Monday, December 17, 2012

To put a house under contract

Real Estate Advanced Training is great. But what about Basic Training?

All those Real Estate education companies are selling Advanced Training, but when it came right down to it, I found out we knew more about OWNING a property than about how to BUY a property.

How do you buy a house???

You could get a Realtor and they take care of it for you, just tell you where to sign. However there are situations where you don't necessarily want to use a Realtor. In that case, where to start?

First, you need to know what money you are buying the house with. If you are getting a traditional mortgage, you need to talk to your banker or mortgage broker and get Pre-approved. Sellers won't waste their time on you if you can't actually buy the house.

Second, you need a contract to buy. This doubles as an offer form. You fill it out and give it to the seller. Once you agree on the terms, the offer-to-buy turns into a contract-to-buy. Where do you find a contract? Ask the seller if they have a contract for you to use. If they don't, use your state/provincial standard 'Real Estate Purchase Contract' form. Google it.

Third, fill out the contract form, and be sure to include your conditions and an inspection period. Conditions are your way of saying, "I want to buy this house, but only if...".  Typical conditions are:

  • subject to home inspection (you hire a home inspector to check out the house for any major problems).
  • subject to financing (your buying the home is conditional on being able to get the money).
  • subject to partner's approval (as an investor, this sometimes becomes your only out if you need one).
Fourth, submit the contract offer-to-buy either to the seller or the seller's lawyer, and wait to hear their counter offer!

The very first home we ever bought was an investment property. We had our eye out for undervalued homes (buy at a discount). We heard about a property going into foreclosure down the street from us, and we decided to put it under contract and try to wholesale it, or get investors to buy it with us. "Ok," I thought, "I'll put it under contract." Then I realized I had no idea how to do that.  I called a mentor, and asked who I should talk to in order to submit an offer. This house was just barely being repossessed by the bank, there was no Realtor involved, no For Sale sign; so I wasn't sure who to contact. My mentor suggested asking the owner for the contact information of the lawyer who was dealing with the foreclosure. That is a touchy subject to ask a going-into-foreclosure-owner. Ideally  we would have liked to help the owner before he went into total foreclosure, but in this case it was too late. I was able to find a phone number for the owner, and, though I felt rather brazen, I did get the information I needed: the lawyers name and phone number that was in charge of repossessing this man's house. If you can't find a phone number, a last resort is to knock on the door and talk to the owner face to face.

Because we contacted the lawyer before the bank found a Realtor for the property, I negotiated the terms directly with the bank's lawyer. It was a series of faxes and scan&email the contract. We probably had 7 to 10 versions of the contract before settling on a final version that the bank accepted. (I had a private little victory dance once our offer was finally accepted :). The final version wasn't pretty-- lots of crossed out lines, initials where anything had been changed, and a grey haze from the multiple faxings. But hey, it got the job done!

Once your offer is accepted, you have an inspection period during which you get the home inspection and secure financing. If everything checks out, then you remove your conditions and your offer to buy  becomes binding.

Stay tuned for our "Inspection Period" post to find out more about this stage of buying a house, and for more  on the story of the foreclosure!

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