Step-by-Step Real Estate Transaction

The Purchase Contract

The real estate transaction process begins with a purchase contract -- an agreement between both the buyer and seller. It includes the price of the home, and important contingencies and protections for both parties.


The Offer

The initial offer includes the purchase price and stipulations that allow either party to back out of the contract in certain situations. These stipulations might include:

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  • The buyer's ability to obtain financing at reasonable terms
  • The appraised value meeting or exceeding the purchase price
  • The home inspection meeting the satisfaction of the buyer
  • A clear title
  • Date of closing


Counter-Offer and Acceptance

All terms in the contract are negotiable. For instance, the seller might agree to the buyer's proposed purchase price, but insist that the closing date occur within a shorter time frame. If the seller disagrees with any of the terms in the buyer's original offer, he provides a counter-offer with different terms to the buyer.


Once both the buyer and seller agree to all the terms of the contract, the last party to receive the offer or counter-offer adds his signature to it, and the home is officially under contract.

Earnest Money Deposit

The earnest money provided with the offer is deposited into an escrow account. That money is credited toward the purchase at closing. If the transaction isn't completed due to provisions in the contract, the money is returned to the buyer. For instance, if the property does not appraise at a value equal to or higher than the purchase price. However, if the buyer simply changes his mind about purchasing the home, the seller may keep the earnest money deposit.



Obtaining Financing

Most buyers prequalify with a lender prior to looking at homes. Once the home is under contract, the mortgage lender begins the loan process. She sends a copy of the purchase contract, along with the buyers' information, to the bank or mortgage company for approval. The mortgage approval process can take anywhere from 30 to 90 days.


Title Examination

The seller is required to guarantee that the title to the home is clear of liens. A title company performs research to determine what, if any, liens exist.


It's common to have a lien placed by a bank or mortgage company. That lien is satisfied with settlement of the transaction and removed. Other liens, such as contractor's liens or liens placed on a home for taxes or unpaid child support can negatively affect the sale.

Property Disclosures

The sellers of the home complete a property disclosure form and provides it to the buyer in a timely manner once the offer is accepted. This questionnaire covers all major systems and features of the home. The seller must provide honest answers and detail any flaws or defects. Once the buyer reviews the property disclosure, he may accept the disclosure and continue the transaction, negotiate the terms of the contract based on the content of the disclosure, or choose to cancel the transaction.



Home Inspection

The purchase contract typically allows the buyer to complete an inspection of the property. A professional inspection company inspects the home from roof to basement. The inspector looks at all the major systems, such as heating, air conditioning, electrical and plumbing. He checks that appliances are in working order and that the roof and foundation are in good repair and free of leaks. The buyer typically pays for the inspection and receives a comprehensive written report.


Appraisal of the Property

The sale of a home is typically contingent on the property appraisal; if the home is appraised at less than the amount of the accepted offer, the buyer may back out of the contract, or renegotiate the sale price. A licensed appraiser completes an appraisal of the home. He takes measurements, assesses the condition of the home and does research of comparable homes in the area in order to get a value for the property. The buyer pays for the appraisal as part of the home loan process, and receives a copy.


Walk-Through Prior to Closing

The buyer of the home may complete a walk-through of the property prior to closing. This physical inspection is to determine that the home is in the same condition as when the offer was accepted. If the buyer finds any issues during the walk-through, he may negotiate to delay closing until the issues have been resolved.



Review of Settlement Documents

The buyer is entitled to receive a copy of the Housing and Urban Development Settlement Statement 24 hours prior to closing. This document contains the details and terms of the mortgage. If there's a problem or inconsistency in the document, the mortgage company can work to change the documents as necessary.


Settlement and Closing

Settlement typically occurs at the title company. In most cases, several professionals are present, including:

  • Realtor or real estate agent
  • Mortgage broker or bank representative
  • Title company representative or escrow officer
  • Attorney, if applicable

Sometimes the buyer and seller complete the transaction at the same time, sitting together at a conference table.

The mortgage lender goes through the mortgage documents with the buyer. The buyer signs or initials each page. The buyer also provides certified funds for closing costs and the downpayment. The escrow officer goes through the paperwork with both parties to complete the transfer of ownership. The buyer receives keys to the property and the escrow officer sends the documents to the county recorder's office where the deed is recorded with the new owner's name.



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