I am purchasing a second home in San Diego. There is sufficient room that my daughter will live there full time. In a few years, when she gets a job, she would like to buy the house from me and I will likely buy a smaller house. What, exactly is involved in this transaction so that it is done legally and honestly; i.e. what formal documents are required, do I need a "realtor"?

This is a sale like any other. You don't need a realtor, but you should have an attorney or title company prepare the paperwork and conduct the closing.