Whether buying or selling a home, there can be some hidden surprises that can really catch you off guard. Here’s what you need to look out for to ensure a smoother and more enjoyable real estate experience.
The Contingencies of a Home Purchase
Buying or selling a home can be one of your most important financial and life moves. If you don’t know what to really expect from the process, it can also be one of the most stressful.
According to Forbes, almost 8% of pending home sales fall through. Your odds of encountering an issue can also rise and fall depending on your location, age of the home and price range. US News says Ventura, California can be especially precipitous for transactions, with almost 12% of all contracts failing. San Jose, Portland, and Vegas also have their challenges.
But it doesn’t have to be that way. Make sure you know what to look for, where the glitches come up, and how to spot them early and navigate through them.
Here are eight of the most common real estate gotchas and what to do about them…
1. Property Inspections
Even with an ‘As-Is’ real estate contract, the buyer has the right to a professional home inspection. No one should ever buy a home without one. It doesn’t matter whether you are okay buying a distressed home that needs some love and updating, or you are buying a brand new construction home. Get an inspection. You really have no idea what the condition is and what it will cost to fix without one.
There are two gotchas here. The obvious one is finding out what may be lurking under the surface, in the walls and in the attic. The second is not knowing how to really take a home inspection report.
This can be really scary for first time home buyers. It is the home inspector’s job to find everything possibly wrong or that can be improved on. The report can produce a really long and scary list of items. It’s important to understand which items are urgent, and which are just nice to have improvements you can worry about over the next few years. Some scary sounding items may be really common and almost unavoidable in your area. Such as termites in Florida and sinking foundations in Texas. Talk to the inspector. Have them interpret it for you,before you freak out.
According to Realtor Magazine, the biggest issue with inspections is not what’s found, but in the expectation gap between what buyers thought they were buying, and what it turns out they are in contract to buy after the inspection.
2. Surveys
During the post-contract process a survey and flood certificate will be ordered. This is often done by the title insurance company or real estate law firm handling the closing.
You may be really surprised at which properties fall within flood zones, even on condos several floors high. This will dictate if you need flood insurance.
A survey lays out the boundaries of your property. It shows you what you’ll have rights to as the owner, and what you won’t. Utility companies typically have easements to access your property to service lines. Encroachments can give others legal right to use your property for access to their own in certain circumstances. This survey also shows where your real boundaries are when it comes to waterfront property. Don’t assume or blindly believe the seller. Check it out for yourself.
3. Title
Every home buyer should have a title and lien search performed and get both a lender and buyer title insurance policy. These searches reveal who the real owners are and who has the legal rights to sell the property, as well as any additional debts on the property which must be paid off.
Some sellers don’t even realize how much they owe on liens or who else may have a claim to ownership and must sign at the closing.
Buyers can’t afford to skip this step, or there is no guarantee the purchase is really legal and free of extra debt.
4. Financing
Financing is probably the most common reason for the failure of pending home sales. Unfortunately, a pre-approval letter from a lender is normally worth less than the paper it is printed on. There are so many variables and conditions that nothing is guaranteed until the lender gives the final ‘clear to close’. Even then there can be quirks.
It is vitally important that the buyer divulges as much information to the lender as early as possible and ensures this property and transaction is a good fit for them.
Expect underwriters to ask for crazy paperwork, even at the last minute. Just breathe, and get it over to them as fast as possible so the closing isn’t delayed.
5. Appraisals
As a seller, avoid this gotcha by really getting a handle on your property value before you list. Be sure your Realtor is really confident it will appraise for the sales price. It really doesn’t matter what a buyer is willing to pay. If they are financing it, it only matters what the bank says it is worth.
6. Associations
Condo and homeowner associations can be really complicated. They can require special approvals for financing. They come with volumes of rules and budgets. Every buyer should read them thoroughly in advance.
If they don’t have enough financial reserves, or there are too many speculative owners, the property may not qualify for financing.
In addition to multiple layers of fees and dues, associations can have a crazy amount of rules and limitations. They can limit who you can rent or resell the property to, how you use it, and much more. They can also have much tougher application qualifications than any landlord or mortgage bank. They may not be fast at granting approvals either. Make sure you know these rules and how they might impact your sale or purchase in advance to avoid any issues.
7. Market Changes
The real estate market is never standing still. During the transaction, property values, loan interest rates, and lender underwriting guidelines can all change. This can require some flexibility by both parties. Most importantly, it should be motivation to work to help all the professionals involved to clear what they need to in order to close, and get it done quickly.
Sources:
"8 Real Estate Gotchas..."; n.d.
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