Many people know that investing in real estate can be a lucrative activity. However, fewer people have a background in real estate when they get started. If you're newer to the industry, check out our guide on real estate transactions below. You'll learn what exactly a real estate transaction is, how it works, and who are the major players involved.
What are real estate transactions?
Put simply, a real estate transaction occurs when a seller puts their home on the market for sale and a buyer agrees to purchase the property. Many different steps are involved in this process. However, at its core, money is given to the seller in exchange for them transferring the title to the property over to the buyer.
It's also worth noting that each transaction will be a bit different, depending on who's involved and the location where the transaction takes place. These days, each state has its own regulations for how a real estate transaction should take place and its own documents that need to be filled out and filed in order for the transfer of real property to be legally binding.
Who are the main parties involved in a real estate transaction?
Now that you know more about what a real estate transaction is, the next step is to learn who are the main parties involved in that transaction. Read over this list so you have a better understanding of each key player in a property transaction and their unique role in the process.
- Seller: In real estate, the seller is the person who is selling their home.
- Buyer: The buyer is the person interested in purchasing the property from the seller.
- Real estate professional: Also known as a real estate agent, real estate broker, or Realtor, the real estate professional is responsible for helping their client navigate the transaction. For instance, a listing agent will help the seller market their home and negotiate offers, while the buyer's agent will help the buyer find potential properties and submit offers. Notably, not all real estate agents are Realtors. To be a Realtor, you have to belong to the National Association of Realtors (NAR).
- Mortgage lender: If the buyer needs financing in order to purchase the home, a mortgage lender will help to facilitate that process.
- Title company or real estate attorney: Depending on the state where the transaction is taking place, either a title company or real estate attorney will be responsible for facilitating transfer of the title, including the deed, for the real property. Additionally, they will likely also be responsible for holding any money that changes hands during the transaction in escrow.
What are the basic steps in a real estate transaction?
Once you have a better idea of who's involved in the transaction, it's time to learn what steps take place during the course of a real estate deal. We've listed all the steps for you here. However, since every transaction is unique and every state has its own version of real estate law, these steps are only meant to be used as a general guide.
Listing a property for sale/viewing properties
The first step in this process will differ, depending on what side of the transaction you're on. The seller will sign a listing agreement with a real estate agent, who will then assist them in marketing their property for sale. Meanwhile, once the buyer finds an agency contract with a real estate professional, their agent will help them find available properties that suit their needs.
Submitting and negotiating offers
Once a buyer finds the perfect property, it's time to submit an offer, or a real estate contract. Their agent will help them to put together their best possible offer and submit it to the listing agent. The listing agent will then help the seller go through any offers they've received and choose the one that's the best fit for them.
Applying for financing
After the buyer has had an offer accepted, it's time to start the financing process. At this point, the lender will assist the buyer in filling out an application for a loan and submitting the appropriate paperwork.
Conducting inspections and the appraisal
At the same time, the buyer will likely be inducting inspections and awaiting the results of their appraisal. Once all of these milestones are complete, the buyer and buyer's agent will receive comprehensive reports with the result, and negotiations will begin again. If the sale price needs to be adjusted because of the appraisal or any repairs need to be conducted after inspections, these will be negotiated between the buyer and the seller.
Clearing contingencies and title
Meanwhile, the lender will be working with a buyer to clear any contingencies for loan approval. On the selling end, the title company or real estate attorney will be working with the seller to clear the title for the property so that it can be transferred to the buyer. The title company will also work to provide the buyer with title insurance in case a mistake was made during the course of the transaction.
Going to closing
Once all the behind-the-scenes work is done, it's time to go to closing. At closing, the buyer and seller will sign all the appropriate documents, money will change hands, and the buyer will receive the deed to the property along with the keys.