Your first time buying a house is always a big experience. It also takes a lot of time and work. You have to vet a variety of homes and figure out the best deal for the current housing market and your budget. In this post, we’ll be discussing how to get the best deal by arming you with the knowledge you need to know how to assess the value of a home, how to negotiate repairs after a home inspection, and what due diligence means for a home buyer.
This is a document that you should be familiar with as a home buyer. Essentially, a Seller’s Disclosure is one of the main factors by which you can assess the condition and value of a home that you want to buy. It is given to you by the seller. Included in this document should be a list of all known problems or defects involved with the house. This should include:
- Old or sub par insulation
- Problems with the plumbing or electrical systems
- Information related to water sources and rights
- Health hazards, including lead paint, radon, asbestos, or mold
- Damaged siding
- Information on water damage or the possibility of flooding (either inside the house itself or in the yard)
- Issues of soil conditions or contamination
- Issues with the foundation
And other problems along those lines. This is a document that is supposed to give you a heads up on what may be required in terms of renovations or repairs. This way, you can properly plan and budget for these costs, so they don’t take you by surprise once the sale has been closed and you’ve moved in.
There are a few cases where a Seller’s Disclosure will not be provided, such as in cases of:
- Estate sales
- Gifts or transfers of ownership
- Bankruptcy sales
If you have any insight into how a lot of people operate, you’re probably already suspecting that you shouldn’t solely rely on a Seller’s Disclosure to assess the state of the house. Your suspicions are rational. No matter how trustworthy you think the seller might be (you might even know them personally), it’s important to remember people’s natural incentive to hype up the quality of their home and understate the problems.
Furthermore, it’s very likely that the seller has missed something, or simply doesn’t know how to find all of the possible problems. Most people don’t even work on their own vehicles and instead take them into a shop to have them looked at. It’s even less likely they’re experts on their own house.
So, how do you get more objective information.
Getting a Home Appraisal
The real estate market includes a lot of different players, including agents, brokers, lenders, and of course, appraisers. Just as you’d probably want a mechanic to take a look at a car before you buy it, you should have a professional home appraiser come take a look at possible houses. A home appraiser will evaluate a house and create a report based on what they find. They have been licensed and trained for exactly this reason – to find issues or potential issues in a house that the layman usually can not.
All parties benefit from a home appraiser, including the buyer, seller, and mortgage lender. It’s their job to make sure everyone is getting a fair deal based on the condition of the house and its value based on the current housing market.
Another major reason home appraisers are valuable is because they can offer an objective view of the house. They aren’t emotionally invested in whether or not the house is sold, or to whom. They’re simply there to provide an objective assessment of the home based on certain criteria.
This is also why the home appraiser is not hired by either the buyer or seller. That would be a bit of a conflict of interest. Instead, the home appraiser is hired by the lender, to ensure objectivity and neutrality. The lender is concerned with getting a fair and impartial estimate on the house, and in protecting their assets (the money that you’re being loaned). This is why lenders decide whether or not to loan by comparing a home’s market value with the listed price.
That said, you do pay for the home appraiser. This typically costs about three to four hundred dollars, although this cost is negotiable.
Home appraisers figure out the value of a house by:
- Finding out all damage or problems involved with the home.
- Finding out any damage that could occur in the future.
- Evaluating the square footage.
- Evaluating the overall appearance.
- Evaluating the amenities.
- Taking into account the location of the house and what that means for its market value.
It usually takes about 3-10 business days for a home appraiser to complete their evaluation.
How To Successfully Negotiate Repairs After a Home Inspection
So, you have looked over the Seller’s Disclosure and have had a home appraiser evaluate a house that you want to buy. At this point, you should have a pretty comprehensive view of the house’s value and its condition.
As you go through the next process, just keep in mind: You’re buying a home that’s already been lived in, so you shouldn’t have ever expected it to be in brand new, pristine condition. That said, there’s also no reason you shouldn’t try to get the most out of the deal.
Successful negotiations come from being reasonable. Don’t sweat the small stuff. Focus on the major issues such as plumbing, electrical, and foundational repairs, rather than that crack in the siding. The seller will likely look at minor repairs like scratches or broken tiles as something to discount altogether, but they’ll see the importance of major foundational repairs, since failing to provide these could lose them the sale.
For major repairs, it’s often a better idea for both parties to default on credit, rather than repairs. Otherwise, the closing date can be substantially prolonged. It’s also often a good idea for the seller to put the cost of repairs in escrow, so that the buyer can take care of the repairs themselves and avoid any conflict that may arise over what’s being done and where.
Another important thing to keep in mind: keep your comments to yourself! Your future renovation plans don’t need to be shouted from the rooftop. If the seller finds out about certain renovations you have planned for a particular room, they may very well discount the repairs for that room.
What Does Due Diligence Mean for a Home Buyer?
Due diligence isn’t a term that’s limited to real estate alone. It applies in many different fields and contexts. Essentially, it means covering all of your bases and completing any tasks or work to ensure that all contracts, calculations, protocols, and paperwork are completed successfully.
In real estate, as with many other industries, failure to perform due diligence can easily result in both short and long term problems.
With the help of the professionals, be sure to:
- Go over all details
- Properly research the area in which the house is located, and the marketplace in that area
- Hash out all financing details
- Decide on the most appropriate insurance plan for the house
- See if the house a part of a homeowners association so that you can reap all possible benefits