Overview

In a joint home purchase, the main actors are:

• Seller(s), who want to sell their property
• Co-buyers, who want to buy a property
  

The sellers usually work with a listing agent to market their home, often through a Multiple Listing Service (MLS). Co-buyers, on the other hand, work with a buyer's agent to search for suitable properties, also often using the MLS as a resource.

Once co-buyers find a home they're interested in, they make an offer. If the sellers accept, both parties reach mutual acceptance and enter into a Purchase and Sale Agreement (PSA). This agreement outlines the terms and conditions of the sale, including any contingencies like inspections or appraisals.

The transaction proceeds to closing, where the legal and financial aspects are finalized, often in escrow, to ensure a smooth transfer of property ownership. Throughout this process, various milestones and terms like Days on Market, Sale Price, and Inventory come into play, shaping the dynamics of the real estate transaction.

The Principal-Agent Model

Brokerages—and the real estate agents they employ—are a real-world example of economic agency theory in which a principal hires an agent to represent them in a complex transaction. The agent contributes relevant expertise, emotional objectivity, and negotiation skills.

In a home purchase, you as co-buyers, are the principal. You employ a real estate agent who ideally has specialized knowledge, local market insights, and experience in negotiating joint home purchases.

This setup allows you to focus on your goals while the agent handles the complexities of the transaction. It's a strategic move to ensure you're well-represented in a high-stakes and often emotive, intricate deal.

Key Terms & Concepts

👨🏼‍💼 Industry Players

• Real Estate Brokerage: A licensed firm that employs real estate agents to represent buyers and sellers in property transactions.
• Listing Agent: The real estate agent representing the seller in marketing and selling a property. For co-buyers, this is the agent you'll negotiate with when making an offer.
• Buyer’s Agent: The real estate agent representing the buyer, or in the case of co-buying, all co-buyers collectively. This agent helps you find a home, make an offer, and navigate the buying process.

📊 Property Listings & Market Metrics

• Multiple Listing Service (MLS): A centralized database of properties for sale shared by real estate agents. MLSs are typically regional or state-wide, and each MLS has its own rules and membership requirements. There are over 560 MLS systems in the US. Historically, these databases were available only to real estate agents and those who paid for access. Today, several major online real estate platforms scrape and consolidate some, but not all, MLS data.
• Listing: The advertisement of a property for sale, typically including details like price, location, and features. Buyers review listings to find potential homes that meet their criteria.
• Inventory: The homes currently available for sale in a specific market. Low inventory can make the homebuying process more competitive.
• Active vs. Pending: Active refers to a property currently available for sale. Pending means an offer has been accepted, but the sale hasn't closed yet. Co-buyers should focus on active listings, but be aware that pending deals can fall through.
• Days on Market: The time a property has been listed for sale on the MLS. A shorter time may indicate high demand, while a longer time could signal issues that co-buyers should investigate.
  
  

🧮 Property Pricing & Valuation

• List Price: The initial asking price set by the seller when a property comes on the market. For co-buyers, this serves as a starting point for negotiations.
• Sale Price: The final amount agreed upon between the buyer and seller for the property. Co-buyers should be aligned on their maximum offer to reach this point.
• Home Value: The estimated worth of a property, determined by factors like location, size, and condition. Ultimately, the determination of value can only be established through transacting. Co-buyers should consider this when making an offer.

📍Transaction Milestones

• Buyer’s Agency Agreement: A legal contract between a homebuyer and a real estate agent that outlines the services the agent will provide, the commission they will receive, and the duration of the agreement. This document formalizes the agent's commitment to represent the buyer's interests in a real estate transaction.
• Offer: A formal proposal by the buyer(s) to purchase a property at a specific price. Co-buyers should be in agreement on the terms before submitting.
  
• Mutual Acceptance: The point at which both buyer and seller agree on the terms of the sale, making the offer a binding contract.
• Purchase and Sale Agreement (PSA): The legal document outlining the terms and conditions of the property sale. Co-buyers should review this carefully before signing.
• Closing: The final stage in a real estate transaction during which ownership transfers and funds change hands.

⚖️ Financial & Legal Aspects

• Escrow: A neutral third-party account where funds are securely held until specific conditions are met, usually outlined in the PSA.
  
• Lien: A legal claim on a property as security for a debt, which must be paid off before the property can be sold.
• Encroachment:Unauthorized intrusion of one property onto another, which can affect the sale.
  
• Easement: A legal right to use another person's land for a specific purpose, like a driveway or utility line.

🔎 Due Diligence & Conditions

• Contingencies: Conditions that must be met for the sale to proceed, such as financing or inspection outcomes.
• Inspection: A professional examination of the property's condition, usually a contingency in the PSA.
• Appraisal: An evaluation of the property's value by a certified appraiser, often required by lenders.
  

The Flow of Funds

Best way to understand any financial transaction?

🐾 Follow. The. Money.

Let’s look at how the money flows in a home purchase and sale.

1. Co-buyers bring the cash (down payment + mortgage borrowed from a lender).
2. After mutual acceptance, cash is deposited with escrow.
3. Escrow distributes the funds to the home seller net of real estate commissions and closing costs, with real estate commissions paid by escrow to the listing and buyer’s brokerage.
4. The brokerages disburse an agreed portion of the total real estate commissions to the listing agent and the buyer’s agent.

Details vary depending on the state and based on the specifics of the transaction, but the basic flow is similar in most cases.