Most People Don't Spend Enough Money During The Pre-Purchase Process

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:

  • You need to have an attorney look at the purchase and sale agreement and help you throughout the purchase process. Real estate transactions involve complicated legal matters and documents. For some examples of that, take a look at http://www.soundhome.com/article/real-estate-legal-terms.
  • Consult with your accountant or independent financial adviser. Find out different ways to own or finance the property that may help you with your taxes. You might even want to know if you can really afford to buy (or sell) this property.

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.

  • You need to know if the property is worth the purchase price and not just the value of the loan. So if you need an appraisal, try to find an independent party and pay them to work for you. And then look at the results and see if the comparable properties and all the calculations make sense to you.
  • If you have any doubt about the boundaries of the property then you need a survey. Even if you don't have any doubts but your wife (or husband does) then get a survey. I for one had no doubts about the boundaries of some land we bought and only agreed to have it surveyed for the sake of "family harmony". That survey did help with our family's harmony, it also helped us avoid a very costly problem!

Who else should you hire for a consultation?

  • Architects or contractors if you plan to remodel the house.
  • Structural or soils engineers if you have any idea that there might be some structural, slide or other soils issues.
  • A laboratory test for environmental issues or water quality.

And what will all that cost? It might cost a few thousand dollars. Most probably less than 1% of the value of the property you want to purchase. By comparison to the cost of complications, that's a bargain.

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.