Category Archives: Seattle Real Estate Stats

Are you “making an offer” or buying a house?

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soldBuyer Beware of Real Estate “lingo”. The soft language of “making an offer” is really leading you to sign a binding contract. For some this comes as no surprise. But for others who may think they are simply making an offer, and later deciding whether or not they really want to buy the house, this is very important. If the seller signs your offer without any changes, you are in a binding contract to purchase that house.

An agent can pretty much tell what is happening when the buyer is signing the contract. That is why I think all contracts should be signed in person, in front of the agent, and not via fax or e-signing. If they are only paying attention to the offer price, signing quickly, and not asking questions about or reading the 10 or more attached pages to “the offer”, it becomes fairly evident that they are thinking they are flushing out the “true” price vs. the asking price from the seller. Not so. Another clue is if the “offeror” is asking how they get their Earnest Money back, before signing the offer. In real estate you quickly move from making an offer to actually buying THAT house, in many cases. Once the seller signs that “offer” you are quickly pushed into the queue toward closing via the escrow process that ensues.

The key is not simply to leave yourself a bunch of legal outs, but to make sure that you really ARE going to buy that house, unless new information suggests otherwise. You should not be cancelling “on inspection” because you decided not to buy the house because of the street it is on, unless you learned something new about that street (from the inspector) AFTER you made the offer. You can, but you shouldn’t. You should consider that the seller is thinking that you really do intend to buy his house, based on what you could readily see prior to making the offer. Making an offer is not really a “maybe I will buy it”. Making an offer is indicating that you ARE buying it, unless new information that was unavailable at time of offer comes forth prior to closing, and during the due diligence period of the contract.

Technically you can lose your Earnest Money if you say “I changed my mind about buying a house” when you ask to cancel “on the home inspection”. Well, let’s change that to you SHOULD lose your Earnest Money if you are cancelling merely because you changed your mind, or because you didn’t realize when you made the “offer” that you were actually agreeing to buy the house. Remember, you are causing the seller to REMOVE the home from market. You are pulling the property OFF of the public portals. You should not be doing that simply to have more time to think about whether or not your really want to buy it.

Making an offer means you want to buy that house. An offer to purchase is not intended to be used simply to prevent other offers from coming in, while you think about whether or not you want to buy that house.

Will Banks Cash In on the New Good Faith Estimate

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The new Good Faith Estimate will be required to be used on all new loan applications effective January 1, 2010.   Part of HUD’s GFE may include a service provider list which consists of title and escrow/settlement providers (boxes 4, 5 and 6; section b on page 2 of the GFE).  This list (if permitted by the lender) is important to the consumer as it will determine what the cost difference can be between the good faith estimate and the settlement statement at closing.  

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If a borrower relies on a service provider (title and escrow/settlement services) on the list given to them by their mortgage originator with the good faith estimate, there is a 10% tolerance.  This means that if the cost at closing comes in more than 10% higher of the sum of those fees than what was provided on the good faith estimate, the lender will pay the difference (or credit the borrower) over the 10% sum of those fees.   However if the lender permits and the borrower to shop for their own title and/or escrow vendor, the loan originator is “off the hook” should the fees come in higher at closing.

Per HUD “if no service providers are listed, then it is assumed the customer could not shop and fees will be bound by the tolerances” and that “lenders are responsible for fee requirements listed by their loan officers or the broker”.     

If the lender “permits” the borrower to shop for title and escrow services, they must provide this written list which must include at least one service provider on a separate sheet of paper and then the lender is subject to the 10% tolerance (based on the aggregate of those fees).

I see this as a huge opportunity for the banks similar to what we’ve witnessed with HVCC.   This is their big chance to control where escrow and title go–to them!    Banks will state that they do not want to risk being off on their quotes with new binding good faith estimates and it’s my belief they will do their best to keep escrow and/or title “in house” or affiliated providers.    Some mortgage brokers may find that they will have to use the banks preferred title and escrow vendors just as they do the banks appraisal management companies.     Should this happen, we may see banks use low cost centralized services, similar to many bank processing centers (some are even located out of state).

How will borrowers know how to select or shop for a title and/or escrow company?   Can they rely on their bank loan originator to help them select a title or escrow provider when the MLO (Mortgage Loan Originator) is directed to only have the bank’s providers on the list?    The new RESPA laws will not allow MLOs to recommend anyone who is not on the service provider list.    Should the consumer rely on their real estate agent to recommend the title and escrow provider (many brokerages have joint venture relationships)?

With a purchase, if the title and/or escrow service providers are other than those designated on the written service provider list, then it is presumed that the buyer/borrower selected those providers (even if it was directed by the real estate agents or seller) since the buyer agreed to the contract.   With this scenario, the lender is not subject to the 10% tolerance in fees for those costs.    Buyers may find a surprise comparing the good faith estimate at signing to the HUD Settlement Statment if the title and/or escrow company are different from what was designated on the purchase and sales agreement.

The new Good Faith Estimate may wind up being a huge set back for independent escrow companies and smaller independent title agencies who will most likely lose any relationships they have forged with loan originators who happen to work for one of the big banks.

By the way, if you are planning on selecting your escrow and/or title provider.  You may want to start researching prior to your prequalification process with the mortgage originator.   You may find that effective January 1, 2010 most mortgage originators will not want to provide a good faith estimate until you have committed to working with them as the new GFE’s are binding for the loan originator unless certain “changed circumstances” permit the MLO to issue a revised estimate.  Per HUD:

“If a GFE is given during prequalification, the receipt of one of the six required pieces of documentation will not constitute a “changed circumstance.”

The loan originator is presumed by HUD to have the “six required pieces of documentation” if they issue a good faith estimate.

…I’ll be writing more about this on a future post.

How much home can you afford?

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There are few things more important to me than a home buyer being able to qualify themselves, vs. taking anyone else’s word for the answer to “How Much Home Can You Afford?” Since I am a real estate agent and not a mortgage professional, I like to post a laymen’s view at least a couple of times a year on this topic. This simplistic approach should be any potential homebuyer’s first step in “the process”. I also think that any Buyer’s Agent should go through this detail with their clients before assisting them in making an offer on a house, so consider this an agent tutorial post as well.

There are many easy to use Mortgage Calculators like this one on Zillow. But just as you should know that 6 times 3 is 18 without needing to use a calculator, you should know WHY the online mortgage calculator is spitting out a number. If you know that 6 times 3 is 18, you will know if the calculator sums that out at 37, that you or it did something wrong. Same with Mortgage Calculators and Pre-Approval letters. You should know enough to know when the answer is outside of most people’s “comfort zone”.

Back to the online mortgage calculator. The first data field you need to fill out is “current combined annual income“. You need to know a few things to answer that question correctly.

1) When they say “income” they mean GROSS income, not your take-home pay.

2) If you are salaried, and make the exact same amount every paycheck, then your current salary is what goes in that data field. If any portion of your income is based on an hourly rate or a bonus for production, then your most recent income information is not usable. Unless it is a promise to pay (salary), then your “annual income” is determined by averaging your last two years worth of income AND is subject to subjective changes by the lender’s underwriter. Sometimes that happens a week before closing! So best to qualify yourself using projected, realistic potential outcomes.

If you just got a raise from $75,000 a year to $85,000 a year, and none of that $85,000 is subject to change based on hours worked or bonus income, then the full $85,000 a year goes in that box.

If you made $85,000 a year of which $60,000 is salary and $25,000 is overtime and/or bonus income, then $85,000 is NOT what you put in that box. If you had overtime and bonuses of $15,000 last year and $25,000 this year, then you add the two together and divide by 2, making your annual gross income $60,000 salary plus $20,000 of overtime and bonus pay. HOWEVER, if it is the reverse and you had $25,000 last year and $15,000 this year…not likely the lender is going to look at a figure higher than $15,000. They may impose a continued downward trend on that recent $15,000 earning vs. $25,000 the year before. In fact they could exclude it altogether as an unreliable source of income, unless your employer produces a letter guaranteeing that the overtime and bonus income will not drop below $15,000 for the next year or two.

3) “monthly child support payments” is the next line in that particular “mortgage calculator” and is the only additional income category. That doesn’t seem right at all to me. Best to contact a lender regarding all of your “other income” sources to determine which, if any, they will use. What if your child support payments are ending in 8 months? What about interest income, alimony payments, etc.? Unless you need to use these other income sources to qualify, and expect them to continue for the life of the loan, or at least for 10 years, I would suggest not including this “other” income. It will give you a “cushion” of extra monies if needed. Buy a home you can afford without these extra income considerations, if at all possible. More on this when we get to “back end ratio”.

Back to the handy but not so accurate online mortgage calculator it makes no sense to me why they would ask for HOA dues in the “income-debt” portion and then again when getting to estimated monthly payment for the new loan. In fact the whole “income and monthly debt obligations” section is poorly worded for accuracy. Once you get past income, you want to calculate your monthly “debt” payments. The most common of these are”

Car payments, Student loan payments, credit card payments, alimony or child support payments (though technically not “debt”). What you do not include are regular living expenses like utilities, gas, car insurance…all of these are not “debt’ payments.

Now skip all the way to the bottom and see the terms “front end” and “back end”. The calculator has a pre-set for 28% front end and a 36% back end. it allows you to change these pre-sets, but do not do that until you understand the numbers using the pre-sets. Assume that the pre-sets are the Average Comfort Zone for most people.

“Front-end” is your housing payment. “Back-End” is your total debt PLUS your housing payment. Old school rules work like this:

You make $10,000 a month gross at 28% = $2,800 a month for housing payment “front-end”
You make $10,000 a month gross at 36% = $3,600 a month for housing plus debt payment “back-end”.
IF your debt payments are $1,000 vs the $800 allowed, then your front end should be $2,600 vs. $2,800. $3,600 back end minus $1,000 = $2,600, so your “back end being out” reduces the amount available for housing payment by $200.
BUT that does not work in reverse. If you have NO DEBT, your housing payment stays at $2,800 and DOES NOT increase to $3,600. This based on how likely is it that you will have no debt for 30 years?

That last paragraph is the most important paragraph in this post, so take the time to understand it well.

28% front end and 36% back end has been the long term conservative approach since forever. It is also very rare that a lender will use these ratios when qualifying you for a mortgage, so YOU must do it yourself. Then when you know your payment should be $2,600 and the lender qualifies you for a payment of $3,500, you know just how much your lender is stretching you outside of conservative standards. That tells you how difficult it may be for you to actually make that payment for the next 3-5 years. A family with 4 children might only be able to spend 20% to 25% of their gross income on housing payment. A single person with a high income may be able to stretch to 33% of their gross income on housing payment. If you are a VA buyer…this is very important, as VA uses one ratio and not two (last I looked) allowing you to spend your full back end allowance on housing payment if you have no current debt.

One of the things that prompted me to write this post today was this comment I saw from a lender on Zillow:

The rules are still tightening-to a fault. Fannie Mae will soon be announcing that they are going to a 45% back end ratio and any borrower with a 620 fico score has to put down at least 20 percent. I can live with the 20 percent for a 620 fico,but the 45% back end ratio is going to make it even more difficult…

As you can see, lenders are not used to people qualifying at a conservative standard of a 36% “back end ratio” and are complaining that the rules are too tight when requiring a 45% back end ratio. OUTRAGEOUS! Remember we are using GROSS income and not net income. So 45% of your gross income on housing payment and debt is clearly NOT too “tight” of a rule.

Knowing how to qualify yourself using 28% front end and 36% back end, will help you know for yourself what monthly payment you truly can afford. Here’s my suggestion: If conservative ratios say you can afford $2,800 for a housing payment, and your lender says that number should be $3,500, test it first. If your current rent payment is $1,700, try putting $3,500 minus $1,700 in the bank every month (not on average). If you can’t put an additional $1,700 a month in the bank easily, each and every month for at least 6-9 months, don’t consider buying a house at the max your lender “says” you can afford.

In fact regardless of the ratios, it’s a very good idea for you to pretend you have that new housing payment well in advance of making an offer to purchase. Test for yourself, by banking the difference, before taking on that 30 year obligation to pay.

Seattle Schools – Admit by Address

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The Seattle Times reports that Seattle is returning to a neighborhood-based system. Given it has been about 30 years since Seattle abandoned that system, this is big news for everyone who lives in Seattle, particularly people who are buying homes in Seattle.

According to the article, this decision passed by unanimous vote last night at 11 p.m.

If we’re going to use our limited resources efficiently, this is a big opportunity to reduce transportation costs, balance out enrollment so that hopefully the vast majority of our schools have enough students in them to be successful,” said board president Michael DeBell.

When people are looking for homes to buy, having a geographically based school system is very important. Not knowing which school your child is likely to attend adds a layer of uncertainty to an already uncertain process. I’m sure this decision will be controversial, but I have to agree that when an entire community is vested in the success of the “neighborhood” school…the system will improve via more outside support. Also, it will be easier to target the schools and communities that need more support than the local community can itself provide.

I went to the school around the corner from my house. I could even see inside the school from my yard. My children always attended the school nearest my home, and I used “which school?” as the basis for my home buying decision. Parents and children from the neighborhood around the school volunteered to help with seasonal maintenance projects and had a vested interest in the school being a safe and attractive neighborhood component.

On all counts, I think this is a good decision. Still I expect it will have as many unhappy constituents as it has happy supporters, until the system is in place long enough for people to forget the three decade old “used to be”.

What’s Happening with the $8,000 homebuyer credit?

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Post Updated based on Info available as of 11/5/09 – No significant changes, but a few minor ones, so if you first read this back when I wrote it on 10/29/2009, take another look at the updates.

$8,000There are a lot of rumors flying around suggesting that the $8,000 credit has been extended. While that is not the case, as nothing has been signed yet, there seems to be strong support for:

1) Extending the $8,000 credit for 1st time buyers, including people who have not owned a home for 3 years

2) An added $6,500 credit for move up buyers who have owned their current home for at least 5 consecutive years of the last 8 years. (this provision is still under heated discussion and most subject to compromise before the bill is passed.) Updated 11/5/08

3) Expansion of the income requirement to $125,000 for an individual and $250,000  $225,000 for a married couple.

4) Extension to contracts entered into by April 30, 2010 that are also closed by June 30, 2010 (before July 1, 2010)

The most credible “rumor”/story going around [IMO] is CNN Money’s “$8,000 Credit Still in Play“.

In my opinion #1 and #4 make the most sense in that it seems senseless to drop the credit at the end of “Spring Bump” vs. just before 2010 “Spring Bump”.  Closing the door on the credit on Nov. 30th never made any sense, as seasonal factors will make it appear that the credit going away is having more of an adverse affect than it really is, given November through February sales are almost always lower as to price and volume.

Cutting the cord on the credit at the end of April (end of March even better) makes perfect sense, and gives the market the opportunity to compensate during its most robust season.  If the market can transition from 1st quarter 2010 with a credit, to 2nd and 3rd quarters without a credit on a flat market basis, it will be easier to get rid of it altogether. And yes…eventually…it really must go away. I certainly hope the industry isn’t going to keep lobbying indefinitely for its continuation. That would NOT be a good thing.

While it seems that “Senator’s Have Agreed” this credit is still not signed sealed and delivered, (Update 11/5/09 at last step, needs to be signed by the President) so stay tuned for the final version as I think the wheel may still be spinning with regard to the $6,500 move up buyer credit, as well as the expansion of the  income requirements.

Buyer Beware – “great deals” may come with other “issues”

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big new houseWhen you get the opportunity to buy a house “worth” over a million dollars, for fifty to seventy cents on the dollar, you have to ask yourself if you can “afford” it before you say WooHoo!

#1 –  Real Estate Taxes may be too high

Often people ask why so many pending sales don’t close.  There are many reasons, one of which is that lender pre-approvals show a purchase price vs. a monthly payment.  Reality is that your lender is NOT qualifying you for a purchase price, but for some reason they think it is easier for you to understand a price vs. a monthly payment. They then make assumptions as to other costs, and convert their communication to you, the agents and the seller, to a Purchase Price. (This was not so when I started in real estate, and someone should change that.)

So you have a pre-approval to buy a house for $650,000 with a 20% downpayment.  What that really means is the lender “assumed” taxes of approximately $6,500 a year and homeowner’s insurance of $650 a year. Now you go out and find an amazing, super-great deal! You have the opportunity to buy a house assessed at $1.2 million for “only” $650,000! WooHoo? Maybe not.  The annual real estate taxes are $11,000 a year vs. $6,500 a year and the homeowner’s insurance is $1,100 vs. $650. That means your monthly payment is $412.50 more each month for that particular “$650,000 house”, than your lender assumed when you were pre-approved.

Your income needs to be $15,000 to $18,000 more per year, for you to be able to afford that particular $650,000 house.

There are two possible consequences. One is that the loan will “kick out” early enough for you to get your Earnest Money returned, assuming you have a good Finance Contingency. The other is that you planned to buy with a payment of  $3,400 a month, but end up being approved for a payment of $3,800 a month, with no recourse.

It’s possible that you could appeal the assessed value with the County, but I’m not hopeful that will work this year. I clearly wouldn’t recommend anyone promising you can have the taxes reduced to a level commensurate with the lower Purchase Price,  unless you are buying in California. In King County Washington this is NOT a good year to bet that you can prove that the purchase price of $650,000 is a good reason for the County to lower your assessed value of record. Nor is it a good year to think that lower assessed value will equal lower taxes. The County has already notified owners that they are dramatically reducing assessed values (not taxes). 2010 is a particularly bad year to rely on being able to get that tax bill dramatically reduced, in my opinion.

The only sure course is if the bank-owner would have the assessment and taxes reduced prior to sale, in order to obtain a buyer for that home. But I strongly doubt that will happen. Anyone who can’t afford the $11,000 tax bill that comes with that “great deal”, should not be buying that house.

 

#2 – The “carrying costs” may be too high

When a lender pre-approves you for a Purchase Price of $650,000, they do not consider annual use and maintenance costs. Unlike real estate taxes and homeowner’s/hazard insurance, the lender makes no assumptions as to utility bills and other maintenance and repair/replacement costs. In King County a $650,000 house is generally about 2,900 square feet. A house for $1.2M is usually about 4,400 square feet, and often on a much larger lot.

Before you buy that 4,400 sf home on an acre+ lot for $650,000, instead of a 2,900 sf home on 1/4 acre, be mindful of the extra cost to heat and maintain that larger home on that larger lot, in good condition, over a period of years.

 

#3 – Cheaper, bank-owned, new construction may not be “complete”

Most recently we are seeing builders losing their construction projects to the bank. The bank then puts the house on market “as-is”.  Yes, the prices can be awesome! But will your lender finance the “new home” without it being completed? There are programs available to provide funds for purchase and rehab or completion, but are you ready to be your own “general contractor”? Even if you think you can handle it, will the new lender allow you to be your own “general contractor”?

Again, two possible consequences. One is you don’t qualify for the new financing, including cost to complete the home. Again, hopefully that consequence “kicks in” early enough for you to get your Earnest Money back under the Finance Contingency. Another possibility is that the things that need to be completed do not cause the sale to fail, but you end up with a house like the one pictured above. No landscaping, temporary construction fences or barriers, no garage doors…and no money to comply with the neighborhood rules to get your new home in good order in the timeframe required by the CC&Rs.

Once you enter into a Contract to Purchase, you may not be protected against “biting off more than you can chew”. Before you enter into a contract to purchase that “screaming deal”, make sure you can handle all the “issues” that come with.

Short Sales & Bank-Owned pulling prices up?

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King County Home Prices, and what is causing them to go up or down, is dramatically different from one area to the next. I often think about the many who track short sales and bank owned sales, and the growing number of them, who think that these distressed property sales pull the median home price down. That is not always or even often the case in many areas.

North Seattle and Bellevue School District median price per square foot numbers would actually be LOWER if there were no short sales or bank owned properties in the mix. In Bellevue School District, the current median price per square foot would be $330 vs. $338 if there were no short sales or bank owned properties selling. The median price per square foot of a home not in distress is $230, bank-owned $298 and a short sale $268. Given the median asking price of homes for sale there is $899,000 vs. the median sold price of $563,500, the distressed properties of today and for some time into the future are more likely to be the most expensive homes that fewer people can afford to buy.

Now to Seattle North of Downtown.

NSMPPSF

 

 

 

 

 

 

 

 

 

 

 

 

 

Again, short sales and bank owned property sales in North Seattle are pulling the median price up from $244 to $248 in the 3rd quarter. Not necessarily for the same reason as Bellevue School District. More likely due to their being bid up or banks pricing them high and people thinking they are “a bargain” because they are “distressed properties”.

This is NOT the case with sales in Seattle SOUTH of Downtown where the median short sale sells for 15% less and the median bank-owned property sells for 25% less.

I’m working on volume and price stats to determine if the $8,000 Homebuyer Credit expiring will pull prices below “bottom” and for Seattle South of Downtown…no question that is a big yes. But for North Seattle and Bellevue School District (not finished with the rest of the Eastside School Districts) we just might see the bottom holding “post credit”.  I’m still speculating on where volume of sales would have been in North King County, if there never were a homebuyer credit. And while I expect a 4th quarter price drop, I don’t expect prices to fall below the 1st quarther “bottom” of $233 median price per square foot.

Not finished with all of my predictions and stats yet. But thought it was very interesting that in some areas Short Sales and Bank Owned property sales are actually pulling median price per square foot UP…vs. DOWN.

(Required disclosure: Statistics not compiled, verified or posted by the Northwest Multiple Listing Service.)

New Rule on Home Blogging & Zillow

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There’s a lot of talk going on about the new mls rules regarding blogging about homes for sale. The same new rule can prevent agents from posting their listings on Zillow, or any site that has Zillow or another “AVM” feature as a complement to the information available on the same site as the home listing. Basically sellers will now opt in or opt out of these categories separately, when they list their home for sale with an mls member.

Below are links to conversations already happening regarding the new rule that will shortly go into effect.  No one has answered my one question yet in any of these conversations. Does the “new” rule pre-empt the old rule 190? In other words, if a seller clicks “yes” to allow his home to be blogged about, does that “yes” apply to ALL bloggers OR only the listing agent. If I see in the mls a “yes” as to blogging allowed by the seller…do I still need the listing agent’s permission per rule 190, in addition to the seller’s permission?

Seems to me the rule should have more options like “yes MY agent CAN, but no other agents cannot”.

None of these changes impact me or the way I currently blog, but given there is so much being said on the topic, a simple re-direct to these online discussions via the links below, should give you the complete picture. My guess is large brokerages will choose FOR their sellers by company policy, and the actual seller making the opt in and opt out decision will not really come to pass. So much ado about nothing.

FHA to Adopt HVCC-ish Guidelines effective January 1, 2010…Correction: February 15, 2010

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HUD recently announced in Mortgagee Letter 2009-28 dated September 18, 2009 that they are implementing “Appraiser Independence” which is very similar to HVCC. 

Prohibition of mortgage brokers and commission based lender staff from the appraisal process…. To ensure appraiser independence, FHA-approved lenders are now prohibited from accepting appraisals prepared by FHA Roster appraisers who were selected, retained or compensated in any manner by a mortgage broker or any member of a lender’s staff who is compensated on a commission basis tied to the successful completion of a loan….

FHA does not require the use of AMCs or other third party organizations for appraisal ordering, but does recognize that some lenders use AMCs and/or other third party organizations to help ensure appraiser independence.

Mortgagee Letter 2009-28 goes on to “affirm existing requirements” with regards to preventing improper influencing of appraisers.  And states that:

“A lender must not assume, simply because an appraiser is state-certified that the appraiser is qualifed and knowledgeable in a specific market area.  It is incumbent upon the lender to determine whether an appraisers’ quaifications, as evidenced by educational training and actual field experience are sufficient to enable the appraiser to competently perform appraisals before assigning an appraisal to them.”

AMCs (and the banks who own them) will have extra reason to party-on this New Year’s Eve.  This new requirement goes into effect on all FHA case numbers assigned on or after January 1, 2010 February 15, 2010. [Update:  HUD has extended the time period before the new guidelines in the above referenced mortgagee letter goes into effect…I corrected the title of this post too!]

What is NOT included in the home inspection?

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The other day I presented a request to the seller’s agent after a home inspection. The agent said “My home inspector never includes the deficiencies of outbuildings”  It reminded me that many home buyers rely on the home inspection, and yet there are many “area norms” that dictate what home inspectors do and do not do. All home inspectors are not the same, and cost of inspection should not be the main criteria when selecting a home inspector. The cost difference from one to another is often within $100…but the manner in which they inspect a home varies greatly.

Common sense does apply, to some degree. Most often the cost of the inspection is determined by the square footage of “the home”. One would think this might be a signal that an inspector who prices on that basis is looking ONLY at “the home”. Often that is appropriate, but sometimes it is not.

There is no hard and fast rule here. A good rule of thumb is “is it an item that adds or decreases value in an appraisal?” A fenced property most often will not appraise higher than a similar home without a fence. A small shed will not likely be noted in an appraisal. But the property in question for me the other day included a HUGE shop building with a roof, heater and electricity. I haven’t seen the appraisal yet, but seems to me that “the outbuiding” in this case was appropriately inspected as to deficiencies. In fact, there have been a couple of times over the last 20 years when my buyer client bought a property where “the outbuilding” was equally important to the decision to purchase as the home itself…sometimes moreso.

My personal opinion is that we should look at the inspection process from the standpoint of future buyer cost, vs. components in and of themselves. What every home buyer wants to and needs to know, is how much might it cost them to maintain this property after they become the owner of “it”. A new fence costs a lot more than a polarized socket or a GFCI, many thousands more. Yet most every home inspection will ignore a rotted fence and include a $15 GFCI.

This is a large topic, and I am on vacation in Florida at the moment, so we will revisit it from time to time. My hope in writing this post is to convey to home buyers that merely relying on “a system in place” to protect you, is just not appropriate. The system values “what you are buying” differently than you, as you should be looking at what costs you may have overall…because the system in place does not do that. There are many large cost items that are not included in the inspection or the seller disclosure.

All too often a buyer chooses a home based on interior features and then relies on the system to do the rest. Rarely does a buyer do a thorough inspection of the home and property (as much as they can) before making an offer. There are two remedies to this problem:

1) We can improve the system to incorporate all that a homebuyer really needs from it

2) Buyers should conduct a thorough inspection themselves either before they make an offer or during the home inspection timeframe (in addition to the home inspection).

Waiting for #1 to happen in the timeframe you need it to, is not likely going to service your immediate needs as well as performing both inspections via #2. Since a buyer is not as well versed on what a home inspector will be looking at, Kim and I often help the buyer look at those things that the inspector will not, prior to offer and continually through “the due diligence timeframe”. It is also possible to expand the scope of the inspection to include things normally not included, but to do that you need to know what is included and what is NOT included…before the home inspection and home inspection timeframe is over.

The system does protect you to a large degree, but area norms and customs limit your protections (vs. contract provisions) and you should be aware of which inspectors will only perform the minimum required, and which will go the extra mile.