When buying a home there are many aspects that you might not even know about to help you prepare from before the offer to closing day. Here are some of the more important things to do.
When you are buying an existing home (not new construction) there are many steps and activities that should be undertaken to ensure an orderly and worry free process. However many times we just don’t know what all is needed. As a result the purchase process becomes loaded with stress later when something is missed and new, potentially negative, information arises about the home. The following list are some of the more important aspects you should consider taking as they can help to help prevent some of this stress.
The steps listed below have been written with consideration to how real estate purchases are made in Texas. As such if you are reading this from out of the State of Texas there might be term(s) you are not familiar with. One of the most important aspects here in Texas is the use of an “Option Period”. This is where the buyer can request and pay for a specified period of time typically 10 or more days in which to perform their due diligence. The typical “Option Period” fee is $10 for each day the buyer asks for, but just as anything else this is negotiable. During the option period the buyer can cancel their contract for any reason or no reason at all and walk away from the home. The buyer only loses their option period fee and any other earnest money deposited is returned to them.
If you are outside of the State of Texas these steps are still very useful to you and even if there is no option period available they can still help protect you and prepare you for a smoother transaction.
Before Making The Purchase Offer
Preparing for the purchase offer is very important so that you can be confident you have offered a price acceptable to you and that you are ready to make that offer. Once you have made the offer the seller’s response can come quickly and you might not be ready to proceed. Also your offer contract might not include the needed language to help protect you in the event negative aspects or conditions arise. These are some of the important things to consider before making your offer.
Assemble Your Team Of Professionals – After you make an offer on the home is not the time to start searching for the professionals you might need to perform your due diligence and obtain answers and help. Properly screening any needed professionals might be easy or as is more typical takes a little time. The last thing you want to do is receive that offer acceptance from the buyer and waste precious days finding the professionals you need. Many of these we hope are not needed but being prepared is better than the alternative. This list already expects that you have found and enlisted the aid of a licensed and reputable Real Estate Agent to help guide you through the process.
No matter who gives you those names of people to use you need to check them out! When it is all said and done if you blindly accept a list of recommended professionals it becomes your decision and choice to have used them. All of these professionals should be vetted (checked out) closely no matter where you obtain their names. Also most of those listed below are licensed professions and you should always verify that their license is current. When you call these people ask them what services they can provide to you during the purchase process of the home and what their typical charges are? Don’t always expect these professionals to perform any reviews or estimates for free even though some might. This can help you later during the option period due diligence. So who are these professionals?
- Attorney that specializes in residential real estate and contract law. Hopefully you never need to call on an Attorney but you need to understand that absolutely nobody can provide you legal advice and guidance unless they are a licensed legal specialist! That nobody does include your own RE Agent, as well as any other licensed person listed below. Whether it is simply a question you have regarding a contract matter or you’re heading towards a more intense legal issue you need to have an Attorney picked out and on the ready.
- Home Inspector. Your Home Inspector is there to provide you a thorough inspection of the home with an in depth/detailed inspection report. Your inspection and report should leave nothing out no matter how small. Even lots of small problems can cost large amounts when you start adding it all up.
- A licensed Pest Control company. Here in Texas we are in a high probability area for Termites and other wood destroying insects. Unless the home is new construction I would highly recommend that you have a full pest inspection performed. Be very careful here to only use a pest control company that actively treats for pests as they will know what to look for and is all they are on site for.
- Professional Engineer trained and experienced in residential foundations and structures. Here in Texas we have many foundation issues from minor to major. When your home inspection is performed the Inspector might recommend further evaluation of an apparent foundation or possibly structural issue.
- Reputable foundation repair company. If foundation issues are noted, and you want to continue with the purchase, you need repair estimates to help determine if you can afford to repair the issue or you will be asking for repair concessions.
- Licensed Electrician, Plumber, Heating and Cooling Contractor. Again if issues are found in these areas you need estimates for repairs before you decide to move forward.
- Roofing Contractor. Quite frequently we Inspectors will find even minor issues with roofs and many times major issues. Even the smallest of issues will cost money to correct.
- A reputable General Contractor (GC). There are many issues that your Home Inspector can find in a home that are handled by various other specialty trades such as brick work, siding and other woodwork, windows, doors, other interior and exterior issues, etc., etc. You can certainly wait until these items are identified in your home inspection and try to find these specialty people. Or you can find a well versed/experienced and reputable GC who can review these items and provide further evaluations and repair estimates. This can save you a great deal of time trying to locate many other of these specialty people.
- Homeowner Insurance Agent. If you do not already have an Insurance Agent you use and trust then you should find one before you make an offer. An Insurance Agent can give you very helpful information which will be described later here.
- Licensed and reputable Mortgage Broker. Many people wait until they have made an offer on a home to seek out financing. Many issues arise that can scuttle your plans for a particular home. This is another area we will cover shortly.
- A reputable Title Insurance/Settlement Service provider. You have the right to choose whoever you want to perform the settlement services and provide the Title Insurance. Many people think that all Title Agencies are the same when in fact they are not! Each might offer services the others don’t, offer better services and assistance, etc.
Ensure your offer contract has a requirement to obtain a CLUE report on the home. The CLUE database is an insurance underwriters compilation of a 5 – 7 history of claims that were made on the home whether they were paid out or not. The CLUE database might also include telephone calls the homeowner made to their insurance company even if they did not file a claim. You can read all about the CLUE database and report here https://www.privacyrights.org/fs/fs26-CLUE.htm . The CLUE report can be used to compare with the seller’s disclosure to make sure nothing was left out of the disclosure. It can also point to potential issues with the home that have occurred and been repaired that might affect your homeowner’s insurance premium or if you can even have the home properly insured. Once you move passed your option period, and get close to the closing day, you will need to have insurance on the home. By then you have already put a lot of money into the purchase process in inspections, appraisals, etc. If you are not able to obtain insurance or the premiums are way higher than you expected then finding that out at the closing table is not a good idea! CLUE reports are a privacy protected item so unless the seller gives you permission they will need to retrieve the report and provide it to you. It is well worth offering to pay the seller for the report which runs from $20 – $30. However make sure that you receive a brand new CLUE report that has been pulled specifically at the time you have made the offer for the home. You should also make sure that there is wording that you receive the CLUE report within a a day or two of your option period start time if not with the offer acceptance letter from the seller. If you don’t specify this then the CLUE report might come well to late to be of much use during your option period.
Have a discussion with your chosen Insurance Agent about insurance costs. Your Insurance Agent can provide a lot of information regarding the cost of homeowner insurance as well as conditions at the home that can limit your coverages, raise your premiums, and potentially prevent coverage or proper coverage. For example if the home is older and has the potential for negative conditions such as asbestos, aluminum wiring, etc., your Insurance Agent can let you know how the underwriters will react to these conditions and whether these conditions can affect your insurance cost. Even if the home is not older if the roof is found to be in poor condition the Insurance Agent can tell you how that will affect your insurance cost. There are many things that can affect your insurance coverage and cost that a good Insurance Agent can explain to you before you choose a home. One word of warning though is you should be very careful not to disclose any negative information about a home you are considering buying until you know the negative condition actually exists. That information, true or not, could also wind up in the CLUE database and affect your insurance availability and cost.
Have a talk with your Mortgage Broker before you make an offer on a home. In fact I would also highly recommend that you get pre-qualified for a loan so you know the maximum loan amount you can obtain. Your Mortgage Broker can also advise you on how the mortgage process will proceed and how to make sure you are fully prepared for it as well. If you use a good independent Mortgage Broker they can heavily shop around for the best rates and terms.
Search for and find a Title Company for your purchase. Not all Title Companies are equal just like anything else! The rules and laws for purchases might all be the same but the Title Company costs, methods/procedures, locations where you can perform the closing, etc., etc., can vary from one Title Company to the next. All you need to do is ask the Title Company what services they offer for your closing, what the costs are, where they have closing offices at, and how they differ from their competition. Another very, very important aspect to consider as well is the title insurance policy. The one you pay large amounts of money for does not protect you at all! Ask the Title Company if they offer a Buyer’s Title Policy that you can purchase. This policy is typically a fraction of the cost of the lender’s title policy that you will be paying for. Get a copy of both the lender’s and buyer’s title policy and compare them with other Title Company policy offerings to see who has the better policies. If you do an Internet search on “Buyer’s Title Policy” you will find a large amount of information describing how valuable they actually are.
Sit down with your Real Estate Agent and have a long discussion about the buying process. Have your Agent describe and explain every step of the process to you from your offer on the home to and including the day of closing. The purpose of this is to prevent surprises later and ensure you have a strong line of communication with your own Agent that will be representing you during the process. These are only suggestions but I would strongly recommend that you consider them.
- Discuss the option period length and make a decision how long you want before you put in any offers. The typical option period seems to be 10 calendar days but the market is picking up again. Many buyers are afraid they will lose the home if they place even a 10 day option period as a requirement and as a result we are seeing as low as 3 day option periods. In reality a 10 day option period might not be enough time depending on when it starts but 10 days is an absolute minimum needed to provide you the ability to perform your due diligence, inspections, etc. Anything less will cause you nothing but grief and stress.
- Have the Agent provide you sample copies of all the paperwork that you will see from the time of the offer to the day of closing. You should realize that what is actually generated might be slightly different but reviewing the samples now will help you better understand and research what you will see later. If your Agent is a good one they can obtain sample copies of paperwork from places such as the Title Agency that you have chosen. Much of the paperwork is standard now such as the HUD-1 settlement sheet, offer contracts, etc., and readily available if your Agent knows where to look.
- Have your Agent create a generic offer contract for any home to include your required option period, clause for requiring the seller to provide a CLUE report, and any other conditions that you will require for any home you might make an offer on. Once you choose a home all of the generic requirements should be there and all you need are the offer amount, and that home’s specifics.
- Many buyers do not think to have a seller response time placed on the offer contract. As a result the contract is open ended until the seller decides to respond or you decide to have your Agent send cancellation paperwork to the seller. Quite frankly in my opinion that is a significant detriment. Until that offer is no longer valid you’re on the hook for that house and take a large risk making an offer on another house that you might have found while waiting for that seller to respond. Discuss with your Agent the pros and cons of not having a response date and make sure you understand what that means and how it can affect you.
- It is becoming more popular that sellers ask to rent the home after closing to give them time to move out. You might think this works out well for you since you have to arrange to move as well. However it can be a very risky thing even when handled properly. No matter what happens you will need to carry insurance on the home but do you want your insurance to pay for any damages the seller causes while still there? How about any damages they cause that the insurance company does not cover such as gouged hardwood floors, damaged drywall, missing items, etc.? Speak with your Agent about how these should be handled if the seller does request this. Now is the time to prepare that part of any counteroffer contract so you can be ready if it comes in and not have to scramble to figure it out.
- Whether the seller is staying in the home or will be out before closing you need to make sure your contract states you have the right to perform any further inspections on the home the day of closing or the day after they move out. Before you take final possession of the home you need to make sure it is in the same or better condition as when you made the offer. Would you want to finish your option period, go through all of the other time and expense of closing on the home just to arrive with the keys and find further, expensive damage, missing items, etc.?
Retrieve the tax role data and review it closely. It is well worth pulling the County Tax Assessors tax role data for the home and comparing it to the home sale listing where you found the home. Occasionally during an inspection we do encounter obvious discrepancies between these two sources and what is actually on site. As a Home Inspector we do not verify the square footage of a home. However if the tax role data and house listing vary, or we arrive on site to what is suppose to be a 1750 Square Foot home and find 5 bedrooms, 2.5 baths, a game room, two dining rooms, and a living room then there is obviously a significant discrepancy with possible unpermitted additions to the home. Any good Inspector is going to not only point this out to you but also place that in their inspection report. If the tax role data and home listing data vary and you catch the issue then you can address it before you spend money on an option period or even time wasted on placing an offer.
After The Purchase Offer And Before The Seller Acceptance Arrives
Unless you have made a fantastic offer to the seller, or the seller is extremely motivated, you will most likely have some time before the seller returns your offer acceptance, and hopefully you specified the maximum response time. If this is truly the house you want then use this time wisely! You have an opportunity to perform some of your due diligence now that can help prevent spending additional money during the option period. You can also perform these steps before you make an offer on the home if you feel there is time. You might find information with this research that changes your mind about the home or how you approach your due diligence during your option period.
Obtain the building permits for the home. The local Building Inspection Department maintains a history of permits for work performed on the home. It is increasingly common now to require permits for a very wide range of repairs, modifications, additions, etc. Many cities now have an online permit search function and if not a call or visit to the Building Inspections Department should be made. These are just some of the information, and value, that can be obtained from a permit search.
- If you are buying a home that has potentially been owned by more than one person in the past then the current owner’s disclosure statement might not show all information on the home. For example a previous owner performed major foundation repairs, and the current owner had no knowledge of them, a permit search might display this. Also around the time of the foundation work you might discover that major plumbing permits were obtained if plumbing damage and leaks were sustained.
- Under the same circumstances above if a home has had major storm or fire damage, and was older than the CLUE report period, permits might display major repair or renovation work.
- If the owner is reporting on the disclosure a brand new roof, heating/cooling system, water heater, or other new major renovations chances are very high the work is a permitted activity required by the city. You need to be prepared to questions these if proper permits do not exist as permits are there for a reason and that is to make sure this work is performed safely and properly.
Contact your Insurance Agent and obtain an insurance quote. This is a good time to call your Insurance Agent Team Member and ask them to provide a quote for homeowner’s insurance. When you do ask them to also provide any information regarding special conditions they have found that would increase the cost of the premium price. It is possible they might pull a CLUE report even though you can’t see it and they will also use other known information such as the location of the home, age, known issues, etc. This is also a good time to ask them what other conditions that might be found on the Home Inspection that can cause issues with your coverage such as increased cost or potential exclusions from coverage.
Contact your Home Inspector. Now is the time to call your Home Inspector Team Member and let them know you have made an offer on a home. Let them know what your latest date is you gave the seller to respond and what length of option period you requested. Also provide the Home Inspector with the address of the home and any other information they might need. The Inspector can then work with you to set a tentative inspection date and discuss anything they might find while preparing for the inspection. Also if there is going to be an issue with scheduling your inspection due to their schedule they can help you work something out to make sure your option period is not delayed waiting for them.
During Your Option Period
Hopefully by now you have found no significant or startling news from your previous research efforts. If you have then that news might affect the order of your due diligence actions. For example if previous and significant foundation repairs were performed, and you are still seeing signs of movement that you found, you might want to call in a specialist to review the foundation first before you go any further. This is something you will need to decide after reviewing your own research. Regardless of how you approach this period DO NOT WAIT and start your inspections as soon as possible! Depending on what is found you should be obtaining repair estimates. That can take a little time and it is very easy to reach your option period end time without having performed all of the actions needed.
This list is how I would approach my inspections and other due diligence efforts if nothing earth shattering was previously found.
Perform the whole home inspection first. You’ve already selected your Home Inspector Team Member and now is the time to have your inspection. Do not sit on this for any reason short of a significant emergency you have! Having the whole home inspection first will help identify the need for any further specialty inspections or repair estimates. There are those that feel they need to have every specialist come in instead of a whole home inspection. That can cost significant amounts more than the whole home inspection and many times results in less than a whole inspection. After all each specialist will only inspect their area and generally do nothing to advise how it might affect other areas. There are also areas that have no specialist and if you bring in someone to handle that they too will ignore how their areas affect others and may well miss many important points.
Review the inspection report and plan your next step. Once the inspection is done you need to decide which additional professionals you need to call out to obtain further evaluations, repair estimates, and estimates for upgrades and spruce up. if you choose to go further with the purchase. There will always be issues found in an existing home since no home is perfect. Your Inspector can help you understand what might be the larger cost items to repair or replace. Regardless of what you are told by others unless you are already aware of the costs and have planned for it you need to obtain repair estimates for everything you can. Even small items can quickly add up. For example a professional Plumber can easily charge $75 – $125 per hour, with a one hour minimum, just in labor to replace a bathroom faucet that is either failing or you just want to replace as part of your move in spruce up of the home. Then there is the cost of the parts needed to replace that faucet which are not cheap if you buy a good quality one. No matter how handy you are never, ever, never, try to use the cost it would be if you did any of the work! If you never get around to the work yourself then you’ll be paying the professionals to do it so why not plan for that now?
When you decide who to call out next you should use your previous discussions with your Team Of Professionals to decide. Obviously regardless of their charges you’re going to want to call out specialists for the biggest ticket repair items and issues. If you can not get them out quickly then it is possible you might want to either go to the GC who can also estimate those items as well as others all at the same time. Look to the least expensive route for obtaining answers and estimates in the form of free reviews or lower cost estimate charges. After each step reassess your desire to continue with the sale or not.
Once the estimates come in perform a full review of your own financial capabilities. Don’t be surprised if the owner refuses to make concessions for repairs on any item you have proper estimates for. As a result look to your own financial health with a realistic eye toward what you can afford to take out of your own pocket (savings accounts, etc.) in order to pay for repairs or remodeling you want. Don’t fall in love with the home to the point you fail to do this! There are two major hurdles that you’ll need to make it over once your option period is over. The first one deals with your insurance if they are made aware of significant issues that can affect your insurance coverage. The other is you will be carrying and paying on a mortgage for a long time and have to live with or repair issues or make upgrades. The love affair with the house will end really quickly when you’re struggling financially afterward to get this done. So create a cut off point with negotiations based on the cost estimates you’ve obtained. You need to be ready to pull the plug on that home if it turns out to be way more than expected.
Photo document the home as it currently stands. Your home inspection does not typically cover cosmetic damage to the home unless that damage is a sign of more significant issues. When closing time comes you want to make sure that what you get is free from any additional damages or even missing items that were part of your purchase contract. Keep in mind that when closing time comes your deeply invested in the home and most likely are expecting to move in quickly. What happens if the home was damaged after your offer or even damages were hidden from view and not accessible during your pre-offer viewing and/or due diligence inspections? With your photo documentation, whole home inspection report, and reports/estimates from others you can help prevent last minute surprises.
After Your Option Period And Before You Close On The Home
Due diligence needs to continue. Unless you have a very fast closing you could wind up with a month or more of waiting for the financing process to occur. Anything can happen during that long period of time. Until you own and occupy the home you have little control over it. I would recommend that you do contact your insurance Agent and go through the whole process of writing the policy on the home and having their entire process performed. Many, if not all, insurance companies are at that point going to fully review the CLUE report and send their own person out to at least inspect the exterior of the home. Try to get that performed to make sure the insurance company will provide an accurate and final quote for coverage. The insurance company can always change a start date for a policy to coincide with your day of closing. You can always cancel the insurance policy and receive a full refund if it never goes into affect. However if the insurance company finds something new out there that might not have been there during your due diligence period you have an opportunity to have the seller get it corrected before you close.
Absolutely perform a thorough final walk through before you go to the closing table! There is nothing worse than that sinking feeling when this is not performed, you close, you go to the house and then find significant damages caused that was not there before. The day you sign those closing documents you basically own that house and any problems there. Why would you not want to perform a final walk through the day of closing to make sure there will be none of these surprises?
Many of these things above are not known or fullt understood by home buyers. Any one of those can cause additional and unneeded stress during the buying process. Hopefully you prepare well and keep on top of the buying process and never run into these problems.
Good luck on buying that home!
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