncle or benevolent grandparent who is willing to bestow the needed amount as gift funds may be able to help.

Get a Second Opinion

The appraiser may not have done his job by thoroughly considering all relevant improvements to the property, so you could try ordering a second appraisal from a different company or appraiser. You’ll have to pay for the second one out of your pocket, though, just like the first.

Seller Financing

Sometimes the seller will offer to pay part of the price for you, in exchange for you making payments back to the seller over time. This can be a good way to complete the sale, although if you opt for seller financing keep in mind that the seller can foreclose on you if you fail to make payment in a timely manner.

Renegotiating

Depending on how desperate the seller is to close the deal, you may be able to renegotiate the price of the sales contract after the appraisal has come in showing that the property is in fact not worth the price. Sometimes an official appraisal is what’s needed to convince the seller that they are charging too much.

Having a ratified contract means that you and the seller have a legally binding agreement that you will purchase their property on the date you specified or negotiated in the contract itself. Before that date arrives, you will need to complete several tasks related to the condition, size, and value of the home. Each is important for its own reason, but perhaps the most important for your peace of mind is the home inspection.

If you don’t have a home inspection before you close on a home, you could unknowingly be walking into more trouble than you could possibly know what to do with. There are so many things that can go wrong with a home if left unchecked! I did my first home buying without an inspection; demand was so overwhelmingly high at the time that sellers were offering almost no restitution for problems that came up during inspections anyway. I lucked out, and with the home being fairly new and its condition good, I didn’t have any major disasters. Then again, I didn’t know very much about buying a home back then, so I highly recommend that you always, always, always have an inspection!
Choosing an Inspector

All licensed home inspectors should be able to perform the necessary duties adequately and furnish a full and complete inspection report. If you don’t have a home inspector picked out, your real estate agent may already have a company or individual in mind. In this case he may have a working relationship and has likely worked with the inspector in the past, which can be reassuring because it probably means he does a good job.
What An Inspection Does

Residential home inspectors are required to know the systems within a home to a great degree; they are trained to study the condition of the home in both large and small scales. You can choose whether or not you wish to be present at the time of the inspection, but for obvious reasons it’s better to be there than to be absent. You need to understand any problems the home inspector finds and what they mean for you if you purchase the home, so a first-hand look with the inspector explaining things to you is the preferred way to go. If it is not possible for you to schedule a time when you are able to be present, you might have the option of receiving a phone consultation with the inspector after the inspection takes place.

The inspector has a long checklist of items he needs to look at, which include assessing the home’s overall appearance; checking the exterior grounds; examining the condition of the interior spaces; and ensuring that plumbing and electrical systems are working properly and are up to code. Below is a sample checklist of what inspectors are looking at when they enter a residence:
Inspection Checklist

Grounds

* Driveway
* Walkways
* Decks / Patios / Porches
* Deck / Patio / Porch Cover
* Retaining Walls
* Fences & Gates

Exterior

* Exterior Walls
* Trim
* Chimney(s)
* Exterior Stairs
* Sprinklers
* Hose Faucets
* Gutters & Roof Drains

Foundation

* Grading
* Concrete Slab-on-Grade
* Raised Foundation / Basement
* First Floor Construction

Roof

* Location
* Style
* Material
* Exposed Flashings

Plumbing

* Main Line
* Supply Lines
* Waste Lines
* Fuel System
* Water Heater

Heating & Cooling

* Description
* Condition
* Venting
* Combustion Air
* Burners
* Controls
* Distribution
* Evaporative Cooler
* Air Conditioning

Electrical

* Service
* Main Panel
* Wiring

Interior

* Entry / Exit Doors
* Interior Doors
* Windows
* Interior Walls
* Ceilings
* Floors
* Fireplace(s)
* Stairs
* Interior Features
* Laundry
* Attic

Garage

* Floor / Walls / Ceiling
* Door to Living Space
* Exterior Door
* Vehicle Door
* Electrical

Kitchen

* Sinks
* Refrigerator
* Disposal
* Oven/Cooktop
* Dishwasher

Bathrooms

* Toilet
* Sink
* Vent / Heat
* Bathtub
* Shower

More On Inspections

At first glance the above may seem like quite an exhaustive list, but there are many elements contained within a home that inspectors do not have the time or expertise to include in the home inspection. Some of the elements home inspectors may not be able to include, especially if not readily noticeable, are:

* Zoning Compliance
* Structural Analysis
* Soil Condition or Geological Survey
* Pest Inspection
* Hidden Mold or Fungus Growth
* Swimming Pools
* Well / Septic Systems
* Appliances
* Underground Storage Tanks

Individual parts, fixtures and systems may vary by location and specific situation, but you should be aware that certain items within the home like your refrigerator or dishwasher probably won’t be part of the inspection, but instead should be included in your final walk-through.

A sales contract is a legally binding agreement between you (the buyer) and the person or persons selling the property. This document covers everything from an overview of the sale – the price and address – to a detailed list of appliances, fixtures, and features that are included in the sale.

You should never assume that any appliance or fixture you see in the house, such as washers and dryers, refrigerators, ceiling fans, grills, or any other large “add-on” items, are included with the home unless this is specified in the contract. An appliance or fixture that goes into the contract as staying with the home is said to convey. There is usually a page in the contract where these items are mentioned; the ones that you specify by checking the box next to them (or adding them to a list if not included on the form already) must convey if the seller accepts your offer.
Negotiations

Often there will be certain parts of the contract that do not meet either the buyer’s or the seller’s desired terms. In situations where each party has its own real estate agent, negotiations take place through the agents. It’s almost like a game of telephone; the seller tells their agent, who tells your agent, who tells you. You respond by telling your agent, who tells their agent, who delivers that message (or something like it) to the seller.

It is likely that you will never have met, talked to, communicated directly with, or learned anything about the seller before you get to closing. You will know everything about their bargaining style by what their agent tells your agent; likewise, the way they perceive what you have to say will go through the same filters. This is yet another reason to make sure your real estate agent is the right one for you; it’s important for them to communicate your concerns and comments to the other side in an accurate and tactful manner.

Try not to think of the seller as an unseen enemy, even though they are probably trying to get the most for their property and your goal is to to pay only what it’s worth or less. Understand where they may be coming from; if this has been their home for a number of years they will be naturally biased toward believing it is worth every cent they want to get for it. Any sentimental value they have attached to the place only adds to its monetary value in their mind.
Getting Out

There are circumstances where you can back out of the contract without losing your earnest money deposit. If the home inspection reveals problems with the property, you can decide not to buy it based solely on the inspection results.

If for some reason you fail to obtain the proper financing for the property, you are also allowed to back out of the contract.

If the home does not appraise for the agreed-upon sales price, you can also back out of the contract.

In the aforementioned scenarios, you should be able to have your earnest money deposit returned to you. You always have the option to void a contract whenever you want, but in most cases besides the ones above you could lose a substantial amount of money in doing so.

Not only may your earnest money deposit be given to the seller if you exit the contract without good reason; any money you’ve spent on appraisals, inspections, and other costs incurred are gone. Getting out can therefore be serious business, so talk with your agent if you run into a situation that brings up doubt and find out what your options are before you act too hastily.

So you’ve found that beautiful house and you’re head-over-heels in love with it. It’s stunning; it’s beautiful. You can’t get your mind off of it. You’re already making sketches of which room is where and planning out how you’re going to furnish and decorate each one. Once you’ve found your first home buying it can be an easy or a difficult task depending on many factors. The first thing to do is to sit down with your real estate agent and write up a contract. But don’t worry, this isn’t the kind of thing where you don’t have to go over every little detail and draft it up by hand like a dissertation or an essay. A typical sales contract is derived from a template, which uses different form pages with “fill in the blank” answers for the offer price, the features of the home, which appliances do or do not convey, and several other factors.
Understand the Contract

Your agent should explain each page as you get to it; you’re going to be putting your John Handcock on lots of different pages, and initialling just as many, if not more. She’ll give you a brief overview of each form, what it says, and what she’s written in about the terms of the contract. This is the time to add in contingencies, which are special exceptions to the standard, no-exceptions document. You can specify things like having the seller fix the leaky faucet in the upstairs bathroom or asking them to replace the carpets downstairs.
Be Inquisitive

This is also the time when you need to be asking questions; any item of uncertainty that pops into your mind needs to be brought up. Whether or not you believe there is such a thing as a dumb question, the simple fact is that when you’re buying the biggest-ticket item you’re ever likely to purchase, you couldn’t possibly be any smarter. So make sure you get in and really pay attention to the agent’s explanations; ask about terms or keywords you’re unfamiliar with and find out exactly what you’re agreeing to by signing each page.
Submit Your Offer With Earnest

Your realtor will probably ask you for a paper check to be submitted with the contract. The amount on this check is called the earnest money deposit. Often it’s something like a few thousand dollars or so, and it simply tells the seller that you mean business, and that you’re serious about your offer. Without earnest money deposits, people would generally be far more likely to go around and make fraudulent offers on multiple homes. Then there would be no detriment to them if they accepted the best contract and withdrew all their other offers!

This is another reason to be sure that you’ve truly found a house you love; if you were to have your offer accepted and then decide you no longer wanted the house without good reason, you could lose your deposit.

Nothing can legally be done with your check if the seller doesn’t accept your offer; it is simply a standard bargaining tool. As soon as the offer gets accepted, the check is deposited into an escrow account held by either the real estate agency of the seller or another third party agency. The money stays in escrow until either the date when the home is sold at closing, or the contract is nullified. If you as the buyer decide to back out of the contract, and you have good reason to do so (ie. a problem found with the home upon inspection), you should normally be able to have your deposit returned to you. In other cases, such as having a change of heart and simply choosing not to buy the property, the seller may get the deposit as recompense for their time spent in dealing with you instead of a buyer who is actually going to go through with their initial promise.
Wait

Once you’ve submitted an offer, one of three things will happen: the contract will either be accepted, rejected, or amended. Once your agent has submitted a contract, you can usually expect a response back fairly quickly – within 24 to 48 hours. There are certain circumstances where it may take longer to receive a response, but however long it takes, the time between submittal and response is perhaps the most nerve-wracking period of time in the home buying process. But be patient! Agents are used to their buyers being nervous and excited during this time, but your agent will most likely contact you as soon as she hears something. If the response is positive, you can believe she wants you to know so that you can move on with the next step of the process immediately! If it’s negative, it will be time to start looking for other property and your agent will want you to know right away in that case as well. They know that the anticipation can be almost unbearable, so rest assured that any buyer’s agent work her salt is going to keep you in the loop when any of the outcomes below takes place.
Accepted

If you’ve had a contract accepted, congratulations! The seller will add her signature and send the ratified contract back to your real estate agent. If a seller accepts a contract without an amendment or counter-offer, chances are you’ve done your homework and have put in an offer that conforms to many of the terms that are prevalent in your current local market, including whether you offer more, less, or equal to the sales price, and how you choose to handle closing costs and seller outlay.
Rejected

The most common cause of an outright rejection is the presence of multiple offers on a property. In especially hot markets it is not unlikely that particularly attractive homes will garner quick responses from several buyers. If one of these offers particularly outshines the rest, the seller may accept it outright. However, often if there is a multiple bid situation the seller will notify everyone who submitted a contract and suggest that they submit their highest and best offer. More on that below.
Amended

The seller may return with a counter-offer or amendment that alters the terms of your original contract. Pay close attention to each change suggested; your agent can explain them in detail to you and will most likely do so rather than simply giving you the revised contract to look over by yourself.

A request for your highest and best is one tactic a seller can use to obtain the maximum price for their piece of property, so if you find yourself in this position as a buyer you need to really consider whether you are so in love with the home that it would be worth going above and beyond the asking price to win it. Bidding wars can be tricky business; any psychologist would tell you that whenever another person wants something you want, the object in question gains a much higher perceived value. Keep your emotions in check and make your decision based on good judgment rather than spur-of-the-moment emotion.

One of the reasons that the state of the market can be unclear when you look around online is because listings don’t always include everything in the clearest terms. One of the newer and more subtle ways this happens is that a listing will say something to the effect of “subject to third party approval” in the comments section way down near the bottom. I’ll explain what that means below. Here are some of the more common terms of sale you’ll see or hear about in real estate listings.

Transfer Types

Fee Simple

This is the most common type of sale, and it means that the building, as well as the parcel of land it is located on, are what is being conveyed. This implies that there is at least some land being sold only to the purchaser and that is not to be shared by anyone but the owner of that parcel. Fee simple, or ‘fee simple absolute’ as it’s sometimes called, is the way single family homes and townhomes are normally sold.

Condominium Ownership

What makes a condo different from a townhouse or single family house is that when you buy it, you’re getting exclusive ownership of your ‘unit’ with shared ownership of the common grounds that the units are located on. Essentially this means that you don’t get any land when you buy a condo, but instead the land is owned by you, the other residents, and the neighborhood association, collectively.

Sales Terminology

Auction

Sometimes a foreclosed home is sold at auction to speed the process and get it off of the lender’s hands. Banks and mortgage companies don’t specialize in marketing and selling houses, so when a foreclosure happens they find themselves in possession of something they want little to do with besides collecting interest dollars. Bidding in an auction often starts in the amount owed to the bank by the former owner of the property, or an amount close enough to it that they can recoup most of their losses. An auction seldom yields large amounts of profit from a foreclosure, but most of the time it at least keeps the lender from taking a huge loss.

Quick Sale

This is a type of auction that is initiated by the homeowner, often because she wants to avoid foreclosure or no longer wants to keep the property for some other reason.

Short Sale

In the introductory paragraph above, I mentioned some listings including a phrase like “subject to third party approval.” If you see this on a real estate listing, it most likely means that the current owner wants to avoid foreclosure by selling the property quickly. However, this is called a “short sale” because the price at which the property is being sold is less than what the owner owes her lender.

The “third party” in this case is the bank or lending institution, and the short sale happens something like this. First, the homeowner puts the property on the market and tries to elicit offers from willing and able buyers. Once they have an offer or multiple offers, they then have to ask their lender for permission to sell this property for less than they owe. Sometimes multiple offers come in and potential buyers are left waiting for weeks or months while the homeowner juggles offers and attempts to convince their lender to take a hit on their initial investment. These situations can result in multiple ratified contracts as the seller has the ability to “accept” offers from more than one buyer. It can be a frustrating and potentially dangerous situation, so I personally recommend against considering the purchase of short sale properties unless you are an investor who has the time and resources to deal with any of the myriad situations that could arise.

Foreclosure/Bank Owned

A bank-owned house is exactly what it would seem – property owned by a bank or lending institution. The foreclosure market is popular because people think it’s easy to find a cheap house and fix it up to be sold for profit. This process is called flipping, and while it has worked for a lot of people, the average first-time home buyer should be wary about being lured into this line of thinking. If you can’t afford two mortgage or rent payments, the first home you buy should be in livable, move-in condition when you buy it. A bank-owned foreclosure property is usually the bank’s last concern; it’s not like a house owned by a family or an individual where the condition of the house is a personal matter. This means that if you get to the inspection phase on a foreclosed home and the inspector finds whatever he finds wrong with it, the bank is probably not going to do anything about it, whereas the “human” homeowner may at least be willing to alter or renegotiate the terms of your sales contract to account for any problems with the house.

As-Is

Foreclosures are normally sold as-is, meaning that the seller is unwilling or unable to make improvements to the property based on the findings of a home inspection.