Hire Your OWN Home Inspector

I have emphasized, a number of times, the importance of having a home inspection. This is true EVEN if the home is brand new. You never know what you might find.

You may run across a situation where the home you are buying was previously under contract with another buyer, who did a home inspection. Sometimes that inspection report will be offered up by the seller (if they have a copy – since the inspection is done on behalf of the buyer, who pays for it, the report is normally the property of that buyer), perhaps as a way to save time, or for other reasons.

I strongly advise you to NOT use that report in lieu of your own inspector. Yes, it’s fine to get the report, and you probably should, just to see what was found, but have your OWN inspection as well. No telling how competent the other inspector was. And if you rely on it, and there are issues, you have no recourse.

Be on the Lookout For…

You find a wonderful house in the community you want, with terrific curb appeal. The price is right and seems fair compared to other homes you have seen in the area, and the MLS pictures are very appealing. You can’t wait to get inside…this MAY be the one! There isn’t much information in the listing, and the only comments state that the home has been recently updated, but no specifics.

Once inside, you notice the new paint on the walls and ceiling in the living room, new carpet on the floor, and some other cosmetic improvements. So far so good. There is a funny odor that you can’t quite identify, but the house is vacant and has been for some time, according to the listing agent, so you figure the smell is due to being closed up for a long period. You notice, however, that the ceiling, despite being newly painted, has an odd texture in the corner of the room. And interestingly the floor under the carpet in that area feels odd. Despite how appealing the home is, and how much you like the layout, the room sizes and the overall area, something feels off to you. But you decide to make an offer (which gets accepted below asking price) and start planning your inspection.

As a new buyer, anxious to acquire your new home, and with limited experience in house hunting, you should be on the lookout for situations like this. While there are no disclosures from the listing agent, the inspector notices the paint issue in the living room. And when you point out the funny feeling in the carpet, he feels this too. After a quick check on the roof, the inspector breaks the news – there is clear evidence of roof leaks, and the new paint and carpet appear to be hiding damage from a leak in the living room. And the smell is due to the leaking problems in the attic area.

You are not an inspector and cannot be expected to notice all these things, or to understand what they are about. But as a buyer, you need to pay careful attention to the homes you are touring and to not let your emotions about the home overshadow concerns or doubts you might have about things that appear to be off. Sometimes things are hidden or purposely masked. Defects and damage may not be disclosed, sometimes deliberately.

So pay attention to these issues. And work with a Buyer Agent you can represent YOUR interests and assist you with uncovering problems, especially if you are considering a home being sold directly by the owner without representation. And when things seem off, you need to inquire, or get more information through an inspection. Failure to do so can cost you potentially thousands of dollars. Lots of homes have minor defects, many of which are obvious. The ones to be concerned about are those where things are not obvious and appear to be intentionally hidden – by paint, carpet, new paneling. And pay particular attention to smells and staining – water damage can be very serious, and fixing the problem can be costly.

Make sure you do your due diligence!

Are You Hunting for a Deal?

Are you one of the many buyers hunting for a deal in this market? I don’t mean that you are looking for a good value…a home you would like to live in at a price you think is fair and reasonable. I am referring to the kind of buyer who wants “the deal of the century.”

It is common in a buyer’s market to find buyers who believe they can make a low-ball offer on a property and secure a fabulous deal. After all, homes are not selling quickly, and if sellers want to sell won’t they be willing to agree? We tend to see lots of low-ball offers in this kind of market, but rarely do they get anywhere. Sellers want to get as much for their homes as possible, and certainly don’t want to sell for less than market value, or sell for less than what they paid for it, unless they are in a desperate situation.

Some buyers seem to feel that this is the kind of market where they CAN get a terrific deal. But of course there is lots of competition for those deals too, so the reality is they just don’t happen, except in very unusual circumstances. The most likely place for these types of deals may be auctions, but you still have competition and there are risks inherant in the process.

And even in the case of foreclosures or short sales you still have to get the bank to agree on the price, and they will have an appraisal done. So it is unlikley you will get the home for much less that fair market value and you will have other deal hunters competing with you…and there may be lots of repairs and cosmetics you will have to deal with. 

This is NOT to say you should not try to pay less than asking price, particularly if a home is overpriced, and pay what is fair value for the market for comparable homes. No one wants to overpay, especially in a market where prices may be changing. But to expect you can pay 10 to 20% below market, or less, is probably not reasonable and will likely lead to frustration.

So if you ARE a bargain hunter, hunt away. But if you are serious about getting a good value, do your research and work with an agent who can help you determine what home is right for you, at a price that makes sense, for you AND the seller. Good luck!

What Do I Do if There are Problems at the Final Walk-through?

As part of the purchasing process you will have a final walk-through before closing to make sure all is well, no problems have arisen, and any repairs the sellers agreed to take care of have been completed. Depending on the typical practice in your area, this may occur on the day of closing (typical in MA for example) or earlier (here in CA it is generally done within 5 days of closing).

Hopefully you will not find anything wrong, and the house will look as it did when you made your offer, minus the seller’s personal stuff (unless they have until the actual closing day to remove them, depending on your agreement).

But sometimes there are issues:

• Repairs that were supposed to be completed were not
• Personal possessions remain
• An item that was supposed to be there (a chandelier) was taken
• You encounter new defects (e.g., a broken water heater, the stove no longer works)

What do you do?

First, you want to carefully document what you find in writing (your agent will be with you and can witness the problem, too). I advise buyers to take a digital camera on the walk-through for this purpose.

Second, your agent will need to notify the other agent about the problem you discovered (in writing), the work that has not yet been completed, and so on. Typically there will be agreement that this will be taken care of, or that there has been a delay in the repairs, and so on. Here in CA there is an escrow company involved and they should know as well.

If the time for closing is imminent, the next option is to withhold some of the funds at closing (this could be hundreds or even several thousand dollars) until the work is completed, the repair is fixed, the stuff removed. 

Generally this is not a big issue and the sellers are happy to resolve the matter quickly since they want to close to. But be prepared a problem may arise. But also be reasonable; if a bag of trash was left behind, I would suggest NOT making a big deal out of it.

What Do I Do if the Seller Won’t Negotiate Repairs?

As mentioned before (see What Do I Do When Problems Arise in an Inspection?), there is a good chance you will encounter some defects or repair needs during the inspection for the home you are attempting to buy. 

What do you do if the seller will not negotiate the repairs?

Unfortunately this does happen, even if the home was not listed as “as is.” There may be a number of reasons:

• Seller doesn’t want to hassle with making repairs
• Offer was lower than seller wants or feels is reasonable, so as a trade-off they will not do repairs
• Seller bought the home with those issues and has lived with them
• Seller feels the repairs are minor or insignificant

Regardless of the reasons, you have some choices.

• Move ahead with the home as is, knowing you must deal with the repairs. If they are minor it is probably is not a big deal and you have the assurance of getting them fixed the way YOU want.
• If there are serious issues, more due diligence is needed to ascertain the costs of the repairs so you know what you are dealing with
• You can propose that, in lieu of repairs, the seller offer a credit to offset the cost of repairs (having estimates of expected costs is smart rather than simply pulling a number out of a hat). Keep in mind the seller may not be willing or at least may consider negotiating this credit.
• You can decide to walk away from the deal

This is always a tough part in the process, so stay objective and focus on your goal. Try not to let minor issues get in the way of getting the home you want. Consider whether you or the seller are not being reasonable regarding the issues. And talk with your agent.

What do I do When Problems Arise in an Inspection?

After the anxiety of getting an offer accepted, one of the next tense moments is during a home inspection. If the home is brand new or just a few years old this may be less of an issue.

You should know that most inspectors, if not all, will tell you that there is no home without some sort of defect or repair needed, even the new ones. The big question, of course, is what the problems are and how serious they are, what will they cost to correct, and do you want the home knowing what you now know.

So you may wonder – what do I do when problems arise in an inspection?

• First, expect that there will be some issues, going in. Then you will not be so surprised.
• Once you have reviewed the inspection report you will need to decide how to proceed. You have several options:
  • Accept the home and inspection “as is” and proceed
  • If the problems are significant, you may decide to back out of the deal (make sure you understand the implications of this in your contract and follow the procedure)
  • You may compile a WRITTEN list of the repairs and defects you would like the seller to correct (your agent can assist). You may want to have some other professionals in to evaluate th eissues so you understand the extent of the problems and the repair costs. 
  • You can request a change in the offer price to reflect the costs of repairs and defects (talk with your agent)
• The seller, of course, has some options too, since inspectional issues become another set of negotiations. The seller can agree “in toto” with your request, may negotiate some other arrangement (fix SOME defects, provide a smaller credit), or may refuse to do anything at all.

I advise buyers to be reasonable about their requests for repairs, although safety issues, in my mind, really should be taken care of. More serious problems should be addressed since they can impact insurance or the loan itself. In some cases the problems are significant enough (say, major structural or foundation problems) that the best course of action is to say…NEXT!

What do I do When the Seller Makes a Counter-Offer?

There is a very good chance that the seller will make a counter offer to your offer, unless you decide to make a full-price offer. Not too common in this market these days.

I have had a number of buyers ask me - what do I do when the seller makes a counter offer?

• Don’t take it personally. This is part of the negotiation process. You want to pay as little as possible and the seller wants as much as possible, so you both need to find a middle ground. Unless you give them what they want, a counter-offer is normal and expected.

• It’s good news…the seller did NOT reject your offer outright, refuse to talk further, or simply ignore your offer. So you are in the game.

• Keep in mind that when a counter offer is made the original offer is no longer valid – the terms have been changed by the counter (although it might only be price, or closing date).

• You have a choice to respond – with a counter offer of your own, or not. You can choose to walk away if you wish. You can accept the counter offer. Or you may accept some portion of it but make other revisions, say price.

• In some states counter-offers must be done in writing(e.g., California has a form for counter-offers, number sequentially for each counter; in MA they typically do this verbally, at least where I worked in the Boston area).  So find out the standard protocol for your area.

• The negotiation goes back and forth until there is a “meeting of the minds” or one or the other party backs out.

Is a Home Screaming…”No, Don’t Buy Me?”

Have you seen any homes in your house hunting that seem to be screaming at you “No, don’t buy me?”

 

Well, you probably will. These are the homes where it pays to be particularly careful if you are considering buying them. So what are the red flags?

 

• Poorly maintained – broken windows, peeling paint, rusted gutters, overgrown yard, broken tiles (counters, floors), holes in the wall, and so on. The problem here is you may not notice everything, and a home that appears to have deferred maintenance issues can end up costing you a lot of money
• Being sold AS IS – depending on condition, this may or may not be a problem. But you will want to do a thorough inspection so you know what defects and repairs you are purchasing for the money, and to get an idea of what it will cost to bring it up to your desired condition (or make it livable).
• Overpriced – no matter what the reason (unreasonable seller, owner NEEDS to get a certain amount of money out of the home) this is risky if the asking price is well beyond the market value. You may be able to negotiate, but you may not. You don’t want to overpay  based on comparable properties.
• Clutter Everywhere – this, by itself, may not be a problem. Some folks just have lots of stuff. But the risk is that clutter may hide defects and needed repairs, and in some cases suggests deferred maintenance.

There are certainly other issues that you need to consider…unrepresented sellers, short sales, pre-foreclosures, foreclosures…but these are the main thoughts I suggest you keep in mind. Know what you are buying BEFORE you buy it!

 

What I Need to Know About Your Financial Situation

I just wrote a post about not lying about your financial situation when discussing getting pre-approved, and when applying for a loan for you new home. Good advice, I think.

Here is what I like to know about your financial situation if you have not yet gotten pre-approved (and this is likely true of most agents). It just makes sense. Why?

Well, real estate is my job and I like being a good user of time. Showing homes to people who cannot afford to buy is a waste of time – for them, for the sellers, and for me. It is also a disservice. Sellers should not be asked to vacate their homes or open their homes up to people who just want to take a tour. It doesn’t happen often, fortunately. Plus as a professional, licensed real estate agent it is my duty to show homes to people who are qualified.

So it’s important for me to know that:

• someone can afford to buy a certain price range of home, based on income, debts (e.g., loans, credit cards)
• the buyer has shown responsibility for paying loans and credit cards regularly and on time (i.e., they have a credit history that is positive)
• the buyer has not had a home foreclosed or declared bankruptcy recently (unless extraordinary circumstances occurred and credit hisstory since has been strong)
• someone has the capacity to repay the loan, based on income, and is not overburdened by debt

And doesn’t that make sense to you , too, as a buyer?

It’s difficult, especially as a first time buyer who may not have a lot of money to put down on a home, but who has excellent credit and more than sufficient income, because loan programs have changed. So I need to know that buyers ARE qualified. Sellers need to know. And YOU need to know too. So don’t be surprised if I ask you about these matters, if you have not already had a discussion with your mortgage broker.

Buyers, Don’t Be Liars

This is advice for all buyers, not just those of you embarking on your first purchase. If you are doing this for the first time you might not think about the possible implications, or think that perhaps it doesn’t matter, if the truth is, shall we say, modified a bit.

I am NOT assuming that you will do this. However, I have to be straightfoward with you – there are plenty of stories of situations in our current market where buyers are lying, or distorting the truth, or leaving out certain details – either deliberately or perhaps because they don’t think certain details are important. I want to strongly encourage you to NOT do so.

Lots of folks have various financial situaitons that are not prisitine (more than you would think). Past credit or payment issues, small loans that aren’t mentioned, varying income (self employment) or income that cannot be verified, and so on. Some things show up on credit reports and some do not. Or some details get missed by the mortgage broker. Or you don’t get asked the right questions.

I want to encourage you to be very upfront and honest about your personal situation with your mortgage person. Don’t try to hide credit or payment issues, don’t mislead them on loans you have, or problems you have had in the past. It will come back to bite you.

Lying about your situation might get you the pre-approval, but a full-fledged investigation to finalize the loan might end up with you NOT getting your loan commitment. And you can lose the home you are trying to buy. Worse, lying about certain situations, given the legal contract you are in, CAN be construed as FRAUD (say you had a foreclosure in the past but lie about it when asked).  Obtaining a loan via fraud is serious and can land you in real hot water, and perhaps in jail or with a big fine.

A further problem is that this CAN put your transaction at risk, and may also mean the seller gets to keep your earnest money or down payment. Ouch!

Does this happen? Yep. I have an agent-friend who had just such a buyer submit an offer on his listing and the transaction fell apart at the 11th hour.

So be honest about your situation. Lots of times there are ways to work out these issues, or correct them, and your broker will appreciate it. In today’s market everyone is being more cautious – agents, mortgage people, and sellers. It just doesn’t pay to be dishonest. And it can really cost you.