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House Hunting in California: a Step-By-Step Guide
House hunting is one of the most exciting parts of the home buying process. But for some first-time buyers in California, it can also be overwhelming and intimidating.
This guide walks you through some of the most important steps in the house hunting process, so that you can navigate them like a pro. We’ll also talk about the importance of local market research.
California House Hunting Process at a Glance
In California, the house hunting process can vary from one home buyer to the next, and for a number of reasons. For instance, buyers who use home loans have to complete additional steps that “cash buyers” do not. But since mortgage loans are used for most purchases, we’ve included them in this guide.
Here’s a step-by-step guide to house hunting in California:
1. Determine your price range.
It’s wise to establish a price range early on in the process, because it helps you narrow your home search. It also prevents you from wasting time looking at houses you can’t afford.
Before you start house hunting, take a look at your financial situation and establish a basic budget. The goal here is to identify the maximum amount you’re comfortable paying each month toward your house payment.
Related: How much house can I afford?
2. Research your target real estate market.
What are home prices currently doing in the area where you want to buy? What’s the inventory situation like? Does the real estate market currently favor sellers or buyers? How long are homes staying on the market?
These are some of the questions you want to answer before you start house hunting. Thankfully, you can gather a lot of this information online.
For starters, just do a Google search for “real estate market trends” followed by the name of the city where you plan to buy. Click over to Google News, specifically, to find the latest information relating to your local housing market.
Note: Refer to the second part of this guide below, for some market research tips and strategies!
3. Get pre-approved for a mortgage loan.
Mortgage pre-approval is when a lender reviews your financial situation to determine how much you can borrow. It makes sense to do this before you actually start house hunting, because it allows you to tailor your search to a specific price range.
Mortgage pre-approval has other benefits as well. With a pre-approval letter in hand, you can show sellers that you are serious about buying their home. Sellers tend to favor offers that have a pre-approval letter attached.
Related: Getting pre-approved for a loan
4. Find a real estate agent to work with.
You don’t have to hire a real estate agent when house hunting in California. There’s no law that requires it, and some buyers choose to fly solo instead.
Even so, having an experienced agent on your side could save you a lot of headache and hassle. Your agent will help you find a home that meets your needs, evaluate the asking price, put an offer on paper, and negotiate with the seller.
5. Expand your search area as much as possible.
Did you know that housing market conditions can differ from one ZIP Code to the next? It’s true.
For instance, here in the San Francisco Bay Area, the median home price for one county can be several hundred thousand dollars lower than the median price in another county. Supply and demand can also differ from one city to the next.
You might have an easier time finding a home that falls within your budget if you expand your search zone to the widest possible area. A broader search will give you more properties to choose from, increasing your chance for success.
6. Validate the seller’s asking price.
You’re well into the California house hunting process at this point. You’ve got an agent on your side. You’ve been pre-approved by a mortgage lender. And you found a home that meets your needs.
Next, you’ll want to evaluate the seller’s asking price to make sure it reflects current market conditions.
Remember: It’s called an “asking” price for a reason. That’s how much the homeowner wants to get. But that doesn’t necessarily mean that it’s realistic.
One of the best ways to validate the asking price is to look at similar homes that have sold in the same area over the past two or three months. You can find this information on property listing websites, and by leveraging your agent’s knowledge.
7. Make an offer based on the above research.
The offer is one of the most important parts of the house hunting process. This is when you submit a legal document to the seller indicating how much you are willing to pay for the house.
The paperwork part is straightforward. It involves a boilerplate document where you fill in the blanks. But those blanks are important and have to be considered carefully.
The seller can either accept your initial offer, make a counteroffer by changing one or more of the terms, or simply reject it. So try to make your first offer as strong as possible.
Related: Tips for getting your offer accepted
8. Consider adding contingencies to your offer.
When you make an offer to buy a house in California, you have the option to add contingencies to the contract. A contingency is a specific condition that must be met in order for the transaction to proceed.
For example, home buyers in California often include a home appraisal contingency. This gives them a way to back out of the deal, if the property appraises for less than their mortgage amount.
There are also contingencies for financing and home inspections.
In all cases, the goal is the same. Real estate contingencies allow buyers to exit the deal if a certain situation arises, without losing their earnest money deposit.
In-Depth: How to Research Your Local Market
Every local real estate market in California is unique. So before you start house hunting, you might want to spend some time researching local market conditions in the area where you plan to buy. Here are three specific steps you can take.
1. Review recent home sales on property listing websites.
Most home buyers realize that websites like Realtor.com and Zillow can show you homes that are currently for sale. But these sites can also show you homes that have sold recently.
This is valuable data when it comes to house hunting in California. In fact, it’s arguably the best way to determine how much to offer for a particular house.
It’s also fairly straightforward. Just go onto a website like Realtor.com or Zillow and do a standard property search for the city where you want to buy. Next, filter the results so that it only shows you “sold” homes.
When you adjust the search parameters in this way, you’re no longer looking at properties currently listed for sale. You’re seeing houses that have actually sold in the area where you’re planning to buy, usually within the past 30 to 90 days.
2. Research supply and inventory conditions in your area.
The difference between a buyer’s market and a seller’s market usually comes down to one thing. Inventory.
- In a buyer’s market, there are usually more homes listed for sale than there are buyers seeking them. As a result, houses tend to sell more slowly, and sellers have to go above and beyond to attract offers.
- In a seller’s market, the opposite is true. There aren’t enough homes on the market to satisfy the demand from buyers, which leads to fierce competition among those who are seeking a home to buy.
Before you start house hunting in California, research the current inventory situation in your local market. Once again, the Internet is your friend. You can research these types of topics with a quick Google search.
For instance, a home buyer in the Sacramento area might do a search for “Sacramento real estate market inventory” or “Sacramento housing market supply.”
These insights can help you make a stronger and smarter offer. For example, if you discover that homes are in short supply and multiple-offer scenarios are common, it would probably be a mistake to offer less than the seller’s asking price.
On the other hand, if you find out there’s a surplus of homes on the market, you might have more bargaining power. Knowledge is power!
3. Research home-price trends to see if urgency is warranted.
You can also use the Internet to research home price trends in the real estate market where you plan to buy. Among other things, this will help you determine whether or not a sense of urgency is warranted.
For example, if you find out that home prices are rising steadily within your local housing market, you’ll probably benefit from buying a home sooner rather than later. Doing so could prevent you from paying a higher price down the road.
On the other hand, if you determine that home prices are rising modestly — or that they’ve leveled off — you could probably take your time when house hunting. In this scenario, taking a few extra months for a home search probably wouldn’t cost you much, if anything.
