I am a home inspector and not a real-estate professional but I have watched my clients navigate the pre-purchase process for over 25 years. I have seen the "pros" who have bought many properties and have also seen the "first timers" who get bamboozled by the process. Here are some tips based upon my observations.
Purchasing or selling a home or a property is a big job. It is often one of life's biggest transactions. Owning property can be one of the best investments that you will ever make, it can also be one of the worst. Real estate is a non-liquid asset, in other words, you can't always sell the property quickly or for the desired price.
All of this and other factors dictate that the purchase and sale of real estate is a very big job. This job requires time, effort and money. When professional buy or sell commercial property they go through a "due diligence" process. That is, they follow a set of rigorous procedures that help them analyze the property. Residential property purchase requires a similar process and it is here that most of the mistakes are made.
As a home inspector I believe in the value of a good home inspection. But that is not enough. A thorough real-estate purchase and sale process also requires that many other aspects of the transaction be investigated.
Its a very big job. Take the time you need. Make the required effort. And spend the money to do it right. Learn what you need to know now, it maybe too late after closing the transaction.
If all of this sounds daunting, remember that millions of people have been successful. There are lots of resources to help you to do the job right.
Yes, there are times during very hot markets when it is necessary to make a quick decision in order not to lose an attractive property. But in my work I see too many folks being rushed to make decisions when there is really no need to do so.
A typical example:
You are the buyer; you have completed a purchase and sale agreement that allows for:
In most instances, you are able to use all of that time without any danger of "loosing the property." My advice: take all of that time you need and use that time to do a lot of research about that property, about the different financial options and about your plans for the use of that property.
I have heard all sorts of poor reasons to rush:
Remember: You need not give any reason for your requests. Simply say, "I prefer to or not to."
In the book Freakonomics, Steven D. Levitt and Stephen J. Dubner conclude that Realtors who sell their own homes tend to wait longer for a higher price, receive a higher price for their properties and have little incentive to do the same for their clients. While this conclusion is controversial its worth considering. If nothing else it points out that the motivating factors for Realtors, mortgage brokers, appraisers and yes, even home inspectors like me are not necessarily the same as those of the buyers and sellers of a property.
My advice: be sure of your deadlines and then take all the time you need to make the best decisions for you.
I make part of my living inspecting homes and as such have a vested interest in having more customers. But that's only part of what I am talking about here. Most people do have their homes inspected during the pre-purchase process. I am advocating for a lot more than that. Here are a few examples:
One lesson from the sub-prime loan fiasco is that loan officers, brokers and investors didn't ask tough questions about these loans. As the home buyer, you need to know what would happen if things do not go as expected. For example: what if, home values drop? family income drops? interest rates go up and...?
There are very few "free" things in life and one of the free things that maybe of very little value to you is the bank's appraisal of the property. What the bank wants to know (or at least what they ought to know) is if the property is worth at least as much a the loan value. They need to know that in order to be sure that they can get their loan repaid in case you default on the loan. Many banks didn't get accurate appraisals during the sub-prime loan fiasco and even if they did, they weren't really looking for the data you need.
Who else should you hire for a consultation?
And some of these investigations will not cost you more in the near term but could save you a lot of money. For example: if the furnace has not been inspected by a specialist in the last year, you should have it inspected before the next heating season anyway. You might as well do it now and find out in the process if it needs major repairs or replacement.
Can't afford all of these "extra" costs? Might that indicate that you can't afford to buy a house? Remember, properties require an average of about 1-2% of their value in annual maintenance.
So you drove up to the house, or were driven to the house and fell in love with it. Next you made an offer and the offer was accepted. Ok, that's fine. You are now in the inspection contingency period of the process. You have a a certain number of days to do some of your own research. Here are a few suggestions:
Consider this as your opportunity to research your new neighborhood. Remember that you can make a lot of changes to the home you buy but not to the area around your home. Take your time and talk to a lots of people. You will gain invaluable information!
Here are some other sections of The Sound Home Resource Center that may help your in purchasing or selling a piece of property:
So: take your time, ask questions, make the effort and get the professional help you need. Buying and Selling property is a very big job and mistakes can be very expensive.
I asked my friend, colleague and attorney Mary Anne Vance to answer this question. Here is what she had to say:
"Ever wonder what all those pages of words really mean on your offer to purchase or sell your dream home?
"You owe it to yourself to understand everything written on your real estate forms . Just because it is preprinted language does not mean it is the best language for you . Hiring an attorney to review your offer to purchase or sell a home will give you peace of mind and help you understand the legal process. Unlike a real estate agent that has a vested interest in whether a sale closes, your attorney will give you fair and impartial advice about your rights and obligations . For example, as a buyer do you really want to settle for " marketable title" as the form dictates or do you want " free and clear title " to your home. Usually one or two hours is all the time it will take an attorney to review or prepare your offer and you can relax knowing you are buying property on your terms."
And so I asked, why wouldn't I want the term "marketable title" in my forms?
"When you buy a property you pay money to become the sole owner with "clear title". Clear Title means that only you are the owner and that no one else has a lien against the property for example , for payment of the prior owners debts. Neither do you want a power company to have an easement allowing the company to place a high voltage power line through your back yard. If you had one of these encumbrances on your title , your title is " clouded title " A " Clouded Title" could be " marketable" meaning that someone might buy the house even with the lien or the easement but they would pay a lower price because of these problems. A property with " clear title " is more valuable .
"The standard language in the preprinted purchase form says only that title need be " marketable" which means that you agree to buy the property even if it had a clouded title . Smart purchasers know to change this "marketable" language 'to free and clear of all encumbrances'."
Thanks Mary Ann!
Any more questions?
The Law Office of Mary Anne Vance, P.S.
901 5th Avenue, Suite 1111
Seattle, WA 98164