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Lesson 5: Shopping For A Home


Jewell:  Hello, my name is Jewell DiDucca, and welcome to American Consumer Credit Counseling's presentation on home buying. Our home buying workshop is a nine-lesson series focused on the essentials of owning your own home. Today, in lesson in five, we'll be discussing shopping for a new home. Let's get started.

Once you've been pre-approved for your loan by a lender and you've saved enough money to cover your down payment and closing costs, you can now start shopping for a home. Some ways that you can begin shopping for a home are to look in your newspaper, to drive through neighborhoods and look for for-sale signs, search the internet, ask friends or coworkers, or check for for-sale boards in stores and businesses.

However, most individuals will start the home buying process by contacting a real estate agent. Using a real estate agent is the most efficient way to find a home for sale. The real estate agent will research lists of homes for sale, arrange to show you homes that meet your standards, provide you with information about the community, schools, real estate taxes, property covenants and code regulations. A real estate agent will also conduct a market analysis on the homes you're interested in making an offer on. They provide answers to any questions you have about the property and explain the documents and terms to you.

If you choose a real estate agent, you should choose a realtor who returns your calls in a timely manner, is willing to explain things in terms that you understand, listens to what you want; but more importantly, you want to choose a real estate agent that you're comfortable with. A good real estate agent can make the home buying process less time consuming and can provide a wide range of services to you. If you decide to use a real estate agent, you can expect the agent to assist you in writing your offer to purchase, present the offer to the seller or to the seller's agent, and to assist you with arrangements for your closing.

If you choose not to use a real estate agent, you should still seek the professional help from an attorney to help you with writing and reviewing your purchase agreement. An attorney will make sure that your offer addresses all of the pertinent legal questions and details such as who is responsible for what items and what charges. However, an attorney will not present your offer to the seller or negotiate the price and details for you, and an attorney will also not take you out and show you homes. You'll need to do that research by yourself.

One of the primary benefits of using a real estate agent is that a real estate agent has access to a multiple listing service, or MLS. An MLS is an automated listing system that real estate offices can belong to. This system enters all of the homes listed for sale by all member offices. The database allows any agent in any office belonging to the MLS to access information on all the homes listed by that service. This system is very convenient because a buyer can work with just one agent and still have access to all of the homes listed within the MLS service.

For instance, your real estate agent will be able to show you any house you're interested in and provide you with the listing information, even if another agent or company is listing it. However, because of the MLS, working with a real estate agent opens up the issue of representation. Because of this, it's important that you know and understand who is representing whom in the real estate transaction. Please be aware that the person paying the commission is not necessarily whom the agent is working for.

Traditionally, when one person represents the interests of another in a transaction, an agency relationship is formed. An agency relationship exists between a client, either buyer or seller, and the real estate broker, or one of the real estate agents associated with the broker's firm. State laws and the realtor's code of ethics define the responsibilities of real estate agents and make sure that they're obligated to their clients to provide undivided loyalty, obedience, confidentiality, full disclosure, accurate accounting, and reasonable care.

When choosing a real estate agent, you should be familiar with the different types of agents available. Some real estate agents will only list and market homes for people wishing to sell their homes. These agents are called listings or seller's agents. In this instance the agent is working for the seller, and it's their responsibility to help the seller sell their property for the best price possible.

Other real estate agents will only work with people looking for a home to buy. These agents are called buyer's agents. A buyer's agent will work with a buyer to find the home and provide them with a market analysis on the property. This agent will also assist the buyer in writing a purchase agreement as well as represent the buyer during the negotiation process.

Real estate agents who will work with both seller and buyers are called dual agents. A dual agency is created when a real estate agent shows or sell a home that he's listed for sale to a buyer whom they are also representing as a buyer's agent. In this instance, a dual agent is not able to tell either the buyer nor the seller information about the other party that would compromise either person's offering position.

As you can see, it's very important that you know and understand the various types of agent relationships before you say anything about your financial position or thoughts on a property. However, an agent must disclose their agency relationship with you in writing before they show you any homes. If you're in doubt, we suggest that you don't say anything to anyone about how much money you're qualified for, the terms or price you're considering, your motivation for making your offer, or anything else that might compromise your position. We also stress that as a buyer it's in your best interest to hire a real estate agent to be your buyer's agent.

When it comes time to discuss financial information with your real estate agent you must first instruct your lender to disclose this information. Please remember, however, that this is confidential information which does not have to be disclosed to anyone, including your real estate agent. Most sellers, however, will require a credit approval letter from your lender at the time of your offer stating that you qualify for the amount that you're offering. When you do so, please instruct your lender to only put the dollar amount that your offer is for, and not the full amount that you qualify for.

Due to the various types of agent options available, most home buyers wonder how a real estate agent gets paid. Most agents are paid a commission out of the seller's proceeds of the sale. This commission amount is usually built into the sale price of the home. However, an agent will usually not get paid unless a transaction closes.

Next you may be asking yourself: how does the seller determine the sale price of their home? When a seller gets ready to list their house for sale, they're going to set the sale price of their home by adding the amount they still owe on the home, the closing costs of the sale, the costs of the real estate commission, and any increase in value to their property, also known as equity. Due to the costs of selling a home, many people think that if they don't use a real estate agent to buy a house, that they'll save money because there will be no real estate agent fees.

However, the reality is that the seller is also thinking that if they don't use an agent, they will make more profit on their house. Our figure show that on average most people pay less for a home when using a real estate agent. We highly suggest you use a real estate agent for your home buying process. However, if you choose not to use one, please be forewarned that aside from an attorney, few people can help you write a purchase agreement. There are also many chances for misunderstanding, omissions, or other problems. Also, it can be very difficult to negotiate with the seller face to face.

Now that we've discussed the individuals that will help you location and purchase a home, you need to ask yourself what type of home do you want. The most common types of homes are single family detached housing, duplex, triplex, or fourplex housing, condominiums, townhouses, planned unit developments, and manufactured housing. Single family detached housing is a traditional single house located in a subdivision, neighborhood, or on a tract of land. With a single family house, you own the house and the land, and you're solely responsible for the maintenance and upkeep.

A condominium is similar to an apartment building situation. You own your unit but all hallways, exterior walls, land, and recreational areas are owned and maintained collectively by all the owners. The owners form an association to oversee maintenance and upkeep of buildings and common areas. To cover the cost of this however, there is typically a condo fee or association fee to pay for these services. A condominium is a good option for first-time home buyers, single individuals, or retired couples.

A townhouse is a home where you share common walls with another unit, but each unit owns its own land. Similar to a condo, the common areas and facilities are owned jointly by all of the owners. There's also a home owners association fee for maintenance and upkeep of the common areas. A planned unit development is a subdivision or project that has common areas such as a park, tennis court, or swimming pool, and which is owned and maintained by the owners association. All of the development's home owners may use these common areas but there's usually a fee to maintain them.

Finally, you have manufactured housing. Manufactured housing is built in a factory or prefabricated, and then shipped to your building site. These types of units include modular and mobile homes. To receive traditional mortgage financing on manufactured housing, however, you must own the land, the home must be placed on a permanent foundation, it must meet HUD guidelines, and it must be taxed as real estate.

Now that you have an idea of the housing options available to you, you should have an idea about what you want in a home before you start looking for one. The most prominent feature toward determining your housing options will be the price of the home. You must be realistic about the price range you're shopping in. Most of us need to compromise what we want to buy with what we can actually afford.

Next, you'll also want to determine what type of home you want. By this we mean do you want a one-level house or do you want two levels? Do you want a Victorian-style house or do you prefer a Cape? Do you want a garage, a basement, or a patio? All of these features will make your search for a home a little more complicated. We recommend that prior to visiting any homes you make a detailed list of features that you want in a home. Then when you take your agent to visit homes, you should take detailed notes so that you remember each home that you see.

For most consumers, one of the most important considerations when buying a home is the location of the home. Location is important because a home in a good location will appreciate in value at a faster rate than one in a less desirable location. When you start visiting homes, you also have to keep in mind that the condition of the home you buy is important to the lender. A lender may not be willing to lend money on a home that doesn't meet specific standards.

The home you want to buy must be in industry-standard condition. This classification means that 1) the structures must be sound 2) the mechanical systems all work properly 3) no holes or cracks in the walls or ceilings 4) no evidence of water damage 5) the floors must have proper coverings in finishes 6) the roof and siding must be in good repair 7) the windows and storm windows must not be broken and should be in good working condition, and 8) the house must not have any exposed exterior wood.

At the time of closing, a home must be in industry-standard condition unless the loan that you have allows for remodeling. However, please remember it's hard to get a first mortgage to buy a home in need of repairs. Also, if you default on the loan or don't complete the repairs, the lender is left with a home that's not marketable. Therefore, most lenders require the home be in good condition before they'll loan you money on it. Furthermore, you need to have a thorough home inspection before you purchase a home. It's a good idea to hire a professional home inspector that has no emotional or financial interest in the home. An inspector will give you an impartial evaluation of the home regarding its condition, what problems you may need to deal with, and the approximate costs needed for repair.

Lastly, you want your real estate agent to provide a market analysis for the home that you want to buy. A market analysis compares the home you're interested in with others like it that have sold in the past six months. This analysis will help you determine a reasonable offering price for the home.

Nowadays, more and more people are deciding to build a new house rather than buy an existing one. Building a new house can be an exciting and challenging process. If you choose to build a new home, make sure that you choose a real estate agent that is experienced in new construction. An experienced, knowledgeable person can guide you through the process and make it less stressful. Before you build a home you should consider a number of factors. First, there are the cost factors of building a new home. These expenses will include material and labor. With a new home, maintenance and repair costs should be lower than if you've purchased an older house, because everything is new.

Secondly, you have the land costs and considerations. Some of the factors that can increase land costs include the location of your property, whether water and sewer connections are available or present, the cost to hook up electrical or gas service, and how your land is zoned or how the land is laid out. This will affect the size or type of home you can build as well as potentially affect the floor plan that you can use.

Also, if you're building in a subdivision, is the subdivision open, closed, or semi-open? This could affect which builder you can use. Finally, are there any covenants governing the use of your property? Covenants are rules established by the builder, developer, or homeowners association that would govern the use of the property. Covenants can dictate many things, such as the size of the home, the type of driveway, what the exterior of the house must look like, the type of fencing that's allowed, and what kind of pets and how many you can have.

You also have factors concerning financial control. Prior to construction, you and the builder should have an agreed-upon purchase price for the home based on specific building materials, plans, and specifications, it's important to keep in mind that any changes you make to your building plans after construction starts will probably cost you money. Please be sure to consider the time commitment in building a new home. New construction houses can take anywhere from three months to a year to build. Most of the time, projects go according to scheduled, but you should always prepare yourself for it to take longer. Finally, building a new home can be extremely stressful. You must properly prepare yourself for the difficult and numerous decisions you'll need to make in order to build a new home. Always remember that in the end you'll have a home that you can truly call your own.

Even after considering all of these factors, you'll still have more decisions to make when you build a new home. Some of these decisions can include: Do you want to coordinate the new construction or hire a contractor? Whom do you want to hire for a builder or contractor? Where do you want to build your new home? What type of house plan do you prefer? Finally, you'll have to consider if you want to do some of the construction work yourself in order to save labor costs.

Once you've found the home you wish to buy, whether it's an existing home or new construction, you'll need to write a legal offer to purchase. You should seek professional assistance when writing a purchase agreement because there are several things that should be included in your offer for it to be legal and binding. These items include the purchase price, what will be the cost of the home to you, earnest money. Earnest money is a deposit you give to the seller to show them that you're serious about purchasing the home and that you're going to explore financing options. Should you choose not to purchase the home, the seller is entitled to keep your earnest money.

Next, you'll want a legal description of the property, not just the street address. Your offer will also show how much of a down payment you'll be making, as well as the remaining balance to be financed and how the balance will be financed and what type of loan you're using. Your offer should also state the maximum interest rate you're willing to pay. You should also address how the property taxes will be handled and who's responsible for them.

Next, you should state the date you wish to close on the house and what date you wish to take possession. Your purchase agreement will also include and offer expiration date as well as state that you must receive clear title to the property. You'll also want to list any personal property such as appliances, window coverings, or other items that you want left in the house as part of your offer.

Your purchase agreement should also state any repairs that you want done to the house before you close. Finally, you want to have contingencies. A contingency is a condition you put on the offer that allows you to get out of the transaction if those conditions are not met. Contingencies can include an unacceptable home inspection or a devalued appraisal of the home.

An important note about the purchase agreement is that you should put in writing anything that's important to you regarding the purchase, such as the items to be included in the sale, the condition of the house, repairs or work you want done prior to closing, or any other conditions of your purchase. Don't assume anything. Agreements not put in writing are often unenforceable with regard to matters involving real estate.

Once you get your purchase agreement written, either you or your agent will present it to the seller. The seller will review the contract and can do one of three things. They can accept the offer, they can make a counteroffer, or they can reject your offer. If the seller rejects your offer, the transaction is dead and you should start looking for another home. However, you can still change your offer and resubmit it at a different price or terms.

Once an offer is accepted and the acceptance has been relayed to the other party, you have a legally binding contract. However, if either the seller or the buyer fails to meet the conditions of the contract, the other party may sue for specific performance. In this instance, the non-performing party may be held liable for the cost of the home, legal fees, or any other damages incurred.

Remember, once an offer is accepted, you cannot change any of the terms of the offer without approval of the other party. That said, you need to set realistic time frames in your offer for your loan approvals, closing dates, and inspection dates. Don't let other people pressure you into shorter or longer time frames that you're not comfortable with. Trying to rush a closing day creates stress and a chance for error for all parties concerned.

Buying a home is an existing time for many of us. However, be sure to review all of the details of shopping for a new home in order to better protect yourself. That concludes lesson five of our home buying series. I'm Jewell DiDucca with American Consumer Credit Counseling. Please join us next time for lesson six, when we discuss finalizing your loan.


American Consumer Credit Counseling (ACCC) provides non-profit credit counseling, debt reduction programs and debt relief services to help consumers nationwide figure out how to pay down debt and how to get out of debt quickly. Our professional credit counselors provide free credit counseling to help individuals and families find the right debt solutions to help with credit card debt and avoid debt in the future. Our debt management programs provide help with debts by consolidating payments on credit card debt and other unsecured loans, with credit card negotiation services to reduce credit card debt interest rates and finance charges, helping consumers to pay off debt more quickly.

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