What IS a Home Inspection?

A home inspection is an inspection of the major systems and physical attributes of a property. Think furnace, AC, plumbing, electrical, roof, basement. The inspector comes into the home and sets up any testing like radon or mold. Then the inspector goes around the house looking at everything.

Each inspector has their own system and typically works from a checklist. They take a ton of pictures as they go through the house and make notes for their report.

They look at the age of each mechanical and also test to see if it is in working order. (Testing AC units when there is a low exterior temperature can cause system failure, so if your inspection is taking place in January in Colorado, that’s not a system that will be tested.)

They’ll turn the furnace way up to see how easily it turns on. Inspectors check the status of the unit — clean, dusty, not working at all — and include a note about all of this in their report, along with a basic life expectancy.

Example: Furnace is 9 years old. Average life expectancy for a furnace is 20-25 years. It was in working order when tested. Verify service history with seller.

If the inspector finds damaged or missing items, they will note those, too. The image below was taken directly from the inspection report for my most recent sale.

The missing item is not a big deal — it certainly doesn’t affect the unit, and it’s an easy fix.

What a Home Inspection is NOT

A home inspection will not guarantee that the systems are going to last for X years. It is entirely feasible to have a home inspection today and have every system stop working tomorrow. It’s not likely, but it could happen. The home inspection is a snapshot of the home at that particular time.

A home inspection will also not give you any information about the legal status of the home — they don’t cover title work or get into liens or permits.

Make the Most of Your Inspection

Be there. Physically be at the home during the inspection if at all possible. Get there right on time, and walk around the home with the inspector so they can show you everything they are seeing.

If you have small children, this is an ideal time for a babysitter. If you can’t find someone to watch them at your home, at the very least have someone watch them where the home inspection is taking place. You need to be able to focus as much as possible on the home inspector and what they are saying.

Ask questions! This is the only time the home inspector is going to be in the house. Trust me, it is FAR better to pepper him with questions about the property than to leave something unanswered. You are paying for this inspection — so ask any question you want, and keep asking until you completely understand the answer.

Do I Really Need an Inspection?

Here’s my Home Inspection Rule of Thumb.

If you’re asking if you need one, you need one.

It doesn’t make you a bad person. I get home inspections for every property I buy. It makes me feel more comfortable about the whole purchase. Even though I’ve been investing since before dirt was invented, I still want to know what I’m getting into.

A few years ago, I was looking at a townhouse in an awesome area. Newly rehabbed, I wasn’t expecting anything to be wrong with it, but I still wanted a home inspection. As we were outside finishing up, the inspector casually mentioned that the exterior was not stucco, but something called EIFS — Exterior Insulation Finishing System.

Hmm, what’s EIFS? Thankfully Google existed even back then, and a quick search told me I wanted no part of any property covered in EIFS. When installed correctly, it looks like beautiful stucco at a fraction of the price. When installed incorrectly, water gets trapped behind the product and can cause massive mold damage — to the point that the property becomes uninhabitable.

I didn’t stick around long enough to deal with that. Mold isn’t my thing, and the property wasn’t enough of a steal for me to figure that out.

Another thing was that exterior issues in a townhome or condo become the responsibility of the association. And anyone who has ever tried to deal with an association knows what a difficult task that can be. So, I walked. And I was happy to spend that $400 to discover that issue. Maybe “happy” isn’t the right word — but certainly not mad about it.

Pre-Inspected ISN’T a Good Thing

I’m on the MLS all the time. I’m either looking for properties for clients or myself or doing research into prices in a certain area.

I look at a LOT of listings, and something that pops up frequently is “Home is pre-inspected and comes with a brand name home warranty!”

This makes it SOUND like a good thing, but is it really? Who did that home inspection? You weren’t there to ask the inspector questions. You don’t know what he did or did not look at. You don’t know how long the inspector was in the property.

A home inspection lasts a LONG time. Multiple hours. You don’t know if the guy came through on a scooter and spent nine minutes in the house or if he got up on a ladder and inspected every single thing with a fine toothed comb. Pro tip: Pre-inspected homes aren’t gone over with a fine toothed comb.

Cheaper isn’t always better. In fact, most of the time it’s NOT better at all. Do you think the seller spent top dollar on a home inspection to provide to potential buyers? Probably not.

Do your own due diligence. This includes a home inspection. Trust but verify.

It’s Brand New — Do I Still Need One?

There is a difference between a home inspection and a building inspection. The building inspection is what you get when you are constructing a home to make sure the home meets current building codes. A home inspection is what you get when you are buying a home.

My dad bought a home once. Actually, I grew up a corporate brat — similar to a military brat, but he was on the corporate track rather than in the military. Corporate brats still get to move around a lot, though. Three schools in second grade, and all of the sudden I’m no longer shy. We moved on average every three years. I’ve never lived in a home for more than five years.

So my dad bought this house, and since it was brand new, he didn’t get a home inspection. Once we moved in, we discovered there was no attic access. No soffit vents, no attic vents, and the basement flooded every time it rained. My parents no longer have a wedding album.

When it was time to sell, it was no longer brand new, and the people who were buying it from us DID get a home inspection. Even though we lived there for eight years, that home inspection discovered that the fireplace — you know, that giant stack of HEAVY bricks and mortar on the side of the house — had no additional support underneath it, and it had started to sink. Pro tip: That’s not a cheap fix.

Home Inspections Are So Expensive — I Know What I’m Doing

Not everyone needs a home inspection. If you are an inspector, go ahead and do it yourself. If you’ve done 500 deals, you might not need one, either. If the property is a 100 percent teardown, you can probably skip it then, too.

But to forego an inspection simply because it is too expensive is the wrong reason to skip it. And the “wasted” $500, $800, $1,000 can actually save you tens of thousands in unexpected issues.

You can almost bet that your end buyer is going to get a home inspection.

Additional Tasks

Check for permitted rehabs. If the property you are buying is recently rehabbed or has been rehabbed since it was built — think built in the ’60s but looks like the ’80s — check with the city to make sure all the permits were pulled, inspected and completed. This isn’t covered in a property inspection, so you should do it yourself.

My current home was purchased through foreclosure. It had an original house and a large addition. I’ve been investing since before dirt was invented, but I didn’t think to check on permits. Guess what happened? We applied for a permit to build over the existing large first-level addition and were told that the addition didn’t exist. Uh-oh.

The illegal addition didn’t meet current setbacks, but my city is gracious enough to grandfather in existing structures as long as they meet current code.

An inspector came out and checked the foundation, which I had to dig up by hand. (Jealous?)

It turns out that even though the addition wasn’t permitted, it was still OK. We had to do some monkey business around the foundation for freeze/thaw issues, but we didn’t have to tear the whole thing down.

I have heard of people with unpermitted basements who had to rip out several parts of the drywall and ceiling to have the electric and plumbing inspected. If you’re unsure, a quick call or stop into the permit office can tell you an awful lot about your property.

How Do I Find A Good Home Inspector?

I’m hoping you have a good real estate agent who can give a great recommendation, but even that isn’t always the best way to find a good inspector.

Get recommendations from several different people — the forums or a local meetup is a great place to start networking with people. Other investors don’t have any skin in the game, so it makes no difference to them if you close on the house — or if you choose to walk away from it due to inspection issues. They’ll be more inclined to refer you to a great inspector.

A home inspection isn’t cheap, and it isn’t a guarantee. But skipping it — and finding huge issues after you’ve bought the home — can cost you so much more.

Do yourself a favor and get a good, quality home inspection

 

Credit to  Mindy Jensen

Mindy has flipped numerous homes in the past 10 years, one at a time and doing much of the work with her husband. She lives in Longmont, CO, and is always looking for an ugly duckling to turn into a swan.

 

First-time home buyers aren’t typically versed in the intricacies of agency disclosure, nor do they understand the concepts of a buyer’s agent and seller’s agent. They only know that the person they meet at an open house or email about a listing is an “agent.”

When they start getting more serious and want to inquire about a property, its price, condition or history, they typically direct their questions to the seller’s agent — which presents an immediate conflict of interest.

So what’s a buyer to do? It helps to understand the concept of agency before this happens.

A real estate agent’s loyalties and responsibilities change depending on the transaction. Here’s a quick rundown of the different roles an agent can play in any one transaction.

The listing agent

The listing agent or seller’s agent works for the seller and represents their interests in the sale. The seller hires their agent, typically in writing, to market and sell their home.

The listing agent’s responsibility is to get the seller the highest amount of money in the shortest period. Their fiduciary goals and loyalty should be with the seller at all times.

The buyer’s agent

Purchasing a home can be emotionally draining, not to mention financially stressful. Many consumers seek independent counsel from a buyer’s agent.

A buyer’s agent works with them for as long as it takes to make a purchase. They teach the buyers the market, show them lots of homes, and eventually advise when it comes time to make an offer and negotiate with the seller. An invaluable resource, a buyer’s agent stands by the buyer’s side for the duration of their home search.

The dual agent

Sometimes a buyer forgoes independent representation and chooses to work directly with the listing agent. This situation isn’t allowed in some states because of the conflict of interest. Where it is allowed, a dual agent represents both sides of the transaction at the same time.

In the case of a dual agent, it’s impossible for the agent to be completely loyal to either party. Both parties must agree to dual agency in writing, in advance.

Who pays for the agent?

The seller pays the real estate agent’s commission when the deal closes. The two agents then split the commission. In the case of the dual agent, the agent takes home the entire commission.

Should you use the listing agent as a dual agent?

Unless you are an experienced real estate investor, it’s best to stick with a buyer’s agent. There’s no cost, and a good buyer’s agent will provide an invaluable amount of advice and support in what can end up being a very stressful period.

The home search can involve many twists and turns, so having a loyal adviser along the way will help you make an informed decision on what is likely the largest purchase of your life.

 

Credit to Brendon DeSimone

Brendon DeSimone is a nationally recognized real estate expert and author of the book, Next Generation Real Estate: New Rules for Smarter Home Buying & Faster Selling. A fifteen year veteran of the residential real estate industry, Brendon has completed hundreds of transactions totaling more than $250M. His expert advice is often sought out by reporters and journalists, and he is regularly quoted in local and national press. Brendon is a regularly featured guest on major television networks and programs including CNBC, FOX News, Bloomberg, Good Morning America, ABC’s 20/20 and HGTV. Brendon is the manager of the Bedford and Pound Ridge Offices of Houlihan Lawrence, the leading real estate brokerage north of New York City.

Sales of single-family homes will rise modestly again in 2016 and median sales prices should be up 3% to 5%, trade groups and researchers say. While rising mortgage rates and a shortage of first-time buyers may temper that outlook some, the coming year should be another seller’s market for real estate.

Despite an upsurge in construction, home inventories remain low and multiple offers are still common.

While a 6-month home supply is considered a balanced housing market, most markets are well below that, some significantly. Moreover, supporting fundamentals are far more solid than about a decade ago in the pre-bust years of 2006-2007.

With that as a backdrop, here are 10 tips for buying and selling real estate in a presumed up-market in 2016.

1. Buyers: Don’t overreach

A bidding war might spur you to overspend, but paying an inflated price can make it tough to resell when prices stabilize or sink. (Read 2008-2009 real estate columns as a reminder.)

A decision to pay a premium isn’t always an errant one, though, when you plan to live in the house long term. Rather than focus on overheated developments, look at comparable homes in neighboring areas with the same access to the schools and amenities that you value. Set a bid ceiling, and try to have a few other deals in the works so you’re less inclined to overbid.

2. Sellers: Exercise your clout, but don’t overplay it

If you set a price from 5% to 10% above the market, you’re more apt to get an offer close to your home’s real value than if you start much higher and force your listing to go stale. However, if your home has better qualities than area comps, you have a bit more latitude.

No need to pay closing costs or offer other incentives to the buyer, especially if it means keeping your in-demand home off the real estate market. For example, a sale contingent on the buyers selling their home is reasonable but only with a contractual escape for you, often called a “kick-out” clause. That gives you the right to continue marketing your home. If a less-encumbered bid comes in, you then offer the initial buyers a set time of 48 or 72 hours to withdraw their contingency.

3. Buyers: Be ready, be early, be flexible

Are the best houses still getting snapped up quickly? Then don’t wait until you find a home to go loan shopping. Keep your preapproval letter, as opposed to a basic prequalification letter, in tow. Winnow your neighborhood choices before you shop.

Line up an action-ready inspector for an immediate property visit.

Have your agent ask what the sellers would value most in the sale. If you can accommodate a fast settlement or short-term, rent-back condition or fewer contingencies and conditions, that can make you stand out when that dream home is hanging in the balance.

4. Sellers: Know your agent’s commission split

A heated market is causing sellers to question why they should pay the full 6% commission.

Hence, sellers’ agents are accepting less, then offering less of a split to buyers’ agents in a practice known as “sell to the commission.”

When the co-op fee is low, buyers’ agents tend to be less than enthusiastic in showing such houses, and yours will typically take longer to sell.

5. Buyers: Buying new?

Get what you pay for. Builders are cranking production to pre-recession levels. But some are cutting corners by hiring untrained help, not waiting for concrete to cure, painting walls without primers or quietly substituting cheaper materials such as a lower grade of countertop granite, or installing inadequate plumbing or HVAC units.

Consider hiring an independent inspector to oversee construction (at $400-plus). Builders may tell you not to worry because they’ll hire one. Ahem!

And, be sure the builder is established and that you research online reviews, complaint pages and consumer ratings. Ask specific questions about the crew’s experience and certifications.

 

6. Sellers: Know your influential rooms

Upgrades rarely pay for themselves, but there are 2 spaces that can make or break a home sale: the kitchen and master bath.

Because kitchens are the heart of the home, or the “new living room,” make yours homey. Hide the coffee maker and toaster. Add simple decorative touches to the wall behind the sink.

Sure, new granite countertops and appliances are optimal, but new hardware for cabinets, new faucets, new lighting fixtures and fresh (neutral) wallpaper are inexpensive touches that carry weight. Thoroughly scour and depopulate the fridge and take magnets off it, please.

For bathrooms, always display a sparkling bathtub and commode. A new tub liner, or “shell,” can make that marred tub look like new and save you from replacing it.

A new faucet, new lights, fresh caulking, a new towel rack or new mirror may be in order. Clean out the medicine cabinet. Of course, this doesn’t mean you shouldn’t declutter, depersonalize, paint and scrub the rest of your space, too.

7. Buyers: Beware hidden costs

When is a $250,000 house not a $250,000 house?

Answer: Always! Consider these and myriad other closing costs when buying:

• Origination fee: On a $200,000 mortgage for a $250,000 home, assuming 3.5% interest and no points, you’d pay the lender about $1,800.
• Home inspection: Even if the mortgage insurer doesn’t require one, get one for peace of mind.
• Property taxes: You’ll usually pay a few months upfront.
• Appraisal: The bank will need to determine how much the place is really worth.
• Private mortgage insurance, or PMI: This depends on your down payment and credit rating.

Other pre-occupancy costs should include home insurance, title insurance and deed-recording fee, and possibly title insurance, survey costs, credit report fees, flood insurance and homeowners association dues/insurance.

On that $250,000 home, allow an extra $5,000 or more atop the sale price.

8. Sellers: Consider the replacement

You’re getting multiple offers on your home, with several over asking price. Wow, that was fast! But can you find your next home in time to move once you sign?

If not, one option would be to request a lease-back from the buyer, allowing you to remain in your old home for the time you need to shop for the replacement. This will be contingent on when the new owners need to occupy, and the period is usually limited to 60 days.

The other option is to slow the selling process by asking for a longer period before closing.

Whatever you do, get your prospects and finances lined up (see tip No. 3!). Yes, a seller’s market swings 2 ways!

9. Buyers: Seek out an up-and-coming neighborhood

Things to look for include proximity to a new or resurgent business center, the addition of a major employer, a light-rail station, a city cleanup initiative, young people moving there, crime watch and other neighborhood groups being formed, multiple renovations underway and other up-and-coming neighborhoods abutting it.

New retailers, restaurants and other commercial tenants are also a good sign. Research by RealtyTrac shows that homes in ZIP codes that have a Trader Joe’s grocery store appreciated 40% on average since the homes were last purchased. Homes with a Whole Foods nearby appreciated 34% on average.

10. Sellers and buyers: Don’t play the bubble game

Thousands of would-be sellers and buyers are agonizing over how they can time their next sale or purchase to coincide with the “pop” of this housing bubble, either by selling soon for optimal profit or swooping in with cash to pounce on post-pop pricing.

True, the bust of 2007-2008 was a loud and robust one, but don’t look for anything catastrophic this time. The present froth is being fueled by narrow supply and widespread demand, not easy credit and “liars’ loans.”

Most real estate cycles don’t explode like the last one; they just deflate slowly. Real estate continues to be a reliable long-term investment prone to usually modest peaks and valleys, done on a deal-by-deal basis and subject to local economies.

Good luck in the new year!

 

By Steve McLinden

 

We’re smack in the middle prime house-selling season. The National Association of Realtors predicts that 6.6 million existing homes will change hands this year.

But many markets around the country are cooling, and the inventories of homes for sale are rising. Compared to the hot real estate market of recent years, you can no longer automatically expect to sell a house quickly and for a high price.

However, sensible pricing and careful presentation can go a long way toward hastening a transaction. Follow these four tips, and you’ll be on your way to selling your home for a good price this summer:

1. Find Out What Your House Is Worth

You can’t charge the right price unless you know what that is. So do a little research:

Go online. For a free Multiple Listing Service Home Market Check that shows what other residences like yours sold for recently in your area, visit the HomeInsight Web site. Or, check out Yahoo! Real Estate and click on “What’s my home worth.” Finally, visit Realtor.com, where you can browse more than 2.5 million residential listings and take advantage of several services that can help you to determine your home’s value.

Check local real estate listings. To get a more accurate sense of your home’s worth, look at local real estate listings (often searchable by neighborhood, house size, and price on local realtors’ Web sites) for a sense of what houses of similar size, condition, locations, and amenities are going for in your area. Large real estate brokerage firms tend to have the most sophisticated Web sites. Some of my favorite realtor sites include Coldwell Banker, Century 21, and Re/Max.

Attend open-house showings. To get to know a market in a weekend, check open-house listings and attend these events to see what your neighbors are selling their homes for. How do their homes look compared to yours? How are they priced? Talk to the real estate agents hosting the events to find out which properties are moving and why. Asking these questions can help you get a quick handle on the market — and let you know what you need to do to prepare your home for sale.

Get a comparative-value analysis from a professional. You don’t have to do this all yourself — and candidly, you shouldn’t. Get a referral for a real estate agent, and let them know that you’re considering selling your home. Ask them to provide you with a detailed “comparative-value analysis” on your home. The analysis will include information about recent sales of homes similar to yours. Ask the agent for an analysis that includes the last year or more of sales for a complete picture, but the most recent transactions are the ones to use as your benchmark.

While you’re at it, ask the agent to provide you with a listing of current homes like yours for sale and how long they’ve been on the market. Finally, request a marketing proposal stating at what price they’d list your house and what they’d do to help you sell it. There’s usually no charge for this service, as this is the agent’s chance to woo you as a client.

2. Make It Look Pretty and Smell Nice Before the Sale

De-clutter the interior. Pare down before the move. Potential buyers want to see your house, not your possessions. A sparse interior containing just enough furniture to suggest each room’s purpose and to provide a sense of scale is ideal. Clean out drawers, empty closets and attics, vacate the basement, and tidy the garage.

Consider renting an inexpensive self-storage unit for items you don’t want in the house during a showing. And most importantly, lose the family photos. You want the visitor to think of the house as theirs, not yours.

Give it a good cleaning or hire a cleaning service to do a thorough, one-time job. Make ceilings, walls, floors, carpets, windows, faucets, and fixtures look good — dust, scrub, and polish until everything sparkles and smells clean.

Paint, repair, replace. The fastest and cheapest thing you can do to help you sell your house is repaint. A fresh coat of paint inside and out can quickly make your house look and smell new. When in doubt, paint the outside a color common in the neighborhood and the inside white.

If it’s broke and obvious, fix it! Cracked windowpanes, sticking doors, dripping faucets, running toilets — take care of them up front, so you don’t have to explain them away later. If you don’t want to do it yourself, make a “punch list” and hire a handyman service. Your investment will likely pay off many times over in a higher sale price — and, most importantly, a house that sells.

Create curb appeal. In the beginning, it always comes down this: How does the house look from the curb when the person drives up (assuming you aren’t selling a condo in a building). Studies have shown that simply repainting a house is the best investment you can make when reselling. If your home has synthetic siding, a good power washing may be able to help it shine like new again. Dirty or weathered decks can benefit from the same treatment.

Next, compare your landscaping to others in your neighborhood. You don’t have to have the cutest house on the block, but if your yard looks barren, plant some flowers (people love them) and a few bushes. Finally, new grass in the front can make an old yard look brand new (a fast and often cheap fix). Add new house numbers, a nice doorbell or knocker, and a plush new entry mat — they all help to make a great first impression. Oh, and make sure the front door looks great and functions perfectly.

Clean out the garage, and remove children’s toys from the yard. That goes for that creaky, rusty, long-abandoned swing set, too.

3. Research a Sales Method

There’s more than one way to sell a house. Here are the three most popular choices:

Commissioned real estate agents are the traditional and most successful option. According to the National Association of Realtors, a recent study shows that sellers assisted by an agent get a price for their home 16% higher than those selling on their own. They offer many services for a commission that’s generally about 6 percent of your home’s sales price — but the fee is often negotiable. For more information, visit Realtor.com, which is owned and operated by the National Association of Realtors.

Flat-fee brokers perform many of the same services for a fixed fee — often less than a traditional agent’s commission. For more information, check out FlatFeeListing.com.

Selling it yourself allows you to potentially avoid broker fees and commissions altogether by doing your own marketing. However, there are costs and do-it-yourself work involved. ForSaleByOwner.com has more information.

4. Consider renting out your house instead of selling it.

O.K., now that you know what you need to do to sell your house, I’d like you to consider another option that will not just make you some money, it may make you rich. Don’t sell your house now. Hang onto it and rent it out. That’s right — if you rent out your home for more than the cost of the mortgage payment, taxes, insurance, and maintenance costs, it’ll provide you with some extra income each month.

Real estate investors call this “positive cash flow” or “passive income.” That income is apt to increase over time, as your mortgage payment is likely fixed, but the rental’s value tends to grow. Eventually, the mortgage is paid off, you own the home free and clear, and you still get to collect the rent — and pocket almost all of it. Plus, the property will likely continue appreciate, even as it throws off cash.

Written by David Bach