6 Steps to Prepare Your New Client for Their First Real Estate Transaction

As you gain more experience in your career, you are going to continue to meet a wide range of clients who have completely different levels of real estate comprehension, past experiences, goals, and objectives. You might work with people who are selling their third home, have an extensive understanding on how a real estate transaction works and knows exactly what they want. You might work with someone who has 8 or 9 rental properties and is looking for you to assist them in finding another asset to grow their portfolio. You might come across someone who has had a bad experience with an agent and knows some aspects of the process but is confused on specific parts that were not properly explained to them the first time around. Either way, when you are first getting familiar with a new client, you should aim to find out what they know, what they don’t know, and what they don’t know they don’t know.

Today I am going to walk you through how to work with a client that is “starting from scratch.” What I mean by that is they have never purchased real estate before, and they have little to no understanding of how the homebuying process works.

Complete these 6 steps to effectively prepare and educate your new client so that they can successfully navigate through their first real estate transaction.

Step 1: Discuss the importance of credit within a real estate transaction.

Step 2: Discuss down payment options and planning.

Step 3: Discuss lending options and explain buyer assistance options & programs. 

Step 4: Discuss their ideal price range and monthly payments.

Step 5: Discuss additional costs associated with the homebuying process.

Step 6: Obtain client’s pre-approval letter.

Step 1: Discuss the importance of credit within a real estate transaction.

The objective here is make sure your client is aware of what their credit situation is and immediately begins building and/or strengthening their credit score if necessary. Credit greatly impacts your client's position in obtaining a mortgage. It is a key factor in deciding what interest rate is being applied to their loan (which can cost them thousands of dollars), it determines what loan products they could be eligible for, and it helps determine the amount of money the lender can approve them for. 

If you’d like more information on how to assist your client with their credit, click here for our full article on real estate transactions and credit history.

Step 2: Discuss down payment options and planning.

Saving for a down payment is a massive undertaking. It takes self-discipline and an extremely fine look at your current income and expenses. When helping a client get started, explain to them that no goal can be achieved without sacrifices. If they have a specific timeline in which they want to purchase a home and they are starting from scratch, then they will have to know how much money they have left over each month after they pay out their bare minimum expenses. What I mean by, bare minimum expenses, is the expenses that they must pay to eat, get to work, and keep the lights on. A Starbucks coffee, a dinner out with friends, or a new outfit does not quality as one of these expenses. I bring this up because if your client wants to get serious about buying a house, they’ll have to put a minimum of 3.5% of the purchase price away in savings, as well as another 3% of the purchase price allotted for closings costs and other additional expenses.

Step 3: Discuss lending options and explain buyer assistance options & programs. 

As an agent, one of the first things you should try and accomplish at the beginning of your career is establishing working relationships with other people in the industry. You should have a couple of lenders that you know and trust, a credible home inspector, a home warranty company, and a title company at your disposal.

Your client does not have to use any of these vendors unless they would like to but it’s a must to have them on hand as an option. The last thing you want is for your client to Google these services and pick one that is unreliable, and then this choice puts a considerable strain on the transaction. Trust me, there are already a ton of reasons a deal can go south, you don’t want to add any more complications.

After you’ve introduced your qualified lenders to your client, then you can explain the benefits of buyer assistance programs and government grants. It is truly up to the buyer to decide if they want to put the time and energy in seeing what programs are out there and if they would be a qualifying applicant, but it’s always a good idea to let them know that these options exist. It could possibly save your client thousands of dollars.

Step 4: Discuss their ideal price range and monthly payments.

This step seems like it would be one of the most straight-forward conversations, but you’d be surprised. If your client is unaware of current market conditions, current interest rates, has unrealistic expectations, or has no idea how much homes truly cost in certain areas then you might run into discrepancies. This tends to happen with younger people who don’t quite understand how taxes and demand in specific areas can lead to significantly increased monthly payments. Rising interest rates also contribute to considerably higher monthly payments. Make sure to explain how all these factors contribute to how much they can actually afford.

If your client is pre-approved for a set amount, it is not always in their best interest to buy at that top number. Usually, the best course of action is having the buyer work with their lender to identify their current financial position and then have an open conversation about what would be the best plan of action for them in the long run.

Step 5: Discuss additional costs associated with the homebuying process.

When people generally think about the process of buying a home the first cost that comes to mind is the down payment. While, that is a massive cost, there are other unavoidable expenses that come with a standard transaction.

Additional costs when buying real estate:

• Earnest money (usually refundable)
• Inspection cost
• Additional specific follow-up inspections
• Appraisal fee
• Brokerage fee
• Closing costs
• Title fees
• Title Insurance
• Home Warranty

Be sure to walk your client through these expenses, what they mean, how they should prepare, and what their options are for dealing with them. If your client is lucky enough to be buying a home in a buyer’s market vs. a seller’s market then they could possibly shift some of these costs to the seller, but if that is not the case then these costs will come directly out of the buyer’s pocket at closing.

Having all these costs discussed at the beginning of a working relationship with a client is going to serve you in two ways. 1) Your client will be able to decide ahead of time how much money they must save to successfully purchase their first home. 2) There won’t be any surprises for your client after their offer gets accepted. Your client will be calmer and more prepared to deal with unexpected circumstances that can sometimes be unavoidable in a real estate transaction.

Step 6: Obtain client’s pre-approval letter.

Your buyer obtaining a pre-approval letter is the first step of many for them to obtain financing. Your client can switch lenders after getting their contract accepted, but more often then not, they will be required to have a pre-approval on hand when submitting an offer for acceptance.

If you have not purchased a home yourself and you don’t know what is required of a buyer to obtain a pre-approval letter, meet with a loan officer to figure this out. Then you can prep your client to have specific documents and statements ready before they submit their application to their lender. The more you know about the lending process and the more the loan officer knows about the home-buying process, the better. Then you both can work together to guide and educate your client as much as possible. This way, your client has the best chance at making it to the closing table.

Working with first-time homebuyers is both challenging and rewarding. You must be patient and take the time to understand what your client needs. I hope this article helped you on your real estate journey. Check back to the Career Corner for more tips in the future. 

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