First Time home buyers or people who haven't bought in a while are curious about the procedure of buying Real Estate. Many new buyers tend to underestimate the amount of work that is required to get the keys to their new home. After they have successfully closed many of our clients have commented about how they had no idea the obstacles and important choices that would come up during the process. Even the most well researched first timer is usually humbled at some point along the way. The Los Angeles real estate market has always been competitive and when certain neighborhoods become fashionable (like Silver Lake, Eagle Rock and Highland Park are right now), the buyers will crawl over each other for properties even in the midst of a down market. Knowing how to position yourself ahead of the crowd is important as a buyer. Choose an agent that fits your personality and one who has experience with your specific area. You're going to be working closely with your agent and they will guide you through the inevitable ups and downs of every transaction. Remember to ask your REALTOR any and all questions you have about anything-that's what they are there for. Home Buying is a journey but with knowledge of the path ahead it can be navigated with confidence and poise.

Here is an outline of the home buying sequence in order from start to finish and what buyers can expect at all points of the transaction. 

1. Secure Financing. Unless you are paying all cash, the very first thing to do is get a mortgage preapproval from a lender. To get a quick idea of what you could qualify for go here. The lenders are all underwriting according to the same guidelines set forth by Fannie Mae and Freddie Mac. They all require the same things for a mortgage and they all offer about the same rates. The major difference is the ability to get the loan closed. Obtaining a mortgage is tough for anybody in this tight credit market, so choose a lender with experience who is getting things done. Your lender will pull your credit and will want to see two years of your W2s or 1040 income tax returns. If you are self employed, the lenders will qualify you based on your NET income (after expenses). They will look at your down payment and give you payment options based on your goals. Once you've figured out what you can afford and want to pay with monthly mortgage payments your lender will write you a preapproval letter. The letter will be included with every offer you write as a real estate buyer. You'll be needing a certain amount of money for down payment and closing costs to complete your purchase, so have that money ready and don't leave your job or apply for credit from anywhere until your loan is closed. You'll get a Good Faith Estimate (GFE) from the lender for closing costs so you'll know what the bottom line to bring in will be. Typical buyer's closing costs are between 2-3% of the purchase price (4-5% for FHA loans) so make sure you have that amount in addition to your down payment available at closing time. Don't move money around, keep it in one place until you close. If you have to move any money keep the paper trail because the lender will need to account for every dollar going into escrow. Listen to your lender very carefully, they have many different underwriting rules and guidelines to follow and the loan will not fund until all of their requirements are met. In this post mortgage meltdown environment the lenders are always the ones holding up escrow closings.

Current Mortgage Rates

2. Find the property, write your offer, get it accepted.
Finding the property is the fun part. Your agent should be showing you many properties, and you should be learning from each one. There is no better way to get a feeling for the real estate market then to go see many properties. Seeing, touching and smelling these properties first hand is the best way to learn exactly what things cost. The experience cannot be simulated on a computer screen (yet). I try to see at least 10 different properties each time I go out with a client. If you're going to look at houses, go look at lots of houses. If something feels right to you, it usually is.

Standard California Residential Purchase Contract


Once you begin to write offers there are many things to be aware of in the fine print. These details can mean thousands of dollars coming from your pocket at closing so understand clearly everything you are offering to the seller. Some details that have popped up on my closing statements have been: unpaid city assessments, Mello-Roos taxes, City of LA housing department abatements, Hidden contractor liens and on and on. Once the contract is accepted then it is taken verbatim by everyone involved so make sure you are OK with what you are putting on it. Ask your agent what the protocol and customary fees are for the items that you are including, they will know and advise you. This is why they are getting paid.

It is impossible to know everything about the property when you are writing offers on it, so accept some uncertainties in the beginning. As knowledgeable as your agent is, they won't be able to tell you absolutely everything about the property's maintenance history, neighborhood information, etc. The successful buyer needs to be able to act quickly and decisively with limited information. The best properties never stay on the market long in Los Angeles, despite economic or market conditions. The early bird gets the worm with real estate so don't get "analysis paralysis" as Rich Dad calls it. If you know the property is right for you, write the offer now because you'll have time to think about it before you have to commit. Writing an offer does not obligate the buyer to anything until the seller accepts it. No money will change hands until buyer and seller agree on price, terms, repairs etc in writing and escrow is opened. That process takes 72 hours at the very least. It is not uncommon in seller's markets like Silver Lake and Highland Park to have to write multiple offers just to get one accepted.

After the offer goes in and a bit of luck, the seller will most likely counter-offer and request concessions. Higher price, shorter escrow, less closing costs etc. This negotiation is natural and should be approached with patience and serenity. Don't be flustered by aggressive counter offers, deal with them knowing that you are making progress. Too many times first time buyers bury their head in the sand at the first counter offer, probably because they feel intimidated not having negotiated much in their lives. That's perfectly acceptable, but I don't think any buyer should give in too easily to the sellers' demands. Many times the seller's agent will create inuendos about other buyers circling the property ready to pounce like well-funded lions, but in some cases it is a bluffing tactic. It's like a poker game. Keep a cool head and act rationally. This is another area where your agent has to earn their keep. They will be able to guide you, and should be heeded. After the dust settles and a counter offer is signed by both buyer and seller, notify your mortgage lender immediately and send them what they need right away to start underwriting the mortgage. Remember, the lender will be the slowest cog in the machine so get them started right away.

3.Open Escrow, put down deposit money.
Escrow is a neutral third party licensed by the state to carry out the contract. They ensure first that the seller doesn't take the buyer's money and the buyer doesn't take the seller's property. They see to it that all taxes get paid, all liens and any claims against the property get paid, every expense is accounted for and prorated up to the day the buyer takes title to the home. All money gets sent into escrow and sent out by escrow. The buyer will have to send in their earnest money deposit to escrow at this point. That is usually done with wire transfer or cashiers check. Escrows rarely accept personal checks. Wire transfer is easiest but it usually costs $30 each time. Escrow will send you out a small pile of paperwork to fill out. That paperwork needs to be returned to them as soon as possible. The buyer will need to determine their vesting, need to give background information and other questions. If your agent is not available, calling the escrow company for questions is perfectly acceptable. Once escrow is opened, the clock starts ticking with the buyer's agreed upon Inspection and Loan contingency periods. Every day counts, so buyer's need to be ready to respond quickly to the requests of the lender, agent or escrow company. Email is the best way to send paperwork back and forth because it's possible to pull up what was sent and received by everyone involved. Make sure you keep or get copies of everything that you sign and keep it for your records.

4. Get a property inspection. Getting an inspection is currently not mandatory in CA but it should be. I require all Preferred Realty and Loan buyers to get an inspection, even on new houses because you never know what you'll find. Inspectors are licensed and bonded professionals and hold insurance policies in case they miss anything in their inspection report. They never do. The agent will be able to recommend an inspector to you. They cost from $250-$450 on most houses and condos and are usually paid by buyer. If possible, go out and meet the inspector at the property when he's inspecting and ask questions. Inspector are typically contractors and they all know what to look for. They will provide you a large report outlining everything that is notable in the house. When you get that report, don't feel too broken hearted when problems are disclosed. Most houses have problems with them, especially in LA where most houses are 50+ years old. Things to pay attention to in inspection reports are:


-Foundations, especially on hillsides. Foundation ideally should be bolted to the piers (wood beams). Foundation problems are seen in cracks that go from ceiling to ceiling or floor. In hillside houses, it is natural for the soil to move 1/10" per year. Keep that in mind. Gravity always wins.

-Any leaking water in roof or pipes. Water entry is the biggest problem in houses. Even in the desert climate of Southern California water intrusion is still an issue, and anywhere that has water should be examined for dryrot. Mold is a frequent accomplice of water leaks, and should be examined (although there are hundreds of different strains of mold, only a couple of which people are allergic to.) Mold can pose a special problem for potential landlords with liability to the tenants. Also look for water coming off the roof and not flowing away from the structure. Water that pools next to walls will inevitably make its way inside those walls.

-Old elecrical systems if there are air conditioner units or other large power draws. An updated 220v electrical box on a 1500 sq ft 3+2 house will cost 3-4 thousand dollars. Look at the breaker panel. If you see cloth wires going to a fragmented, unlabeled center then it's probably going to need to be updated.

-Termite damage on wood frame houses. Termite inspections are often required by lenders. A termite company will go out to the property and give estimates. They are heavily regulated in California so estimates don't vary too much from one contractor to the next. Termite damage looks kind of like swiss cheese, poking holes in wood window frames, beams, eaves, joists, etc. Termite repairs come in two phases; phase 1 which is everything structural, anything that holds the house up. This phase 1 repair bill is typically paid by the seller. Phase 2 is anything cosmetic and is typically the buyer's responsibility. The most termite dam age that we have seen was  in 2008 on a two bedroom home in North Hollywood that had to be completely tented and some of the structural joists replaced at a cost of $3500. Most termite bills are around $1000 for houses under 1500 square feet.


This is a robust example of a standard California termite damage report. The different types of termite damage are numbered and shown on the footprint of the structure. This foreclosed fourplex was crawling with termites. Cost to fix this severe damage was $5300.


Example of Termite damage on a wooden window frame. This would be Section 2






There are many more issues to discuss when seeing home inspection reports, but this blog is only so big. When you get the home inspection report back, look at the report closely and ask questions about everything that is unsatisfying. The requests for repair will be based on this inspection report, and that is an opportunity for buyers to negotiate for repairs or credits from the seller. Keep in mind that the inspector is working for you, the buyer, and will write up his report accordingly in your favor.