Home Inspection: There importance in the purchase of your next home.

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Congratulations! Your offer got accepted, escrow is opened, and you’re wiring your deposit tomorrow….so what’s next? This may be the stage where many people encounter a slight level of confusion or unfamiliarity about how to proceed, especially if they are first time home buyers or don't have the proper guidance. Luckily that is easily remedied however, because every aspect of the home buying process is pretty systematically laid out for people to follow. The answer to the question of what youshould be figuring out, is who will you be hiring to conduct your home inspection?

Your home inspection is one of the most essential parts of the purchasing process. Considering that buying a home is probably the single greatest purchase most people will make in their lifetime, how do you ensure that you are protecting yourself and your family from getting duped into buying a money pit that may lead to unwanted headaches? Well to answer that question we need to rewind just slightly to when the purchase contract itself (the offer), is being filled out. It is vitally important to note that you don't EVER want to waive your right to perform an inspection in the paperwork. In a seller’s market like the one we're in now where many properties fetch multiple offers and move quickly, some buyer’s may tend to get wrapped up in the idea of making their offer as desirable as possible and forfeit their rights to aninspection. They're doing this in an effort to put themselves at an advantage over the competition, but they are doing it at a huge potential expense by exposing themselves to a tremendous amount of risk. You never want to forfeit this right because by doing so you are no longer hedged against any unforeseen complications with the property. 

The next point of concern then becomes where do you go to find a reputable and reliable home inspector? Probably the best place to start would be to ask your agent for a recommendation. This of course doesn't mean that you blindly accept any name they provide. As with any aspect of buying or selling a home, you always want to do your own due diligence. Ask your agent to suggest a few names (they are required to give you no less than 3 referrals depending on the state you live in), and call eachinspector to discuss their process and prices. Always remember that you are hiring them to look out for your best interest, so don’t necessarily only use the price quote as the single determining factor. It's important that you feel good about working with that inspector as they are going to be performing a critical part of the home buying process. Look up reviews on them (Google and Yelp are your friends), and you sometimes even ask them for references if they'll provide them.

One thing of importance to note: although you want to do the appropriate amount of research before making this decision, it's worth mentioning that you do have somewhat of a limited window (the "contingency period") to get your inspections all handled, so you don't want to get stuck in paralysis by analysis and drag your feet on this. Set aside some time after your offer has been accepted to get this accomplished. Interview at least three inspectors to get an idea of their approach, background, certification, cost and turnaround time for the report. A bad inspector can cause a lot of confusion, and even in some instances cost you the house (we've seen it happen), so spend the time necessary to figure this element of the process out, and then commit to someone and set the appointment date.

Ok so let's now fast forward a bit to inspection day. One question that I get asked a lot from clients is, “Do I need to be there during the inspection?” Although not mandatory, my answer is always a resounding “YES!". I like to strongly advise clients to put aside some time to be there for the process, because not only will they understand how it's done for future reference, but they will gain some valuable insight about the home. That's not to say that it's required for you to be there for the entirety of the inspection (which generally takes 1-2 hours depending on the size of the home), but I do like to advise clients to show up for at least the last 20-30 minutes or so. This way, you'll catch the tail end of the inspection and the most important part of it all: where the inspector will review with you all of his findings. 

The inspection itself is very thorough and detailed, which is all laid out in the "Inspection Report". This report can range anywhere from just a few pages to over 60 pages (there are sometimes a lot of photos of the property the inspector will reference so it can add to the document size). Its good to go over any of the concerns either right there in person, or a little later in the event the seller is present and you don't want to discuss things in front of them. Here's the most important part of all of this: ASK QUESTIONS. Now's the time to ask Mr. Inspector any and everything you want to know about the place. You paid this person to do a detailed and intensive inspectionfrom top to bottom of the property, so make sure all matters of concern are discussed.

After the inspection report is received, you need to sit down and talk to your agent about the how to handle any repairs (if any need to be addressed). If present, safety concerns are the main issues that should definitely be dealt with as the priority. You do not however want to be “nit-picking” every single little item that the inspectorremarks on either. If you're buying a home that's previously been lived in (which most people are), just remember that there might be some minor blemishes here and there from the previous owner inhabiting the home. Very few lived-in homes get delivered in absolutely brand new, immaculate condition. Most of those can be remedied with a little time and some elbow grease. 

It is the responsibility of the agent throughout this entire process to be using their expertise in explaining to you the way the requests for any repairs should be handled. Sometimes, its better to have the seller credit the buyer the costs for the repairs, and have the buyer have their own contractor take care of the work, instead of demanding that the seller fix them before the property exchanges hands. Doing it this way ensures escrow isn't held up, and you can also choose your own contractor to ensure the work is done by someone of the your choice, rather than the seller's. 

This is of course on a case by case basis and depends on the severity of the repair, so you and your agent should use your discretion and better judgement in these instances.

Just remember, even with all the new fancy technological gadgets that inspectors now use and all their years of experience in that line of work, no home inspector can predict ALL of the future problems a house may develop during the time you reside in it. There have been a couple of occasions where we have closed escrow on a property, and within several days after doing so something may've went wrong with the home. You can do everything in your power to try and ensure you're not a victim of this same scenario, but from time to time in rare instances it may happens. It's even happened to me personally on a couple of homes I've bought in the past. 

As a buyer, your objective is to always do your best to be knowledgeable and informed of the investment you are making. You probably wouldn't purchase a car without getting it checked first by a mechanic, would you? So then why not take that same level of precaution when you are buying a home? Better safe than sorry.

A great site to visit in order get more information on home inspectors that are ASHI Certified (American Society of Home Inspectors) is HomeInspectors.org. Doing this in conjunction with asking for referrals and looking up reviews can guide you in the right direction to picking the best home inspector for your property. 

Buying a Short Sale....is it worth it?

There is a huge misconception out there that Short Sale properties are a great way to buy properties for cheap. Truth be told,that isn't necessarily always the case. As an experienced Realtor, and having listed and sold Short Sale homes, that is the furthest thing from the truth.

The first thing I like to ask my client is: "Do you know what a short sale is?" About half of my clients can answer that question correctly, while the other half may not necessarily grasp the concept entirely. In simple terms, I like to explain the definition of a short sale to my clients a little something like this: a short sale is the sale of a property, for less than what the seller (borrower) owes on the property, in simplest terms. Meaning, the current owner bought their house when the market was high, and the market has now decreased, depreciating the value of the home. Therefore, the seller is "shorting" the bank the difference from what is owed, to what the current market value is. As a seller of a short sale property, you will be considered eligible for a short sale after the NOD, Notice Of Default, has been filed. This holds true for a lot of the properties that have mortgages with banks such as: Bank of America, Wells Fargo, Chase, Aurora, Cenlar, etc. However, the processes involved in submitting the short sale for initiation can vary from lender to lender. An experienced Realtor that has done short sales, knows how to put a complete short sale package together and send it to the lending institution for review. Even then, there will almost always be requests made by a representative or negotiator from the lender, to provide more documentation. For the initiation of a short sale the following items will be requested, and note, some lenders/banks have their own forms (which you can acquire from their websites) that need to be completed correctly and sent in along with:

  • Third Party Authorization - this is a document giving permission to the bank to disclose loan information with the agent doing the Short Sale. This can be a document drafted by the agent and signed by the borrower(s) of the property, or in some cases the bank will have its own version that must be submitted. 
  • Hardship Letter - is a letter that has been written by the borrower(s) stating why they are not able to make their mortgage and what kind of hardships they are facing that limit them to proceeding with their loan obligation. 
  • Financial Worksheet - again, this document can be acquired by going to the banks website and searching their library of forms, OR you can always Google "[Lending Institution Name] Financial Worksheet" and I assure you there will be a few PDF documents that you can download and print.
  • Paycheck Stubs/Last 2 months bank statements/Last 2 years taxes - all these documents will be requested for the borrower(s) to provide, and the bank statements and paycheck stubs need to be updated every 30 days (sometimes sooner depending on your lender). 
  • Listing Agreement and Purchase Agreement
  • HUD with all of the charges reflecting what is on the Purchase agreement
  • Any other miscellaneous documentation that the lender requests as part of their short sale submission package. This information can be acquired by calling either the lender short sale department or going to the website. 

Unfortunately, no one said this process is going to be easy and in most cases, it isn't. For the most part, it is a very rigorous and an extremely tedious process. As a person that is contemplating on short selling their home, it is imperative that you make sure you talk to a Realtor that has experience doing short sales. Consulting with your CPA about the consequences if you did a short sale and how it would affect you tax-wise is also highly recommended. If you think that you would like to get the legal ramifications of a short sale, consult with an attorney as well. Keep one thing in mind if you happen to be going through this process. Your Realtor should NEVER give you tax or legal advise!

One problem I see a lot of when representing a buyer, is when the agent representing the seller, lists the short sale property below fair market value to entice buyers to make an offer. Agents do this as an attempt to get an offer in hand as quick as possible so it puts a hold on the trustee's sale; there is a time limit to completing a short sales, and we agents rush and do what we can to ensure a successful closing. However, in many cases, this puts false hope in the buyers. They believe that they are getting a "steal of a deal" on the property. This in turn causes an issue after the bank has a BPO (Broker's Price Opinion - is an unofficial appraisal, that the bank has done to determine the fair market price of the subject property is). When the BPO results get back to the bank (and they will almost never be disclosed to borrowers or agents), the bank will review and determine if the purchase amount satisfies the lenders/investors requirement, and either make a demand for an increase in the purchase, or proceed with the offer that is in hand. If the listing agent has listed the property far below what market value is, that gap between the offered amount and what the bank says the new purchase amount must be, will be much greater. The greater the gap, the more apt a buyer is to turn away and go look elsewhere. So, the listing agent should price accordingly, to avoid wasting his or her time, and more importantly the seller's and potential buyer's time. 

As a buyer of a short sale, just know that that process does take time and you may need to be patient. Despite the name, Short Sale, there is actually nothing short about the time it takes to get your approval letter. A buyer's lender cannot move forward with disclosing the loan, ordering an appraisal and getting the loan process started without that approval letter from the seller's lender. Make absolutely certain that you DO NOT do any inspections on the property until that approval letter is in your agents hands. In the instance that you pay for inspections, and your offer is then declined, the money you spent on those inspections is essentially gone. Your agent should also ask the listing agent how much progress he has made with the seller's lender and also how much experience they have doing short sales. If the listing agent has very little experience, the process could tend to take longer. A good buyer's agent will be able to sit you down before an offer is made and educate you on how the short sale process works, and let you, the buyer, make the choice if you are willing to be patient during the process. 

If you are an FHA buyer interested in a Short Sale home, there are a few things to be aware of. The first and most important of which, is that sellers seldom do any repairs in the short sale process, and the banks NEVER do. So if you are looking at purchasing, or have an accepted offer on a short sale property, understand that if anything is brought up in the home inspection, pest inspection, and/or the appraisal, chances are you may have to pay for those repairs out of pocket, yourself. And if they are required repairs to be made by the appraiser, they will HAVE to be completed before your loan is funded. This will also require the appraiser to go out and do a follow up to ensure the items called, were in fact remedied. Be prepared, because that second visit by the appraiser to clear those conditions, will cost you another $100-$200 fee (depending on the appraisal company). If there are safety concerns or things that you want to have fixed almost immediately when you move in, and if the seller is not willing to do any of those repairs, then another option to seeking equitable solution, would be to ask for a price reduction. These can be items that were called in the appraisal, the termite inspection, or the home inspection. Your agent can put together the request for the price reduction along with the reports to justify the claim. I have found that having an estimate by a licensed contractor can also help in most cases in getting some kind of reduction. Be prepared, because you are going to get 1 of 3 responses to your request; 1.) Yes, we will allow a reduction for the amount (provided the cost that will be incurred by the buyer is justifiable and the request is within a reasonable amount off the purchase price); 2.) No, there will be no reduction in price; or, 3.) We will allow "X" amount off from the requested reduction amount. That being said, be aware of the condition of the house when you are previewing it with your agent. Have your agent ask the listing agent if there are any issues that will cause the FHA purchase to hit any road blocks. 

Note - if the asking price of the home is already below market value because the seller has taken into consideration the repairs that are needed, then the price reduction request will most likely be declined by the bank.

Almost every neighborhood has had or currently has a short sale listing in it. As agents, we see short sales in all price ranges, and in all types of market locations. As buyer's, don't be scared or apprehensive about making an offer on a property if you feel that it is the right one for you. Sometimes you have to wait to get the house you want, and turn it into a home. 

Have you or someone you know gone through a short sale process? If so, please share in the comments sections below. I would love to hear your story. Did your agent explain everything to you and prepare you for the process?