Real Estate Transaction Steps: The Complete Guide
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Learning all the real estate transaction steps can seem overwhelming and confusing when you first start out.
Who are the people involved? What is each person’s role in the real estate transaction process? What does a real estate transaction actually mean?
Knowing this information is critical for any real estate professional. It ensures every deal you do runs smoothly and allows you to answer your clients’ questions and address their concerns along the way.
This guide covers everything you need to know about real estate transactions.
Table of Contents
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.
There are many steps involved in buying a house, and the steps 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 title of the property transfers to the buyer, a multitude of activities and tasks must be completed on time. Most of them are regulatory requirements, so it’s critical to fulfill them in full and by the deadline. These tasks include things like: • Performing home inspections • Title search • Buying insurance • Putting property purchase funds into escrow • 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 that you never miss critical requirements. |
The real estate agents involved are primarily responsible for these tasks. But the buyer and seller must also complete their tasks on time.
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:
- 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?
The real estate agent or real estate 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 real property.
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 and mortgage loans and appraisals, ensuring all documentation is submitted, keeping everyone updated on progress, meeting all necessary regulations, ensuring files are securely held, and more.
The seller formally agrees to list their home for sale with a real estate agent and authorizes the agent to market their home to attract buyers and negotiate a satisfactory home sale.
The buyer usually works with a real estate agent and can be asked to sign an exclusive agreement (called a buyer-broker agreement), promising they will work only with that agent. These agents help the buyer negotiate buying a house and preparing the purchase offer when the buyer finds his perfect home.
Mortgage lenders assist the buyer with all the paperwork necessary to apply and be approved for a mortgage. It is best to visit the lender before looking at any homes with a real estate agent. The lender will pre-qualify the buyer for the amount of money he is financially qualified to borrow and supply the buyer with a “pre-qualification” letter.
Home inspection companies are essential when buying a home. The evaluation they provide ensures that the property is in good condition and up to the code required by the county or state.
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 make sure the seller legally owns the property and can transfer the title. After this process, the title company will issue a title insurance policy confirming the clear title.
The title company usually requires two to four weeks to complete the title process and prepare all the closing documents. They are also present at closing while the buyer and seller sign all the necessary paperwork.
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?
Real estate transaction steps differ depending on the customers involved. However, they all have a beginning and, if everything goes as planned, they have an end or closing!
Here they are 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. The price the property is listed at, called the “listing price”, is subject to offers and negotiations and may not be the price the buyer eventually pays.
- Negotiation
The seller has the right to review the offer and then counteroffer with the price and terms they would like to see. Will the buyer agree to a higher price or walk away? Will the seller accept a lower sales price or decide not to sell to this buyer?
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”.
- The 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 who 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 homes in the area. The appraiser also provides a list of repairs needed, which is given to the seller.
Next, 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 starts 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 by a specific time. Agreed upon repairs must be completed, and receipts issued before the transaction can proceed to closing.
- Closing
The closing process is one of the most essential real estate transaction steps, 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 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 that must be completed 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. The final amount due from the buyer must be wired to the title company before closing.
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 done, 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 is responsible for preparing the closing documents for the buyer and seller to sign so that the property can be transferred. Photo identification, preferably a driver’s license, proof of the wire transfer to the title company’s escrow agent, and a checkbook will be required for closing.
Clear to close: The mortgage company will give what is called “a clear to close”. This indicates that the buyer’s mortgage is finalized, 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. At least an hour should be allowed for this real estate process. Sometimes, closings don’t take place in the area where the home is located. When this happens, the title company sends the documents to the buyer, finds a notary in their area, and sends the signed and notarized paperwork back to the title company. This is called a mail-away closing.
Get the keys: The final stage! 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 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.
Post-close
Buyers always appreciate useful information about home ownership, especially if they are first-time buyers. Here are a couple of things you can remind them of:
- If this home purchase is a primary residence, homestead exemption can be claimed in most states. Homestead exemption gives you relief on property taxes. The rules on who qualifies are different in each state. In some, homestead exemption is reserved for veterans or those with disabilities. It also may be necessary to apply in some states, and in others, it is automatic. This is a significant benefit of homeownership. In a Google search, type “homestead exemptions” followed by your state and you should be directed to the information you need.
- The new mortgage payment is due on the first day of each month. The mortgage company will take a few months to send out monthly coupons. It is a good idea for buyers to set up an automatic bank withdrawal each month for the mortgage payment. The worst thing that can happen after closing is missing a mortgage payment.
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.
There are many steps to remember and complete. In response, several brokers and agents use an itemized checklist with multiple tasks and due dates to remind them to keep the transaction in compliance.
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 their 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 to 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.
Paperless Pipeline provides individual checklists that can be tailored to suit each transaction. They can be updated with deadlines and critical information.
Our checklists can also be integrated into calendar systems and email notifications. The broker has access to all the information to confirm that agents stay on track and that critical tasks are completed promptly. This way, the broker remains compliant with state and federal guidelines and protects clients, buyers, and sellers.
Real estate agents and brokers can try Paperless Pipeline free to see how it simplifies this complex process.
Schedule a live demo and we’ll show you how much easier transaction management can be.
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