Who’s Who in the Homebuying Process

 

Because of the large amount of money involved with mortgages and real estate transactions, many agents, representatives, service providers and individuals are brought in to protect the interests of the different parties involved.

As you buy your home, you will have direct and indirect contact with several agents and service providers.  The following are the most common and important service providers you will encounter:

• Appraiser
• Attorney
• Buyer’s Broker & Real Estate Agents
• Closing Agent
• Credit Reporting Bureau
• Property Inspector
• Insurance Agent
• Listing Agent
• Loan Officer & Processor

All of the above agents are discussed in more detail below.

Appraiser

The real estate appraiser determines an approximate fair market value for the subject property, based on a review and analysis of recorded data about the subject property and its locale.  The mortgage lender you finally select to complete your mortgage loan will order the property appraisal report.  Although the real property appraiser must be approved by the lender, the buyer sometimes has an option regarding the selection of a certified or licensed independent appraiser.

The appraiser is separate and distinct from the real estate inspector, because the appraiser’s focus is on the market value.  In most cases, the appraiser assumes that the property is in normal working order and only visits the subject property briefly to confirm its structure, amenities and condition.

When visiting the property, the appraiser will take floor and lot measurements, as well as photograph the property and neighborhood.  The appraiser will also use the visit to confirm the property’s condition.  The appraiser usually will not calculate any major adjustments based on the property’s condition, unless the property shows visible deterioration or contains major value-inflating improvements.  Still, improvements can increase the property value only so much — the neighborhood has the biggest anchoring influence on the appraised value.

Typical appraisal cost: $250-$300 (single-family home) & $450-500 (2-4 unit properties)

Attorney

Both the seller and buyer normally will have attorney representation.  In most cases, communication between the two parties are usually only done between the attorneys or real estate agents.

It is the attorney’s responsibility to protect their client’s legal and financial interests.  The buyer’s attorney will review all documents involved with the purchase transaction, from the purchase contract and loan good faith estimate disclosure to the closing’s final settlement statement.

The buyer may sign a purchase agreement before obtaining an attorney to review the contract—but only if that agreement contains an attorney review clause, which gives the buyer’s attorney time to amend or pull out of the contract.

When the loan is approved, the seller’s attorney will provide a clear preliminary title commitment, usually through a title insurance company.  In some cases, however, the seller’s attorney will conduct the title search and procure title insurance , instead of using a title company.  If there are problems with the title or liens that must be paid, the seller’s attorney will normally be responsible for clearing those issues for the closing.

Once the preliminary title commitment is accepted and loan is fully approved, the loan closing will be scheduled by the seller’s and buyer’s attorney.  Although the seller’s attorney normally consults the purchaser’s attorney, it is usually the seller’s prerogative.

At the closing, the buyer’s attorney will review the dozens of legal documents and disclosures that must be signed by the buyer.  The buyer’s attorney will explain each document to the buyer before it is signed.  Also, both attorneys will calculate prorations and verify the final transaction figures prior to consummating the closing.

Typical attorney cost: $250-$500 per standard closing

Buyer’s Broker & Real Estate Agents

The homebuyer’s primary guide in the home-buying process is normally that buyer’s chosen real estate agent.  Most homebuyers will select a standard real estate agent or Realtor.  Some buyers may select a more specialized agent, called a buyer’s broker.

The certified buyer’s broker has only recently become a more focused service and should not be confused with the real estate agent or broker.  The buyer’s broker represents only the buyer and has no allegiance to the seller.  The task of finding for-sale properties for the buyer is the same for both the buyer’s broker and real estate agents.  But there are key differences:

• Buyer-paid commission. With standard real estate agents and brokers, the seller pays the commission of all real estate agents involved. When a buyer hires a buyer’s broker, however, the buyer pays that buyer’s broker’s commission.
• All regular agents work for the seller. The real estate agent or broker—even when they are not the listing agent—still represent the seller in varying degrees.  Let me repeat this: the real estate agent or broker, which most buyers contact to find them homes, are technically working for the seller, because it is the seller that is paying their commission. Although real estate agents and brokers may spend the bulk of their time working for the buyer, the technicalities of the real estate transaction ties them to the seller.  Like it or not, every real estate agent you work with as a buyer (except for the buyer’s broker) legally works for the seller—not you.
• Buyer’s broker find more property. Standard real estate agents and brokers tend to limit their search to properties listed in their office or on the MLS, because they are assured of commission from the sellers of those properties. Since buyer’s brokers depend primarily on the buyer for their income, their search can be expanded to non-traditional methods, such as contacting property owners (who are not actively selling their properties) about the possibility of selling to the broker’s buyer. True buyer’s brokers can often provide prospective homebuyers with access to other properties not currently listed, such as For-Sale-By-Owner (FSBO) and some newly developed homes.  They can do this because they arrange compensation from the buyer, whereas real estate agents and Realtors are normally free to the buyer.

Most real estate agents usually will not direct the buyer to “unlisted” properties, because there is no incentive in it for them.  Remember that the real estate agent depends on the commission paid by the seller, and only listed properties normally offer such seller-paid commissions.

By the way, a Realtor is a trademarked name referring to a real estate agent who is a member of the Board of Realtors. Not all real estate agents or brokers are Realtors.

This does not mean that you should hire a buyer’s broker instead of a standard real estate agent. In fact, the vast majority of homebuyers use standard real estate agents and brokers, and have no need for buyer’s brokers. For a more detailed discussion about real estate agents, see the “Shop with Realtors” chapter of this guide.

Typical real estate agent cost: often minimal because your agent shares the seller-paid commission with the listing agent.

Closing Agent

The closing will be conducted by a closing agent, often called the escrow agent, who is usually a representative of the title company.  However, the seller’s attorney will sometimes conduct the closing and in some cases is the representative of the title company.

The closing agent will prepare many of the closing documents, although the mortgage loan documents and disclosures are usually packaged by the lender’s document preparation department or provider.  The buyer should expect to sign dozens of legal documents and disclosures.  The seller will only need to sign a few documents and often skips the closing, as the seller’s attorney is the only person necessary from the seller’s party.

The closing agent will gather final transaction calculations from both attorneys and collect any necessary funds from the buyer, seller and lender.  Once all documents are signed, the closing agent will notarize them and prepare them for recording with the county.  After a final review and check with the lender, the closing agent will then disburse funds to the seller, attorneys, real estate agents, service providers, lien holders (who must be paid off) and buyers, as required by the transaction.

Typical closing agent cost: $150-$250 per standard closing

Credit Reporting Bureau

During its loan application underwriting, the lender will order a full credit report from a credit reporting bureau.  The credit reporting company will check all credit repositories and available legal information on the applicants in order to prepare this full credit report.  One of the credit bureau’s task during this process will be to contact the applicant to verify the information that has been received from various sources.

Typical credit report cost: $50 per individual or (joint) couple

Property Inspector

The property inspector is a buyer’s option—but is strongly recommended.  Again, the inspector is separate and distinct from the appraiser who concentrates on the appraised market value.

Instead, the property inspector will conduct a thorough examination of the property for defects, operating efficiency and overall condition.  Among other things, the inspector will check heating, cooling, plumbing and electrical systems, as well as the building’s structure.

It is also a good idea to accompany the inspector if you are a first-time homebuyer, as it may be the first and only time you can learn such practicalities as restarting a furnace, locating the circuit breaker panel and checking the primary water valves.  Additional information about inspecting properties is provided in the “Property Inspection” chapter of this guide.

Typical inspection cost: $250-$400 (single-family home); $300-$600 (2-4 unit properties)

Insurance Agent

At the typical closing, the buyer must provide proof of paid hazard (homeowners) insurance coverage for one full year.  This is the typical mortgage loan requirement and should only take 15 minutes of the buyer’s time.

It is advisable to use a respectable insurance company in the area of your home, as you will want the insurance agent nearby if you ever need to file a claim.  The agent will have to briefly review the property to confirm acceptable condition, but this should only take a few minutes.  Properties with serious defects may have a more difficult time obtaining affordable, if any, insurance coverage.

When arranging a hazard insurance policies, insurance agents consider both the subject property and borrowers. They pull credit reports and analyze the condition of the property and its area. These elements will determine the premiums that the homeowner will have to pay for the insurance policy.

More information about insurance is provided in the “Insurance Review” chapter of this guide.

Typical insurance agent cost: free (agents are paid commission by their company); insurance premiums will vary based on program selected.

Listing Agent

The listing agent is the real estate agent, Realtor or broker responsible for selling the property.  The agent works for and, in some capacities, represents the seller.  The name derives from the agent’s primary task of “listing” the property for sale, usually through a multiple listing service.

When a buyer finds a worthy property, the buyer’s broker or real estate agent will approach the listing agent to make an offer, arrange preliminary inspections and negotiate a final price.  The listing agent shares the property’s sales commission with the buyer’s real estate agent. For a more detailed discussion about real estate agents, see the “Shop with Realtors” chapter of this guide.

Typical agent cost: the listing agent shares the commission paid by the seller.

Loan Officer & Processor

The lender’s representative is typically the loan officer, although the applicant may also have to communicate with the loan processor or underwriter.

It is the loan officer’s responsibility to initially prequalify and preapprove the buyer’s mortgage loan application, as well as eventually obtaining final approval and coordinating the loan closing for your purchase mortgage loan.

Because of the money and government regulations involved, loan officers must provide the borrower with a good deal of information.  By the same token, the loan officer must gather several borrower documents to support and process the application.  More information is provided in the “Loan Processing” chapter of this guide.

Typical cost: negotiable, though the loan officer is often compensated by lender

Go to next HomeBuyer Guide chapter:  Homebuying Considerations