How to CoBuy a Home the Right Way
Why the Conventional Path to Co-Buying a Home is Flawed
Want to CoBuy a home in Seattle? Be mindful of how you proceed. The conventional path to co-buying a home is flawed. From the sequence of events to the selection of advisors, there is little guidance. For most, it is like interviewing a candidate for a job when the candidate speaks Cantonese and you speak English.
As prospective homeowners, we entrust a very complex decision with a team of professionals. Unfortunately, we are not in the best position to evaluate these professionals. Each is a specialist in an important component of the process. Yet, we regard buying a home as one seamless transaction. Notably, each experts’ remit is to provide a finite scope of information and technical expertise. In fact, regulation dictates boundaries with which each professional must comply.
In most cases, the lender knows little about the details of the real estate agent’s job. Likewise, the real estate broker knows the lender’s function only at a high level. The real estate agent is not, typically, the resource for information about the construction of a home. Brokers are not in the best position to assess the condition of the home other than on an aesthetic basis. There are exceptions, of course. There are those professionals who may have credentials in more than one area such as lending and real estate or real estate and construction.
Often, the best lenders and real estate agents are great salespeople first and foremost. Great salespeople necessarily know their jobs very well. The more expert they are, the more they will rely on other professionals in the fields that support theirs. This enables a pro to deliver the best outcomes for their clients. So, there is a highly specialized delivery of services from multiple parties to accomplish your goals. Real estate is not unlike the field of medicine in this regard.
When you are co-buying a home with others, unless you are buying your home with cash, your home buying journey is best served by starting with your financing plan. Most first-time home buyers start with the search for the home they want. They see the lovely photos on their favorite portal and BOOM! They’re ready to buy…wrong!
In today’s competitive market this is the fast track to disappointment, regret, disillusionment and, often, failure to own. When you fall in love with a home that you are not prepared to purchase, the next home you find (several weeks or months later) will be at a higher price, with a higher interest rate; and you’ll be comparing it to the “one that got away.”
You become your lender and your real estate agent’s worst nightmare because they can’t fix this. The “one that got away” may not have even been within your budget. As time passes, in today’s rising price and interest rate environment, it certainly would cost more than when you first saw it. You become frustrated and give up the search.
How to CoBuy a Home the Right Way
Step 1: Get a Game Plan
Getting a game plan means answering the questions to pre-determine eligibility as a group and conclude that you likely have the elements required to procure a mortgage loan. Namely, do you have the creditworthiness, the combined income and the combined capital required for a loan type that suits your group’s needs? Your group members will also want to discuss the property type, location, a budget and decide such things as the time horizon for owning the property and motivations for purchase.
Once you’ve identified who you want to CoBuy a home with, whether you are buying with friends, family or a significant other, you’ll want to sort out who will be living in the home. You may have co-owners who will simply be investing or helping with the purchase.
Address the host of considerations that comprise your home selection prior to starting the search. Certainly, this will save time and headache. The more ready your group is with their intentions, the better you position the professionals to do their part.
Now is the time, before you search for the home, to plan what type of home the group is seeking.
- Is it new construction or a fixer, condo living or country living?
- What communities appeal to the group?
- Determine the group expectations and motivations for buying a home together. Is it a short-term play to enable the members of the group to buy a home of their own one day? Is it a social endeavor that will last for a longer-term say five years or more?
- Discuss the “what if” scenarios of death, divorce, marriage, job loss, births, financial speedbumps, job transfers and exit strategies.
- It is also helpful to discern the maintenance, repair and improvement plans including how to decide and scope, who pays what and how the work gets done.
Step 2: Securing Joint Financing
Take time to speak with a lending professional who has expertise in loan options and processing to accommodate multiple owners who are not married to one another. Know that your lender is critical to your success, especially when competing against cash buyers so prevalent today. A great lender can make your offer nearly as attractive as cash. In fact, working as a team with an expert real estate agent, the duo may demonstrate the frailties in a competing cash offer.
The lender who takes you beyond pre-approval to a fully underwritten pre-approval can better help a listing agent understand the strength of your offer. Additionally, this gives the lender the opportunity to close the loan quickly and make your offer nearly as competitive as cash.
Step 3: Locating an Ideal Property & Executing the Transaction
Your mortgage loan is pre-approved! So, start your home search with a skilled real estate broker or agent. You want someone who listens and understands your wants and needs. Your long-term interests should be top of mind for your agent. You also want someone who has the expertise to help you with your due diligence and can negotiate well on your behalf. This broker will help prepare you to compete when you find the home you want.
With an accepted offer on a property, your broker will guide you through the escrow process and manage the timeline to a smooth and successful closing. You will move through the contingencies in your Purchase and Sale Agreement from title review, inspections, appraisals, loan underwriting and the escrow process which includes verifying all the parties’ identities and confirming funds for closing. Importantly, escrow ensures that the parties to the transaction follow the contract to the letter. Also, escrow accounts for all funds and routes them to the appropriate parties in the transaction.
Step 4: Determining Ownership Structure
In the case of co-buying or purchasing a home with others, the complexities increase from a purchase involving a singleton or a married couple. First, your purchase is not afforded the same protections at law that a married couple enjoys. How you take and hold title and what share of ownership each party has is not a given. Rather, it is a decision point and is an important one.
Second and related to the co-ownership is the responsibility for the mortgage loan payments including Principal, Interest, Taxes (property) and Insurance (PITI). The ownership and liability determinations are two sides of a coin. All owners benefit when they understand the asset (ownership value) aspects as well as the liability(debt) piece in a purchase. Only then, can we decide the best steps to take in order to protect each owners’ interests in the property. Too, you will decide how to protect each group member’s financial circumstances and their relationships with one another.
Often, people misunderstand the significance of asset/liability matching and the potential consequences of mismatch. So, co-buyers overlook this aspect until something goes awry or someone needs to make a change in the arrangement. A little planning and foresight here can go a long way to avoiding headache and heartache. Few lenders or real estate brokers are expert in the fine points or the implications for people buying property together. The inherent complexity places it beyond the scope of the traditional market.
Those who do understand the implications for co-ownership and joint purchasing, also understand that they are not the ones in the best position to counsel you in the fine points. As a result, they may recommend that you seek help from experts in this arena like a real estate attorney and a CPA who work with co-buyers.
“In the case of co-buying or purchasing a home with others, the complexities increase significantly from a purchase involving a singleton or a married couple.”
Pam Hughes, Co-Founder at CoBuy
Step 5: Identifying and Addressing the Risks Associated with Joint Ownership
Next up, the group needs to identify and address the risks associated with co-buying property. Group members will want to understand and plan for any or all of the “what if…” scenarios discussed earlier. Some of the risks include:
- Job Loss
- Bankruptcy/credit contagion
- Unauthorized borrowing
Step 6: Preparing a Co-ownership Agreement
A good real estate attorney can help you and your cobuyers prepare an operating agreement. This document provisions for your ownership plan including how the owners will take and hold title. Additionally, the written word memorializes how the group will make important decisions, particularly surrounding the “what-if” scenarios.
Alas, if you are thinking about co-buying or co-owning a home with others in Seattle – CoBuy can help:
- Simplify the process
- Reduce the time and cost
- Protect you, your investment, and your relationships.
At CoBuy, we help our clients identify and address the risks associated with co-buying a property. It takes a qualified team of experts who are on your side to help you pick the right solution for your group.
CoBuy does not charge consumers for its service. A CoBuy-certified™ real estate broker shares a portion of their commission with CoBuy to enable them to provide you an efficient, quality service level and peace of mind.
If you are thinking about buying a home with others, visit CoBuy and open an account.
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