How to Buy a House in 2024

David:
This is the BiggerPockets Podcast, eight, seventy-nine. 879 and we’re feeling fine, folks. What’s going on? This is David Green, your host of the BiggerPockets Real Estate Podcast. Can’t believe we’ve had eight-hundred and seventy-nine shows, and we’re still going strong and today is going to be one of the strongest shows you’ve ever heard. I’m here today with Rob Abasolo, Real Estate Superstar, wunderkind and short-term rental expert extraordinaire, and we are going to be talking about how to buy a house.

Rob:
Well listen, before we get into that, while all those accolades you gave me, and I’ll ask for a few more after this, but while all those were really great, really it’s about you today, my friend, because it is your birthday. Happy birthday, David.

David:
Thank you. Thank you. And what an amazing present that I get to record the best podcasts in the freaking world on my birthday and share with the masses the accumulation of knowledge that I picked up over the last decade of buying houses and help people be sheltered from buying them the wrong way or what’s worse, not buying them and losing out on the potential wealth that they could build.

Rob:
That’s right, and we have an awesome show for everybody today called How to Buy a House in 2024. During this show, we’re going to break down the logistical process of buying a house, and you guessed it, 2024.

David:
We’re going to be discussing everything that you need to do before submitting an offer, the strategy to get your offer accepted, and then the step-by-step process of buying a house once you’re in escrow, along with a lot of tips that will save you money, make you money, or help you avoid making mistakes that I’ve picked up over the thousands at this point of transactions that I’ve helped facilitate as a broker, as well as all the houses that Rob and I have bought ourselves. If you are looking for a real estate lender to help you with your purchase, BiggerPockets has got you covered. You can head over to biggerpockets.com/LenderFinder.

Rob:
And while you’re at it, if you’re looking for an agent that can help you with your next investment purchase, you can also head on over to biggerpockets.com/AgentFinder and we’ll get you hooked up with someone that can help you out in your specific market.

David:
All right, with that being said, let’s get into the show.

Rob:
So before we get into the step-by-step process of buying a home, David, what does a buyer need to do before they actually buy a home?

David:
The first thing you have to do before buying a home is know who the pieces that you’re going to need to be in the process. In my book, Long Distance Real Estate Investing, I talk about the core four, and these are the people that if you have them, you can buy a house in any market. So real estate agent, a lender, a contractor, and a property manager. Now if you don’t need a property manager, you can be managing the property yourself or it’s a primary residence, you can throw that one out and if this isn’t a property that’s going to need an extensive rehab, you don’t need a contractor, but you definitely need the real estate agent and the loan officer. So my advice is you start by finding the best agent you can and that agent will usually have the resources that you’ll need for the other pieces like a loan officer.

Rob:
Okay, so there are so many realtors and lenders out there. How do you know if you have a good lender or agent?

David:
Yeah, the first way that I vet people when I’m buying in a different area and I don’t know the quality of the person I’m working with is, I ask them questions like, how would you handle scenarios like this? So I’ll say to agents, “What are you going to do if the property I want has multiple offers?” Or, “What recommendations do you have if we find a property that’s going to need extensive work?” And what I’m looking for is an answer from them that shows that they’ve been there before. “Well, in situations with multiple offers, here’s the strategy that we use to win or here’s the way that I’m going to relay it to you, David, I’m going to ask you how much are you willing to pay for this house? What’s your strongest offer? And I’m going to go find out if that would work and if the answer is no, we’re just going to move on. We’re not going to waste our time going after a house that we can’t buy.”
That shows me that the agent has been in this situation before and they’re going to advise me on what’s going to work. What you’re trying to avoid is the agent who just says, “Okay, tell me what you want me to do. You want me to write an offer? I’ll write it. What do you want me to write it for? Okay, I’ll write it for that. You want me to call the listing agent? Sure, I’ll call him. What do you want me to ask?” You want to avoid a scenario where you know more about real estate than what your agent does.

Rob:
That gets harder and harder as you become a seasoned investor too. So I feel like when you do find that realtor, it’s very, very impressive. I’ll say for me anecdotally, one of my red flags that I see whenever I’m working with the realtor is I tell them my buy box, my criteria, purchase price, all that stuff, and they say, “Great, I’m going to put together an MLS listing filter for you and every time a property meets this criteria, we’ll send you an email.” That is the number one thing that I expect from a realtor. I feel like that’s the number one value they can bring me at the beginning because otherwise I’m sort of on Redfin or Zillow doing that myself. And so oftentimes they say they’re going to do that and they never send it out and I have to remind them two or three times to ever get that made. And if that isn’t ever made promptly, then I probably move on to the next realtor.
Have you ever come across this in your journey whenever a realtor doesn’t actually do the things they say they’re going to do at the beginning of it?

David:
Brother, I’ve been the realtor who’s made that mistake before.

Rob:
Hey, we appreciate the honesty.

David:
I know what it’s like to be on both sides. The way that I think that that situation should be handled is the realtor is going to say, “Here’s what we’re going to do. We’re going to put you on the search.” Like you just said, “Okay, when can I expect that to be done?” And you want them to commit to giving you a date and you say, “Okay, if it isn’t done for some reason, how do you want me to handle that? Well, how do you want us to move forward if you don’t do what you say you’re going to do?” What that does is it puts pressure on a realtor and if there’s one thing that realtors want, it’s to be liked. Almost all of them are a high eye on the disc profile. They want you to like them. And if you say, “What are we going to do if you don’t do that? It puts a chill of fear down their spine and it now elevates you to the top of their to-do list because they don’t want to let you down. And if they don’t do it after they said they were going to do it, you can have a clear conscience about moving on to the next realtor.
This became such a big deal that in my agent business, I hired an assistant to be at the office because I realized that when I would make those mistakes is when I was on the road showing homes trying to take a phone call between showings and the client would ask for something and I’d say, “Yep, I’ll get that to you tonight.” Seven hours later, all of the crazy things that would happen in the day and it would slip my mind. So I realized I need a person, like a police officer needs a dispatcher, sitting at a desk making sure these things get done and a good agent will be running their business like a professional, they’ll have those systems in place.

Rob:
Perfect. Yeah, I think that “I’ll get it to you tonight.” I am going to just say this for anyone that ever works with me, if I ever say that to you, that is already a lie, never expect it. All right, so once you’ve found an agent who knows what they’re doing, what should you do next? How do you get pre-approved? And once you find a property, how do you make sure your offer is the one that the seller actually goes with. Our insider tips on both after the break.

David:
Welcome back. I’m here as always with Rob Abasolo and we’re breaking down how to buy a house in 2024, step-by-step.

Rob:
So let me ask you this. Let’s say you find a good realtor, you move on to the lender side of things. Obviously buying a house is a really big financial investment. You’ve got to get pre-qualified. Tell us a little bit about how much you should get pre-qualified for and at what step in the process you should get pre-qualified for buying a house.

David:
Best answer for this is to get pre-approved as soon as you can, know there’s a difference between being pre-qualified and being pre-approved. Pre-qualified is a term in the lending industry to say, “They told me this is how much money they make and this is what their debt is, and based on what they said, I’m going to issue a pre-qualification or a pre-qual letter.” It’s not really worth anything. A pre-approval means, “I have checked and I’ve run their credit and I’ve seen their debt and this is their credit and this is their debt. I have looked at their income statements and I’ve verified with their employer, this is how much money they make.” It is a much more solid way of showing a potential seller that this buyer is going to be able to get the loan.
So you want to get pre-approved early, and the reason you want to do it early is not just because you don’t want to waste people’s time, it’s because you want to know what could be improved in your pre-approval situation, that’s going to get you a better rate. Sometimes when they run your pre-approval, they realize, “Hey, if you just pay off this $1,400 line of credit that you have with Macy’s, it’s going to bump your credit score up this much. It’s going to drop your rate by an eighth of a percent or a quarter of a percent.” And maybe you need two weeks to do that. That little step can save you a lot of money. Oftentimes those things don’t come up until you are in escrow when you have a timeline of when you have to close and there isn’t time to move all those little pieces around to get you the better loan.

Rob:
And it’s an initial guardrails, right? If you can’t afford a million-dollar house and you can afford a $500,000 house, then we know out the gate when you’re talking to your realtor and setting up your MLS parameters that you want to be within a certain range financially. The other thing that I’ve found is that pre-approvals are super important because unless you have a pre-approval for your personal finances, you can’t actually submit an offer and get it accepted in most instances, which is a problem because it takes a little bit of time to get pre-approved. It’s not like something that can happen in five minutes. And if it’s a really good deal, then a lot of people with pre-approval letters, will probably get their offer accepted first, right?

David:
In today’s market, if you don’t have a pre-approval, you really shouldn’t be looking at homes and you’re definitely not going to get an offer accepted because when a seller goes into contract with a buyer, and we’re going to talk about this more, basically the leverage shifts in the relationship. Before an offer is accepted, the seller has all the leverage. They can turn every offer down, they can get offers from multiple people. It’s kind of like a person who’s being pursued by a bunch of people on the dating market and they get to choose who they’re going to say yes or no on the date to. When the seller actually accepts an offer, what that means is that the buyer is the only one that has the right to buy the house, and the buyer has all the power because they’re the one that can back out. Sellers can’t back out of a deal. Sellers can’t change their mind about deals, buyers can. So the pre-approval is necessary for the seller to feel comfortable going into this contract where they’re actually losing the leverage.

Rob:
Yeah, that makes sense. So let’s move a little bit into this process. You submit the offer and you obviously if you’re submitting an offer, you want it to get accepted. Are there any strategies that you have in your back pocket to help your offer get accepted in this market?

David:
Yeah. What you want to avoid is throwing your offer into the hat and hoping it’s the highest one. And that’s what bad agents will do, is they’ll say, “Buyer, what do you want to write your offer at?” And they’ll tell them a number and then they’ll submit it and they’ll just cross their fingers and hope that they’re the one that’s picked. Well, just like in dating, most people, if they have multiple options, they’re going to pick the person who they think wants them the most. Your agent as a buyer agent needs to make it clear to the seller how bad you want that house. They need to be calling them frequently and saying, “Where does the offer need to be to get accepted? I don’t want to just hear highest and best. Give me a number right now that your client would say, I’ll take it.”
Or a number that you say it’s not going to work because when I’m selling houses, those are the buyers that I’m going to choose. I’m looking for the one that’s calling me the most, that’s the most aggressive, that’s saying, “Hey, tell me what this offer needs to be and I’ll take it to my client and say, ‘Do you want the house or not?'” The problem is when you get into the guessing game, there’s nine offers, you’re one of them, then the seller comes back and says, “Write your highest and best,” and now you say, “Oh, what’s my highest and best? Well, I don’t want to go too high, but I also don’t want to not be high enough,” and you end up in this analysis paralysis. That’s the problem. The agent’s job is to get you as much clarity as possible.
Another thing that can help you is to have your loan officer call the listing agent. I haven’t quite figured out why it works this way, but listing agents look at loan officers more like a neutral third party than they look at the other real estate agent. They see agents as competition they’re competing against to get the better deal for the client, and the loan officer can also sneak in there unthreateningly and get information from a listing agent that a buyer’s agent isn’t going to be able to obtain. So your loan officer can find out how many other offers are on the table, what the price needs to be for it to be accepted, and they can also be an advocate for you as the buyer. “Hey, I’ve looked at this person’s finances. They are rock solid. They’re going to be able to close. In fact, we can probably close in 14 days. We won’t even need the whole 30 to get the loan taken care of. Oh, and by the way, they’ve looked at 60 houses and this is the only one I’ve seen them excited about. They want this house so bad.”
It’s kind of like when you’re trying to get that girl to agree to go on a date and she doesn’t know, and then her friends are advocating for you, “What about that guy? He’s super cool. We’ve always liked that guy.” You know how that kind of can sway the people’s attention to like, “Oh, maybe I should consider that.” Your loan officer can work with your agent to have that kind of an impact on the seller.

Rob:
That’s really interesting. So yeah, it’s like one big 4D game of chess as they call it.

David:
That’s a great way.

Rob:
Bringing in your loan officer’s reinforcements to kind of build up your financial reputation. And I got to say, this did work for me on one of the houses that I bought in the last couple of years where there were a lot of offers. There were, I want to say 10 plus offers on there, and my realtor and my loan officer, which was actually from the One Brokerage, they basically called and they’re like, Hey, we can close very quickly and we know we’re going to do it within a month for the sellers on that. That was super important because everyone else was just in their mind, not qualified or not as serious as I was because that 30 day timeline, even though I don’t even know when we closed, but that was just, I don’t know that stuck with them and I got my offer accepted as a result. Do you have any other cool little strategies before we move on?

David:
One of the things that I like to do when I’m writing the cleanest offer I can is to include contingencies for what could go wrong and how it’ll be handled. So if I’m really trying to get that deal accepted in my offer, I’ll put something like, “In the case that the appraisal comes in lower than the purchase price, I agree to pay up to $10,000 more than the appraised price,” or, “In the case of the home inspection having these kind of issues, this is what we will do.” Or I’ll even ask the seller, “Hey, have you already had inspections done that you can give us? And if so, and we like what they say, we’ll just waive our inspection contingency.” You’re doing things that are showing the seller that you’re the most serious buyer without putting yourself at risk. You don’t want to do this when you don’t know what kind of shape that the house is in, but if you can get the information before going into contract, you can write the cleanest offer and the best offer.

Rob:
Let’s move it along here. I think those are really solid strategies. So there are plenty of strategies for getting your offer accepted. You talk about this, several more strategies and skills, so if anyone does not own that book, definitely go pick up a copy of that. But let’s get into the moment where you actually get your offer accepted. What should a home buyer expect to see or maybe what should they be prepared for after their offer actually gets accepted?

David:
That’s a great question and agents out there, if you happen to be listening to this, take my advice when you find a buyer client, give them a buyer’s presentation just like you give a seller a listing presentation, don’t skimp on the buyers. On the David Green team, every buyer that works with us gets a full hour and a half presentation that goes through what I’m about to say here in detail, so buyers know what to expect. And if you have an agent that does that for you folks, that’s definitely a green flag, pardon the pun, that they’re going to be better. So the first thing that happens when the house goes into contract is that you’re going to send in the earnest money deposit that was written into your offer. So this is money that tells the seller, “Hey, if I don’t close on the house, you get to keep my deposit as compensation for me wasting your time and taking your house off the market.”
Now, contingencies are things that are included in offers that allow buyers to get that deposit back if they choose not to close. There are three main contingencies that every state has some form of. The first one is an inspection contingency, also called a due diligence period in some states, but this is basically the period of time where you get to inspect the property to see if there’s so much wrong with it that you don’t want to buy it. This is where you would order a home inspection, a pest inspection, a roof inspection, a pool inspection. You’d get the sewer lateral scope. This is where you do all that hard work to see what kind of shape is the home going to be in, and if you have an inspection contingency that allows you to back out if you find something you don’t like, that’s where your agent can go negotiate to get credits or a price reduction based on the shape of the house.

Rob:
Earnest money is basically your commitment, like, “Hey, I’m wiring money, the stakes are high,” and that basically shows that you’re serious. And then from there you have to schedule your insurance, your inspections, do your final approvals with your lender, and then is there a moment in this process after? Do you have time to get your earnest money back during an inspection or after an inspection? What’s that timeline look like?

David:
You write into your offer how long of a period you’re asking to do your inspections. The shorter of a period that you tell them, the better that is for the seller. The longer of a period that you give them, the better that is for the buyer. So there’s a dance here where if there’s no other buyers that you’re competing with, you can ask for a longer period of time to do inspections and you can really take your time. Whereas if there’s seven other people that want that house, you may have to cut that timeline down really short. Now, that’s only for the inspections, right? You also have two other contingencies that allow you to back out. Another would be an appraisal contingency. So if you’re using a loan to buy the house, the bank wants to make sure that you’re not paying more for the house than what the other houses are worth because their concern is if we have to foreclose on you because don’t make the payments and sell it. “If you paid too much for it and we gave you too much money, we’re not going to get our investment back.”
So you have a neutral third party called an appraiser to go out there to look at the condition of the home. They take some pictures of it, they measure the square footage, if they’re doing their job like they should, and they compare it to other comparable sales in the neighborhood and they say, “Hey, in my opinion, here’s what I think that this house is worth.” If the number they come up with is less than the number that you’re offering to pay for the house, the bank is not going to make a loan to you based on the purchase price. They’re going to make it based on the appraisal price. So if you’re putting 10% down and you were going to pay $1 million for the house, if it appraises for $900,000, you have to put down 10% of the $900,000. The bank will pay 90% of the 900,000 and that extra a hundred thousand difference you have to come up out of pocket with.
So the appraisal contingencies allows a buyer to say, “Hey, it didn’t appraise for what I was going to pay for it, what we agreed on, I get to back out of this deal and I get to get my deposit back because it didn’t appraise.” And if you have that contingency that allows you to say to the seller, “Hey, I’ll still buy your house, but you got to drop it down to $900,000.” And the seller can say, “Well, I’m not going to drop it all the way down to 900, but what about $925,000?” And then the buyer can come back and say, “I’ll pay $910,000.” And that’s where the negotiation happens if you have that appraisal contingency.
Your last contingency in most contracts is the loan contingency, which you mentioned earlier, and that’s the way that you can back out and get your deposit back if for some reason you’re not able to get the loan. The lender looked at your paperwork originally, maybe you were pre-qualified, not pre-approved, and once they actually run your credit, they go, “Oh, you have way more debt than what you told me. Your debt to income ratio is not going to support this loan. I can’t get you the house.” If you have a loan contingency, you can back out of the deal and get your money back based on the fact that the loan fell through.

Rob:
All right, now that David Green has demystified the first steps of home buying, we’re going to get into what everyone should know about the inspection process, how you can get your earnest money deposit back and what to expect at the closing table. Stick with us after the break.

David:
And welcome back. We missed you. Rob and I are talking through how to buy a house, the step-by-step process, and we are just now getting into the good stuff.

Rob:
Now, there’s a lot of this that is a parallel path component where you’re sort of doing a lot of this at the same time. You’re scheduling your inspections probably at the same time as your appraisal. You’re getting all your docs over to your lenders. One thing I want to ask about is insurance because you want to be protected, you want your house to be covered when you close. When should you do that? Is that something that you do? That’s something that your lender does? How does that all work?

David:
Most deals, if you’re getting a loan on the property, they’re going to require you to have homeowner’s insurance because if they give you a million dollars to buy a house and it burns to the ground and there’s no house and you stop making those payments, what do they do? So they’re going to force you to get insurance so that if for some reason you default on the loan, they know that it didn’t burn down in a fire and they don’t have any collateral to take back. So you would typically start the insurance process as soon as you go into contract. But most home buyers and most agents aren’t going to be savvy enough to tell their clients to do it. So how it typically works out is your loan officer or your lender will come to you and say, “Hey, by the way, you’re going to need insurance. You have two options. You can pay for your insurance every single year in one lump sum, or we will collect one-twelfth of the insurance that you need to have on this property along with your mortgage payment. We call this having it impounded. And by the way, we’ll also do that with your property taxes.”
And the lenders prefer if you set it up that way because they want to make sure that you have your insurance on the property in case it burns down. They also want to make sure the property taxes are being paid because people don’t realize that if taxes are not paid on a property that takes first position amongst the liens on the home. So if a lender had to foreclose and you didn’t pay your property taxes, the taxes get paid to the state first and the lender would get what’s left over.
So in order to protect their position as a lien holder, they’re going to say, “Hey, let’s just collect your taxes along with your mortgage payment. We’ll make sure it gets paid for you.” That’s called the impound method, which most people typically set their loan up so that they pay taxes, insurance, as well as the principal and interest on the payment. And that’s where we get the term PITI, P-I-T-I, principal interest, taxes, insurance. That’s what most mortgages are going to be made up from. Now, you don’t have to go through your lender to get an insurance quote. You can shop for it on your own, but most people won’t think of that and it will come up from the lending side.

Rob:
Yeah, like I said, you’re doing a lot of this usually very concurrently, and the first step in the process that you mentioned a little earlier was inspections. I want to go back to that just a little bit because I think this is probably the scariest part of any particular home purchase. What should someone expect when they get an inspection? Because I think you get this 40 page deck of things that’s wrong with your house, and it’s like you could have a midlife crisis just reading it. It triggers things and you didn’t know was in you. So tell us a little bit about how that process looks like when you’re doing it for the first time.

David:
Well, don’t let me forget that you’re asking about inspections, but before I answer that, I do want to comment on what you just mentioned, which was right, that so many things are happening at the same time. As soon as that offer gets accepted, your agent is going to have to let the title company know open up escrow for this property address and the title. People are immediately going to start a title search to make sure that the seller actually owns a property and there’s no liens on it. They’re also going to open up an escrow where that money is going to be held, your earnest money in case there’s a dispute over how it’s going to go. It doesn’t go to the seller, it goes to this escrow company who sort of acts as the referee.
The escrow company’s going to have to figure out what are your payments going to be? When are these payments going to be made? What are the property taxes that are going to be due halfway through the year and what portion of those are going to be the seller’s responsibility? Which portion are the buyer’s responsibility? Your agent’s going to be scheduling a home inspection and a pest inspection and a roof inspection and whatever it is that you’re willing to pay for. Your lender’s going to get the loan documents and they’re going to open up their own escrow. They’re going to be ordering an appraisal. They’re going to be collecting updated paperwork from you to submit to the underwriter to try to get that loan approval.
So what happens is you have all these little ants that are all scurrying around handling their part of the transaction, but it typically comes down to three pieces. There’s the title and the escrow, there’s the loan, and then there’s the inspection process itself, which is what you’re asking me about. And the appraisal is a part of the loan process. The lending is a part of the loan process. So you typically have these three main sort of power players involved in the transaction that are doing all of this for you as the buyer.
Now, the part that you are going to have to actually make a decision on, like you just said, Rob, is the home inspection, right? The lender’s going to tell you what paperwork they need from you. They’re going to tell you what the appraisal was. You’re not going to have to make a whole lot of decisions with that, but when you order the home inspection, you have to decide, do I want to buy this house? Now, the main things that you should be looking for when you get inspection are going to be anything foundation related, the condition of the roof, if there’s plumbing leaks, because that can be pretty significant electrical problems, consider it dry rot, which is basically a fungus that can get into wood and it can eat away at the wood and become expensive that you’re going to have to repair. That typically happens when you don’t repaint the house frequently or if moisture is getting into anything where there’s wood. As well as pest issues, so if it has termites, if there’s a rodent problem, or if you have massive spiders or something.

Rob:
Yeah. What is it about these that make it the main? Are they just the most costly things associated with home repairs?

David:
They’re costly and they can’t be avoided. So if you say, “Hey, there’s a plaster crack somewhere,” and you’re okay with a plaster crack, you don’t have to fix it. If there’s a break in the tile on the floor, if there’s a hinge on one of the cabinets that isn’t working or there’s a door frame that’s starting to come off, you can still live in the house if you’re okay with that, that’s sort of a nuisance. But the things that I mentioned can’t be avoided. They will destroy your home if they’re not fixed. If you have holes in the roof or massive problems with your roof, you’re going to get leaks which are going to ruin your home. Or when you need to get insurance on the home, the lender is going to say, “We won’t insure a house with a roof in that bad shape. You have to spend the $25,000 to have a new roof put on the home.” You see where I’m getting at? A plumbing leak will literally destroy a home.

Rob:
In that case, who’s on the hook for that? If I’m buying the house and there’s a $25,000 roof replacement that’s needed, do I have to pay for that?

David:
You will have to pay for it unless you get the seller to make the repairs, and most sellers don’t. So the way that this typically works out is when you get those inspections and you see what’s wrong with the house, you now have negotiation leverage. You can go to the seller and say, “I need you to put a new roof on your house, or I need you to knock $25,000 off the price of the house, or I need a credit for $25,000 to fix the roof or fix the leak or fix the whatever is going on.” Now, there are some things that restrict and prohibit you being able to use that leverage as a buyer. There are laws in lending that only allow a buyer to get so much of a closing cost credit. So you can’t say, “Hey, I want a $200,000 credit on this $500,000 house.”
You can only ask for a credit that is the equivalent of the non-recurring closing costs. So if your lender’s like, “Hey, it’s going to be $12,000 in closing costs for you to get this loan,” you’re allowed to ask the seller for up to $12,000 to cover your closing costs. And the agents will frame it saying, “We are asking for this credit to fix the issues that we saw with the house.” But they’re not actually related to the issues with the house. They’re just you negotiating some money back. So what you find is if the issues with the home are going to require more money to fix than what you have in closing costs, most buyers will say, “I’m backing out of the deal. I don’t want to go forward.”

Rob:
Got it. Okay. So then if you decide, “Hey, I don’t want to pay the $25,000 roof repair as the buyer,” I can walk away from that and in most instances, hopefully get my EMD back.

David:
If you still have your contingency, you haven’t waived your inspection contingency, you would say, “Hey, I’m backing out of the deal and I get my deposit back.” That’s basically when we say inspection period or inspection contingency, it’s the period of time that you have to back out of the deal and get your deposit back. If you ask for 14 days and you’re 18 days in, when you finally realize these problems, you’re going to have a hard time getting that deposit back. You might forfeit it unless there’s a low appraisal or unless your loan falls apart.
So the way that the game ends up being played with your agents is they’re trying to get all the stuff done within that, say it’s a 14-day period, and on day 13 they realize, “Oh, we’re not going to have an answer yet. We’re still waiting to get quotes on what it would take to fix the roof or fix the electrical.” They’re going to submit an extension of that contingency to the sellers and they’re going to say, “Hey, we need another week to be able to figure out how much this is going to cost.” And the seller has the option of granting you that week where you can still back out and get your money back extending that contingency or, “Nope, we don’t want to do it. We’re going to put our house back on the market and we’re going to look for another buyer.”

Rob:
All right, David, before we move on into the next stage, do you think you could just sum up the escrow period for newbie investors?

David:
So when you get your house accepted, your agent’s going to send the paperwork and have an escrow opened with a title company most of the time, and that’s where you’re going to send your earnest money deposit to. You are going to have a period of time to order your inspections and see what kind of condition the house is in to decide if you want to move forward. You’re going to send the information to your loan officer who’s going to start the process of getting you fully approved for a loan, not just pre-approved for a loan.
They’re going to be ordering an appraisal and they’re going to be verifying your employment, looking at your documentation, checking your taxes again to make sure everything’s okay, and they’re going to be checking with the underwriters of the actual loan to make sure that they are confident with giving you that loan and getting what we call loan approval. And you as the buyer are pretty much going to be directed by all the people that are involved in the transaction, what to do and when to do it. And that’s why we started off by saying you want a really good agent and a really good loan officer working for you to make sure that this stuff is done competently.

Rob:
So it sounds like to me, David, that when you go under contract on a house, it doesn’t necessarily mean that you’re a hundred percent committed to it that you have to buy it because a lot of people wanting to get into real estate are so scared of making an offer because they feel like the moment it gets accepted, they’ve already signed their life away, but it seems like they have several outs throughout the entire process.

David:
Yeah, it’s not nearly as committal as people may think if they haven’t bought a house before or if their agent just didn’t explain the process. Imagine being afraid to ask a girl out on a date because you think that means you have to marry her. The process of dating is to figure out, do I want to marry this person? Well, it’s the same thing with having an offer accepted. Of course, you’re not going to write an offer on a house you don’t want. You’re not going to ask a girl out that you don’t want to date. But once you go into escrow, that’s where you figure out, am I able to buy this house? Do I want to buy this house? And the offers have so many ways for buyers to get out of the deal that they’re actually not committed at all. It’s a much bigger commitment for a seller to accept an offer.
So if you’re selling a home in 2024, what you need to be aware of is don’t be in a rush to accept offers. It can give you a false sense of security that because you went into contract, that means you’re going to sell. Oftentimes, buyers that are savvy will put houses into contract just to have you lose leverage with your property being on the market and then come back and ask for massive price reductions, continue to delay closing because they know that the longer that they have you off the market, the less leverage you have with other buyers and the more you’re going to be stuck dealing with them. So I love the point you just made. It’s not a commitment to buy a house to write an offer. It’s a commitment to look deeper into the property.

Rob:
I think that’s a huge point for sellers because, yeah, you do lose leverage as a seller the longer your property is on the market. So good note there, and I always tell people, “Make the offer just honestly, even if the offer is really low and you know it’s going to get denied it, just get the first no out of the way and make the offer. You don’t have to buy the house if it doesn’t check the boxes, if the inspection is bad. There’s several ways out everybody, so don’t stress that part too much.” Now let’s just say you get the offer accepted, escrow looks good, terms are good, insurance is set, appraisal came back positive. What should a home buyer expect at the closing table, like they’re getting to the finish line here. Lay out some of those expectations for us.

David:
There’s going to be a lot of documents that somebody is going to sign at the title company or if a mobile notary comes to your property where you are agreeing that you have had certain things disclosed to you depending on which state you’re in, and the majority of that paperwork is going to be documentation from your lender. We call these loan documents. So if you’re buying a house cash, there’s a lot less to sign than if you’re getting a loan. When you’re getting a loan. There’s a lot of forms that are legally required to be given to you that explain this is what your payment’s going to be, this is what will happen if you don’t pay them. This is how much everything’s going to cost. This is your interest rate. These are your closing costs. A lot of people will have questions because those forms can be hard to read.
So my advice would be you don’t wait until the day you’re supposed to sign before you look at that paperwork. You get it a day or two early, and you get on the phone with your loan officer or your agent to ask them questions about what you don’t understand in the documents. My advice would be to get them, print them out, take a yellow highlighter, read through it and outline anything that you don’t understand so that when you get on the phone call with someone, or if you show up at the title office, you can ask specifics about what it was that you want some clarity on in the deal, or ideally do it before you get there.
And it’s not impossible if you see something that was incorrect or that concerns you, to delay closing for a couple of days to get that adjusted or to get some clarity on it. You don’t want to wait until the day that you’re supposed to wire your money and the bank is supposed to wire their money and the title is actually supposed to change hands before you look at those documents because it can really piss off a seller. They’re going to be asking, “Hey, did it close? Did it close? Did it close?” And what they don’t want to hear is actually the buyer wants to take three more days to think about it, because you as the buyer, waited until the last minute before he saw the paperwork.

Rob:
Yeah, and I’m going to tell y’all, if you haven’t bought a lot of properties when you read some of these forms and the way they’re titled, it’s a very stressful thing because it really does feel like you’re signing your life away. The other thing I’m going to say from a tip standpoint is if this is your first property or your second property, you probably don’t want a mobile notary to be the one that comes to your house and gives you the documents. If you can, try to be at an actual closing table at a title company, because typically the staff at a title company are trained in the paperwork, they can actually answer your questions. I can’t tell you, it’s an embarrassing amount of forms that I’ve signed from a mobile notary where I’m like, “What does this mean?” And they’re like, “I don’t know, but you have to sign here.” And I’m like, “Well, guess I have to sign.”
You don’t want that. It doesn’t ever feel really all that great. So being in person is super, super important. And we actually had a really amazing tip come up on the podcast not too long ago. I’m pretty sure it was on the podcast, David, but they said, “Never schedule your closing for a Friday because things go wrong all the time and can push closing a day or two. And if something goes wrong on a Friday, that means that you are now not going to close on Friday, Saturday or Sunday. And so it’s not like you’re going to be necessarily homeless, but you’ll have to plan for three days of not being in the home.” And that can really mess with you. If you’re in an apartment, your lease is ending. If you’re moving across state lines and you’re not budgeting for hotels or anything like that.

David:
Not only that, but usually by the time you’re at the closing table, you’ve waived or passed the time period you had for those contingencies to back out of the deal and get your money back. And if something goes wrong and you don’t or you cannot close on the date that you contractually agreed to, that earnest money we talked about is something that the seller could take from you and say, “You know what? We’re going to keep our house and sell it to someone else, or we’re going to keep that money.” And sometimes it could be like 3% of the purchase price, right? So you’re buying a $500,000 house that could be 15 grand that you just lost. If you’re in areas like where I’m selling houses in the Bay Area of Northern California, it’s not uncommon for deposits to be 50 grand, 75 grand, a hundred thousand dollars because the buyer wants to get into escrow. So if you can’t close on the day that you’re supposed to, if the seller’s cool, it’s not always a problem, but they don’t have to be. So, like you said, it’s great to schedule your closing for a Monday, Tuesday, Wednesday to give yourself that little buffer period in case someone screws up or you need some more time to get that worked out.

Rob:
I love it. Any other tips before we wrap up or should we let you go to celebrate your birthday?

David:
I think one of the things that people should remember is that your agent isn’t doing everything in the transaction, but they’re typically the one that you feel most comfortable talking to. And your agents are often not comfortable to tell you that’s not their job, or they don’t handle that. So just be prepared that your agent should be referring you to the title or the escrow officer to explain certain things. They should be referring you to the loan officer to explain certain things, they should be referring you to the home inspector. Agent isn’t always going to know what it means if there’s a problem with the soffit or the fascia board on a roof, they’re not contractors, but they’re often afraid to tell you that. They feel like, “Oh, I don’t want to let you down.” And you get into this awkward position where they’re sort of giving you the run around and you’re frustrated by it all.
So walk into it expecting that your agent will direct traffic, but you’ll be directed to the pest inspector, the home inspector, the contractor doing the work, the loan officer, the processor of the loan, sometimes even the title escrow officer. There’s a lot of moving pieces, and you’re going to be speaking to different people throughout the process. My advice was always to ask these people when I was directed to them, “Tell me what your job is like, what are you responsible for?” And I like to get a good idea of the big picture and the role they play, and then drill down on the specifics that I don’t understand about the contract or what I’m supposed to be signing.

Rob:
Love it. Plus one, retweet. I would retweet that.

David:
Thanks, man.

Rob:
I’m going to go, actually, funny enough, make three offers on homes right after this, so we will catch everyone on the next episode of BiggerPockets.

David:
Keep your fingers crossed for Rob on those offers.

Rob:
This is Rob, for David, the birthday boy, Green, Abasolo, out. Goodbye everyone.