Real Estate Transaction Process Steps: The Complete Guide
Brokers, agents, and transaction coordinators know the real estate transaction process can be challenging. With so many requirements to get right, it can quickly become overwhelming.
Who are the people involved? What is each person’s role in the process?
Knowing this information is critical for any real estate professional. It ensures every transaction runs smoothly.
In this article, we’ll guide you through everything you need to know about real estate transactions.
What Is a Real Estate Transaction?
A real estate transaction is the process that occurs when a seller offers their home for sale and a buyer agrees to purchase that property.
Many steps are involved in buying a house, which vary depending on the type of transaction and the state regulations.
There are three main sections to every real estate contract:
- Finding a property and making an offer.
- Negotiating, accepting, or rejecting the offer.
- Closing the transaction.
| What Is the Closing Process? Closing the transaction might sound simple. But before the seller transfers the property title to the buyer, there are many activities and tasks to complete on time. Most of them are regulatory requirements, so it’s critical to fulfill them fully and by the deadline. These tasks include things like: Performing home inspections. The title search. Buying insurance. Putting property purchase funds into escrow. A final walkthrough of the property. You must file the correct documents and paperwork for all these tasks at the right time. If you don’t, then the deal could fall through. Tracking all these tasks and documents can be tricky, which is why we created Paperless Pipeline. Our simple yet effective system of checklists, automated deadlines, and reminders ensures you never miss critical requirements. |
The real estate agents involved are primarily responsible for these tasks. However, the buyer and seller must also complete tasks in the process.
Who Are the Parties Involved in a Real Estate Transaction?
The following people play a role in the successful closing of a real estate transaction, including the:
- Real estate broker.
- Real estate agent.
- Seller.
- Buyer.
- Mortgage lender.
- Home inspector.
- Title search company or lawyer.
What Is Each Party’s Role in the Real Estate Transaction Process?
Here’s what each person involved in the real estate transaction is responsible for:
👉 Real estate agent or broker
The real estate agent or broker typically works for either the seller or buyer during real estate transactions.
On occasion, the agent can work for both the buyer and the seller during the same transaction.
Traditionally, the buyer and seller will each have their own agent to help them through the steps associated with transferring the property.
👉 The transaction coordinator
The transaction coordinator supports the broker or agent by keeping the deal on track. They take care of the administrative side of real estate transactions, from the initial contract to closing.
These tasks include:
- Coordinating property inspections.
- Managing escrow, mortgage loans, and appraisals.
- Ensuring all documentation is submitted.
- Keeping everyone updated on progress.
- Meeting all necessary regulations.
- Ensuring files are securely held.
👉 The seller
The seller formally agrees to list their home for sale with a real estate agent. They authorize the agent to market their home to attract interested buyers and negotiate a satisfactory home sale.
👉 The buyer
Buyers typically partner with real estate agents, who can then propose an exclusive agreement (called a buyer-broker agreement), promising they will work only with that agent.
These agents help the buyer negotiate to buy a house and prepare the purchase offer when the buyer finds his perfect home.
👉 Mortgage lenders
Mortgage lenders guide buyers through the paperwork needed to apply and ultimately gain approval for a mortgage.
Clients should visit a lender before looking at any homes with a real estate agent. The lender will pre-qualify the buyer for the amount of money they are financially qualified to borrow and supply the buyer with a “pre-qualification” letter.
👉 Home inspectors
Home inspection companies are essential when buying a home. Their evaluation ensures that the property is in good condition and up to the code required by the county or state.
👉 The title company or lawyer
Some states allow title companies to do all the paperwork and close the transaction for the buyer and seller, whereas others require an attorney to close the sale.
One of a title company’s most critical functions is to search the home’s title and confirm there is a clear title available to transfer to the new buyer.
They ensure the seller legally owns the property and can transfer the title. After this process, they will issue a title insurance policy confirming the clear title.
A Real Estate Transaction Flow Chart
Our real estate transaction flow chart provides an at-a-glance overview of the transaction process:
What Are the Real Estate Transaction Steps?
Here are the steps involved in a real estate transaction in order:
List a home for sale or search for the perfect property
The selling agent makes a property available by listing it for sale on a multiple listing service (MLS) and finding a buyer.
The buyer should already have a pre-qualification letter from the lender stating how much money they can borrow to purchase a house. The buyer’s down payment should already be in the bank.
Offers
The buyer’s real estate agent prepares a sales purchase agreement stating the price, terms, and timelines they wish to offer.
Sellers set an asking price for the property, also known as the “listing price.” This price is negotiable and may not be the price the buyer eventually pays.
Negotiation
The seller can review the offer and then counteroffer with the price and terms they would like to see.
The seller can only negotiate with one buyer at a time. Still, there may be multiple offers on the home, and the seller will choose the offer most advantageous to themselves, causing the other buyers to begin the search process again.
The “purchase price” is the price agreed upon after negotiations. The final counteroffer’s date agreed to by both parties is called “the effective date of the contract”.
Selecting a title company or lawyer
The buyer or seller can select the title company or retain separate representation.
The buyer pays an initial deposit, usually called “earnest money”, and gives it to the title company, which holds it in a non-interest-bearing escrow account until closing.
The escrow officer is responsible for taking care of this money and having it available at the end of the real estate closing process.
Appraisal, inspections, and repairs
Next, the mortgage company assesses if the home is worth the price the buyer wants to pay. To do this, it sends a third-party appraiser to report on the price of the home compared to other similar properties in the area. The appraiser provides the seller with a list of recommended repairs.
The buyer’s agent and the seller’s agent negotiate to determine which repairs the seller is willing to fix.
If the seller does not agree to complete the repairs or give credit to the buyer on the closing costs, the buyer can usually rescind the offer. If this happens, the whole process will start over again.
Contingency removal
The buyer must secure funds and release the financing by a pre-agreed time, known as a contingency date.
Each home inspection also has a contingency date. These require everything to be negotiated at a specific time.
To finalize the transaction, agreed-upon repairs must be complete and receipts for the work must be issued.
Closing
The closing process is one of the most essential steps in real estate transactions, so it is important to understand and keep track of it. The closing process involves:
- Gaining proof of insurance: The mortgage company requires proof of insurance before closing. It’s important that a real estate agent can advise on what homeowner’s insurance the buyer needs and where they can find the best prices.
- Meeting mortgage conditions: The mortgage company will give the buyer a list of items to complete before they provide the “clear to close”.
- Preparing to move: Remind buyers that moving day is coming up and that they need to hire movers and start packing early.
- Reviewing the closing disclosure: The title company will have sent the disclosure before closing. This outlines all the closing costs associated with the home purchase. To close on the property, the buyer must wire the final amount due to the title company.
- Final walk-through: The real estate agent will arrange and accompany the buyer on a walk-through of the house before closing. The walk-through is to verify that all the repairs are complete and that the home is in the same condition as it was during the offer period.
- Title search: The title company performs a search to ensure that the owner has the legal right to sell the property and that no title defects could hold up closing.
- Prepare the real estate closing process documents: The title company or lawyer prepares the closing documents for buyer and seller signatures, facilitating the property transfer.
- Clear to close: The mortgage company will give what is called “a clear to close”. This indicates the completion of the buyer’s mortgage process and the funds are in place to transfer to the seller. It is necessary to have a notary present to notarize the documents that the buyer and seller are signing.
- Sign closing documents: Closing takes place at the office of the title company or attorney. If the buyer obtains a mortgage, there is a lot of paperwork to sign.
- Get the keys: After everything is signed and the title company has received the mortgage company’s funds, they will give the buyer the keys, and the home is officially transferred to the buyer. The title company will update public records to reflect the new ownership.
Commission
Once a real estate deal has been closed, the selling agent receives a gross commission from the deal. This is usually around 6%. This money is typically split equally between the buying and selling brokerages.
The commission distribution between the brokerage, agent, and other team members depends on the company’s commission structure.
What Are the Regulatory Requirements for a Real Estate Transaction?
Many state and federal guidelines must be followed during real estate transactions. Agents on both sides of a real estate deal must follow government procedures that protect buyers and sellers.
In most states, agents have a fiduciary duty to their clients—whether they’re the buyer or the seller. Along with loyalty, full disclosure, obedience, due diligence, and accounting, the agent is also responsible for the client’s confidentiality.
In states where the agents are transaction brokers, they owe all the duties except confidentiality and work for either the buyer, the seller, or both in the same transaction.
Real estate brokers are responsible for their agents and behavior during the transaction.
Real estate compliance exists at the local, state, and federal levels, and it helps protect buyers and sellers by holding brokers accountable for their fiduciary duties.
How Can the Real Estate Transaction Steps Be Simplified?
The entire real estate transaction process can be overwhelming and frustrating for all parties involved. There are many rules and regulations, deadlines, and tasks.
Many real estate professionals like to use transaction management software. By creating checklists, task lists, and to-dos, they can simplify the procedure and keep all their deadlines on track.
With Paperless Pipeline, you can create customized checklists for each transaction, catering to everyone in your real estate office. They can be updated with deadlines and critical information.
Our checklists can also be integrated into calendar systems and email notifications. This gives you access to all the information needed to confirm that agents stay on track and that critical tasks are completed promptly.
Start your free 14-day trial of Paperless Pipeline, and discover how much easier transaction management can be.