I know this forum is mostly about real estate investing, but I also know that this is the best place to ask about the details of a cash deal. I am about to purchase my first house (I will occupy). Up until now I have been renting. I am beginning the process, plan to purchase 3-4 months from now, and I just want to make sure I understand the things I should be thinking about.
First, most likely this will be a 100% cash deal. How do I research the relevant laws/regulations around this (I live in Texas); should I expect there to be any? I seem to recall there being a minimum waiting period. Also, at what point in the negotiation process do you think I should mention that I can do an all cash deal / fast close?
How do I perform a title search, given that there will be no lender involved who will be coordinating that and just sending me the bill? What other due diligence do I need to do in this regard?
I’ll hire a home inspector. Do I need a separate effort to survey and verify the property boundaries? If so, what is this person/service called.
Any other tips or considerations would be extremely helpful.
Not sure of the specifics of Texas law and customs but I can tell you about how its done in South Jersey. I am a cash buyer so we have that in common. I ALWAYS buy title insurance to eliminate the risk of fraudulent title transfer from previous owners. In NJ that means a title agency is involved and in SJ they will do much of the work. The title agency will perform the title search before they issue title insurance, and of course you pay for the search since they require it be done by their approved personnel or contractors. They won’t issue insurance without a search. In all cash deals you won’t be required to perform a termite inspection but it might be a good idea anyway if you don’t feel competent doing it yourself. Hiring a house inspector is another good idea if you don’t feel competent doing it yourself. I always also get a survey to ensure the property I think I’m buying is the actual property I am actually buying. The title company may also require the survey or they will likely add an exception to the policy for ensuring the boundaries.
You might want to consider hiring a real estate lawyer to provide contracts and guidance if you have absolutely no idea what you are doing. A lawyers fee for a simple real estate purchase should be reasonable … $300 - $500 dollars.
Even if you are an all cash buyer, if you are buying through a real estate agent they will usually take care of most of the details for you, but you don’t learn much by letting someone else do all the work and not getting involved.
Specific answers to your specific questions:
I don’t understand your question requiring a minimum waiting period. I typically close in 7 to 10 days depending on how fast the title company can process the paper work.
Unless you are familiar with title searches simply hire a title company to do the search since if you are buying title insurance (I highly recommend it) the title agency will require they do it themselves anyway. Title agencies in your area can be found on the internet or in the phone book.
When do you mention all cash deal? As soon as you decide you are serious about purchasing the property. Most sellers love all cash deals and generally you can negotiate a lower price for an all cash deal.
Surveys are done by Surveyers. They can be found in the internet or in the phone book.
Most if not all of your concerns will be handled by your real estate agent.
Yes, you do want a real estate agent representing you wven in an all cash purchase. Don’t worry about paying the agent. The agent’s commission is paid by the seller.
In my limited experience, termite inspections (when reqired) were usually paid for by the seller. A good real estate agent will know the law and the standard practices for the area and will be able to recommend contractors or service providers that you may need to hire.
Your agent will also make sure that you are not paying too much for the property and that the terms of the contract are fair and reasonable.
I’m not really sure if your post was tongue-in-cheek or not, but assuming it was not:
We can agree to disagree regarding our opinions on RE agents. I avoid them whenever possible to do so. I haven’t seen an agent yet who added any value to a deal and certainly none who added any value to a property. Even though I agree with you that a GOOD agent should know the law and standard practices, I find that very, very, very few have any interest in anything than playing the numbers game and shopping you through as many houses as they can in the hopes that something will stick. Although I’ve only been investing for 5 years, I’ve yet to have an agent even show me property that was a good investment. Around here at least, agents don’t seem to believe its possible to buy at 50% - 60% of ARV.
Additionally, it is my understanding that in most cases agents have a fiduciary responsibility to the seller to get them the highest price possible and would be remiss if they counseled a client that they were paying too much for a property.
In this area at least, all mortgage lenders require termite inspections, (obviously that would imply the transaction was not all cash) and the buyer pays for the inspection. I certainly wouldn’t want the seller paying for a termite inspection since the seller has an incentive to hire the company the never finds termites.
If you know what you’re doing you’ll be fine without an agent, but like Dave T said if you’re not really up to speed on how all of this works (as your initial post suggests) why not enlist a Realtor? Your Realtor will represent you, not the seller, and they split the existing commission with the seller’s Realtor so it really is no cost to you. If you’re paying all cash you should be able to really swing the price negotiations in your favor regardless of Realtor representation.
To answer your other questions:
I also don’t understand your question requiring a minimum waiting period. I can’t imagine there being any legal/bureaucratic restriction for paying all cash.
I’d tell them right off the top I’m a cash buyer so you can find out right away if you can get a good price.
The closing agent/attorney will order title. It’s a closing/settlement cost.
You don’t “need” a survey per se unless you have boundary concerns, but you can certainly order one if you want.
“they split the existing commission with the seller’s Realtor so it really is no cost to you.”
I really am shocked at how many times this gets repeated in real estate forums. It’s not true. If you don’t get a buyers agent, then the sellers agent could sell the house at half the price and get the same commission. Now, I’m not saying an agent would suggest selling at 1/2 the price, but to suggest that it is free to the buyer is just silly.
As for the rest of the content in this thread, I really appreciate it. It’s extremely helpful and I appreciate the time taken to reply.
I agree. Money in their pocket is money NOT in your pocket. And again, unless you have signed a “buyer"s agent” agreement with an agent, the agent is almost assuredly working for the seller and has a fiduciary responsibility to get the seller the highest price possible. NEVER provide an agent with details that are beneficial to the seller, they generally have a responsibility to disclose the data to the seller.
The listing agreement will have a set commision to be split between the sellers and buyers agent, so in your position you could actually work this to your advantage.
Either negotiate that the commision your agent would have gotten come off the price -or-
Find an agent to represent you as a buyer to simply help walk you through the deal who will also kick you back a majority percentage of the commision after closing.
Yes, the listing agent does have a fiduciary responsibility to get the seller the best price possible. A buyer’s agent, on the other hand, has a fiduciary responsibility to the buyer to negotiate in the best interest of the seller. The buyer’s agent will try to get the lowest price for the buyer, the listing agent will try for the highest price for the seller. Finding that mutuallly agreeable price is the purpose of the offer and counteroffer.
I have also heard the argument that the buyer is really paying the sales commission and also that the seller inflates the price to cover the commission. That may be true in a few instances, but in the long run, the marketplace sets the price. A buyer who knows the market won’t pay more than the fair market price for the property. Of course, I am asserting that an informed buyer and an informed seller will reach the same mutually agreeable price whether there are agents involved or not. If there are agents involved, then the seller pays the sales commission out of the proceeds of the sale.
In my area of the country, wood boring insects are pervasive and our state law concerning real estate sales requires a “termite” inspection for any property that could become infested. The standard practice is for the BUYER’S AGENT to order the inspection and for the seller to pay for it at closing.
:eek2 HUH? With all due respect your hypothetical half-price scenario makes absolutely no sense to me. Again, no disrespect intended.
Yet again, Dave T is correct. It is customary that the seller pays the Realtor commission, unless some other deal is worked out. It comes out of the seller’s proceeds. If the listing agent has a 6% commission locked in, 99% of them are fully prepared to split that commission 50/50 with a buyers agent, and best believe they are GLAD to do it especially in this market. If a buyer agent brings them a qualified buyer who loves the house then the listing agent will be elated to make that $5k instead of $10k (as opposed to $0 if the listing expires). At least that’s how it’s done in the 18 states which I’ve done mortgages, deals, and/or bought real property. And if the seller inflates the price to cover commissions well you don’t have to buy it now do you?
None of this makes a real difference anyway if you’re paying all cash…you pay what makes sense to you or take your checkbook and move on. If it were me I wouldn’t even look at listed properties anyway, I’d market to a targeted list and cut a deal directly with a homeowner.
Im an agent…I do not do sales, but if I did and a friend, investor, or associate etc. came up to me and said they are absolutely purchasing this house cash, and would I represent them as an agent to handle the contract, and put in an offer/handle the negotiations for $500 bucks, or $xxxx amount of money and kick them back the rest I would take them up on their offer.
I might negotiate my position, but for sending a few faxes over and maybe answering my phone a couple times I would help them do the deal on a property they found on their own and plan to try and purchase without me or not…Otherwise they likely go into a negotiation with the sellers agents broker being able to assign an agent from their brokerage to represent the buyer. The listing agent has an agreement with the seller to receive X% in commision from that listing…from that X% they agree to pay another agent Y% for bringing them a qualified buyer.
Maybe I am talking about a different circumstance, but I guess it sounds like the OP needs a friend who is an agent to hold his hand through the contract and get him to kick back some dough
No offense taken. And I hope that you do not take offense when I point out that this is introductory economics. Taxes work the same way. Whether the buyer or the seller is responsible for actually remitting the taxes is irrelevant. The portion of the tax (or commission) paid by the seller and the portion paid by the buyer is dictated by what is called price elasticity of demand; that is, how much demand for the good/service changes when the price changes. In other words, how sensitive is the market to price changes in that particular good/service?
Bottom line: it is not true that a buyer’s agent is free to the buyer.
In my area is is not just customary that the seller pays the commission, it is stated as so in the listing CONTRACT between the seller and his real estate agency. However, there is nothing that would stop a seller from attempting to renegotiate that commission prior to accepting a buyer’s offer that does not explicitly meet the terms of the listing contract.
In my area there is no law that you must get a termite inspection, a survey, or title insurance when you buy a property, but every mortgage lender I am aware of requires it and they are customarily paid by the buyer and are generally ordered by buyer or the real estate agency the buyer is working with, or, in many cases, by the title company.
In my area, unless you (as a buyer) have signed a “buyer’s agency agreement” with an agent, the buyer’s agent still works for the seller and that agent has a fiduciary responsibility to the seller.
Also, in my area, these and just about every other closing cost, are negotiable between the buyer and seller. This is why I have 2 sets of purchase contracts, one for buying and one for selling. Rather than crossing out or checking off who pays for what in the contract, each of my contracts shifts the allowable costs away from me and to the other party.
But the commission is already locked in on a listed property…it was locked in when the seller signed up with the listing agent. If you bring a buyers agent in, the existing agreed-upon commission is simply split between them. They’re not gonna raise the price of the house to pay your agent. You bringing in another agent doesn’t change anything financially other than how the existing commission gets split up.
Sure if you didn’t bring an agent the seller could theoretically ask his listing agent to take half the agreed upon commission and drop the price by that amount, but why would the listing agent agree to do that for you or I or any other buyer?
I agree, anything is negotiable…as long as all parties agree & sign off it’s really whatever. But if I, as a buyer, have to bring money to closing to pay a listing agent’s commission it better be one HELLUVA deal…
I’m sorry, but the explanation you are giving violates everything we know about personal economic behavior. We have commissions for a reason. We want to provide an incentive to the seller agent to get the highest price for the seller. Thus, a percentage is used to make sure that the higher the sale price, the higher the commission to the sales agent. The problem is that a sale price at $200k WITHOUT a buyers agent provides a HIGHER commission to the seller agent than a sale price at $225k WITH a buyers agent.
Your point about the commission being “locked in” at the time of the sale misses the point entirely. The rules may be “locked in”, but the rules state that the commission schedule is completely different if there is a buyers agent, and to suggest that has no effect on sales price ignores the very purpose of commission in the first place.
Mwarden…I have no idea what you are insinuating and trying to explain but I would like to understand you.
When a real estate agent takes on a clients listing they can negotiate a commision % on their house. That number is negotiable and could be 1% or it could be 10%. THIS IS THE ENTIRE COMMISION FOR THE SALE OF THE HOUSE FOR BOTH THE LISTING AGENT AND THE SELLERS AGENT.
The listing/sellers agent then has the opportunity to split that single commision percentage up on the listing and advertise it in the MLS along with their property. They could give up MORE then half of the commision if they chose and wanted to potentially generate more traffic to their house.
So what is it you are trying to tell us exactly? That this commision percentage generally affects the listing price of the house overall instead of just market value, or something else? Just trying to follow-
I think you guys are stuck in the weeds, here. I understand all of those details. They aren’t relevant. The bottom line is that when a buyer has an agent, the seller has to split their commission. The details of that split don’t matter. Intuitively, if two buyers offered exactly the same amount with same contingencies and everything, but one had a buyer’s agent and one didn’t, which one do you think the seller’s agent is hoping will close?
Ok, now take that intuition and ask yourself why you came to that conclusion. The answer: because the commission is THE INCENTIVE and there is LESS of that incentive for the seller agent when there is a buyer’s agent.
The seller is trying to make a sale for the most amount of money at the lowest cost. This likely means sell quickly. So, will the seller agent recommend to the seller to take a deal at a 15% discount from list price? Who knows, but it’s clear that they are MORE LIKELY to make that recommendation if the buyer has no agent.
I am talking about simple incentives. The commission is the incentive. More commission means more incentive. You rightly point out that the RATE of commission is fixed, so there is only two ways to increase the commission dollar amount to the seller agent: (1) sell at a higher price, (2) sell to a buyer without an agent.
Does that help explain? I am having a hard time explaining because I don’t understand the part you and others aren’t following.