Buyers and Sellers- How to Prevent a Failed Building Inspection on Your Home

Nobody's too happy when the house doesn't pass a building inspection.  In fact, everyone has to start from square one all over again....The seller, the buyer, and both agents that are involved. Everybody begins their tasks all over again- and that should ALMOST NEVER be the case.
 
A failed inspection would only occur rarely in the market if agents educated their clients during the process.

It is extremely rare  that my clients have had to endure a failed building inspection, and that's whether I represent the seller or buyer- and I have sold hundreds of properties. ....So what makes such a big difference for my clients as opposed  to everyone else?

Education and disclosure. Those two factors will prevent over 99 percent of failed inspections.

Education:

For Buyers: Look closely at the home before you place an offer in on it. My buyer clients get a kick out of looking at houses with me, because I perform mini-inspections as we look at homes, and educate my buyers as to what potential problems there may be if any. I knock on tiles, stomp on the floors, and poke wood that looks like it needs poking.  I am not a building inspector, and do not have that specialized knowledge, but I have attended EVERY home inspection for EVERY home that I have ever sold. If some knowledge hasn't rubbed off on me to impart to my clients, then I wouldn't belong in the business. A couple of very good things result out of this practice- One, if the house doesn't pass my mini-inspection, there is no need to put an offer in on the home and spend money for an inspection that won't end up on a positive note, or, Two- the buyers make their offer knowing that there are some issues that will need to be addressed and are not blindsided by the building inspection.

For Sellers: When you decide to put your home on the market, you  pretty much have a good idea as to whether there may be issues, which could or would break a sale. Tell Your Realtor!  Once you are lucky enough to have a sale, you don't want to needlessly lose it. As a listing agent, I do that same mini-building inspection that I do for buyers when I list your home, and try to find the most common deal-breaker issues that may arise so that we can address them prior to putting the home on the market.  If I see something that looks like a specialist is needed, I'll say so. It's much easier to fix it now rather than fix it later, AND risk a sale because of it.

Disclosure

For Buyers: When buyers disclose found issues prior to the formal building inspection and adjust their offering price because of it, sellers are more likely to accept that offer given that they would have to address items with any future buyer as well. It gives the owner some peace of mind that they won't be nickeled and dimed at time of inspection, which seems to be a common occurrence these days. ( I do not subscribe to the last minute nickel and dime tactics. )

For Sellers: Disclose your known issues, or your suspected issues. By the way, it is the law. Besides that, the little items that wouldn't normally mean a thing to buyers become amplified when there are bigger issues to address, and  they can feel like there might be a lot of hidden problems that the inspector hasn't even found. What happens then is the proverbial straw that breaks the camel's back, and it's hard to keep the deal together or even renegotiate if that's the case.

If buyers have a good idea what they are getting into right from the get go, they are less likely to "walk" after a poor inspection report. They will already be aware of most of the issues. If sellers feel that the buyers have been honest with them, they are more likely to negotiate, or renogiate as the case may be.

Simply put, your agent has to have well rounded skills- marketing, negotiating, and good solid knowledge of a home and its components. You deserve nothing but the best.

When you're ready to buy or sell, contact me. It's my job to keep everything running smoothly, and especially when it gets rough- without worrying you about it unless absolutely necessary.

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The Twelve Most Common Connecticut Homebuyer FAQS

Are you ready to buy a home, and have a few questions? It doesn't mean that you are naive if you have questions about the home buying  process and experience, and it doesn't matter if you have bought a home before or not. Conditions change, parameters change and the economy changes. There are many questions about the home buying process that are very common  for first time buyers to ask,  as well as anyone who has ever bought a home before.

How long does it take to buy a home?

You can expect the process to take anywhere from 45-60 days on average from the day you negotiate your home purchase. The time involved has mostly to due with fulfilling various contingencies and obtaining a mortgage.

How much should I spend for a house? How much can I afford?

The answer to this question is directly correlated to your income, your debt, and your liquid assets. You may have heard a few rules of thumb, such as purchasing a home between 1.5 and 2.5 times your annual income,  Other "rules of thumb"  say that you should spend roughly one quarter of your monthly income on a mortgage.

In general, your monthly prinicpal interest, taxes and insurance payment should not exceed 28 to 29 percent of your monthly gross income. Your total debt payments (car payments, credit card payments, etc. plus the monthly mortgage amount) cannot exceed approximately 36%-41% of your gross monthly income. The calculations can differ depending on your credit score, and the amount of time the current debt has to be satisfied  It's best to get initially pre-qualified from your real estate agent and ultimately through a lender.

What's the minimum downpayment that I need to buy a house?

Government backed loans are  available with as little as a three and one half percent deposit.  As a note, there are income and price parameters that must be adhered to within your area.

Should I buy a foreclosed home?

You can certainly save a lot of money on purchasing a repossessed home,  just be ready for the length of time it takes to come to an agreement with the bank, the additional paperwork necessary, and the deferred maintenance that will most likely need to be addressed at that particular property

How many houses should I look at before I buy?

 You can look at one, you can look at one hundred. The best thing for you to do is to have a good idea as to what your wants and needs are. When you see a home that "speaks" to you, whether it's the first home, or the tenth home, listen to what your heart tells you. Further, if your agent asks you enough questions, you may only need to see less than a dozen or so homes before you very comfortably find "the one".

How much should I offer for a house?

There is no simple answer to that question, since each property truly stands on its own, and  has its own unique set of circumstances.  Just as a seller obtains a market  analysis on a home, you should also receive one for the home that you want to buy. The analysis will help you decide what to offer, based upon list price to sales price ratios and comparable sales.

How do I know if I am spending too much for the house that I want to buy?

A market analysis  completed by your agent will tell you how much the home is worth, but ultimately it is worth what you are willing to pay, and what the bank is willing to lend you if you are getting financing. If the appraisal as commissioned by the bank does not equal your agreed upon price with the seller, the bank will notify you and you can either renegotiate or walk away from that house. It's a wonderful third party check on value.

How do I know if I am getting a good deal on a mortgage?

You must compare loan packages. There is just no way around it. Shop for rates, but do not give out your social security number to various lending institutions, as it will lower your credit score and raise your interest rate. Obtain your score from one  lender and use that  number to shop around. Make sure you add up all the fees  to compare apples to apples when you shop.

Do I really need to use an Agent to buy a house?

I would highly recommend it!  Buyer Agency contracts are generally  written with the proviso that the agent will obtain their fee from the seller. In that case, there is no cost to you to have an expert and advocate on your side, who is bound by law to hold a fiduciary responsibility to represent your best interests . 

Should I sell my current home first?

Although this will differ for some homeowners for  various reasons, generally speaking you should get your home under deposit first,  in either a buyers market or a sellers market.

Do I really need a building inspector?

YES! Unequivocally yes.  A home purchase tends to be emotional, and you may unconsciously overlook issues  even if you are very well versed and knowledgeable about homes, their components, and construction.

How much will my closing costs be?

Figure your closing costs to top out at about four percent of the mortgage amount, and we can work on shaving that number down depending on whhat time of year you close, what day of the month that you close, and what type of mortgage you obtain.

Just one closing thought (pardon the pun)  If you get the jitters the night that you put your offer in on your house, try and relax. It's absolutely normal.  It doesn't mean that you shouldn't buy that particular house. It's a big decision and having a  little anxiety as to whether you have done the right thing, or  whether or not the bank will approve your loan is quite normal- just try and relax.

If it makes you feel any better, I have been in real estate for 27 years, and every time I purchase a home I even get a little anxious. You would think that helping buyers for this amount of time would make me immune to that. It doesn't.  So yes, I've been there. I understand how you feel. Get a good nights rest and it will be okay, I assure you. If you happen to be one of my future clients,  remember-I am always there for you.

When you are ready to buy a home, contact me. I'm there start to finish ....and beyond.

If you have a question about buying or selling Real Estate in Fairfield County, and are in need of representation, I invite you to contact me, and if you have an idea for a topic that you would like to see on The CT Realty Blog, please include it in the "Post a Comment" section link below this post. We appreciate the feedback and look forward to providing you with the best real estate content, advice and service in Fairfield County, Connecticut.

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Is a Short Sale Right For You?

A "short sale" is a real estate sales transaction in which the seller's mortgage lender agrees to accept a payoff of less than the balance owed on a property's loan. This typically happens when a borrower can’t pay the remainder of the mortgage loan on their property, but the lender decides that selling the property at a moderate loss is a better alternative than foreclosure.

Short sales are different from foreclosures because the lender forces a foreclosure, while both lender and borrower consent to a short sale. Consent between these parties may suddenly change, however, such as if the borrower becomes obstinate and forces foreclosure, or if the lender disapproves of the sale price. If the property is collateral for a second mortgage from a different institution, it, too, must agree to the short sale, which may further complicate the transaction. 

Short Sales from the Lender’s Perspective

Banks incur a smaller financial loss from short sales than losses resulting from foreclosures, which cost lenders billions of dollars, mainly through the expense and time required to foreclose on the borrower and subsequently market the property. If the borrower owes $30,000 on their home, it’s often worth it for the bank to waive that amount, as the expense may be as much as $50,000 per foreclosure, according to a study by the U.S. Congress Joint Economic Committee.

 

Short Sales from the Seller’s Perspective

While a short sale will damage the seller’s credit rating, a foreclosure causes even greater credit damage. The process for a short sale is also faster, cheaper and less emotional than a foreclosure, in which former owners are often forcibly removed from their homes.

 

Short sales, however, do not necessarily release the borrower from the obligation to pay some or all of the remaining balance of the loan, known as the deficiency. The bank, depending on state laws, might be able to go after the seller for the remainder of the loan after the home sells. Also, in these states, known as recourse states, the IRS can treat the unpaid portion of the mortgage as taxable income.

 

Communities, too, invariably prefer short sales to foreclosures, which drag down the real estate market of whole neighborhoods. Vacant foreclosed houses, many of which have been ransacked by former owners or vandals, further reduce the property value of neighboring homes which, in turn, increase the likelihood of more foreclosures. Of course, communities don’t have much of a say in whether a home short-sells or forecloses, which is partly why a federal rule was issued to streamline and encourage short sales.  As of April 5, 2010, the various parties that must consent to allow a short sale – the borrower, the lender, the investor who owns the loan, and the bank that owns the second mortgage (provided there is one) – are all offered financial incentives to consent to a short sale. 

 

Typically, the following conditions must be present in order for a short sale to be approved:

• The property’s market value has dropped.
• The mortgage is near or in default status.
• The seller can prove that they have few assets. Tax returns and financial statements may be required to prove that the borrower has no stocks, bonds, or other real estate, for instance, which may be used to pay off the balance of the loan.
• The borrower has fallen on hard times. The seller is required to submit a letter to the lender that describes why they cannot pay the difference due upon sale, and how they wound up in financial hardship. This plea to the lender to accept a loss, known as a letter of hardship, may include the following acceptable explanations:
  • unemployment;
  • divorce;
  • medical emergency;
  • bankruptcy; and/or
  • death.

The following circumstances are generally not accepted "hardships":

• bad purchase decisions, such as gambling or vacationing;
• unhappiness with the neighbors, such as if a meth lab opened up next door;
• buying another home. If you can afford another home, the bank will wonder why you can’t pay off the one in which you currently reside;
• pregnancy. Lifestyle decisions aren’t taken seriously in letters of hardship; or
• moving into an apartment.

If you are considering the purchase of a short-sale property, here are some tips:

• Obtain legal advice from a competent real estate attorney.
• Consult with an accountant to discuss the tax ramifications of buying a short sale.
• Hire an InterNACHI inspector to inspect for problems typical of short sales and foreclosures, such as pests, mold, water damage, and/or structural defects. Realize that short-sale sellers have fallen behind on their mortgage payments, making it likely that they have neglected basic building maintenance and repair, or even intentionally abused the building. Presale inspections, which are suggested for all real estate transactions, are as critical for short sales as they are for foreclosures.

In summary, a short sale is a compromise consented to by the lender and borrower in order to avoid foreclosure, and can be a better financial deal for all parties involved.

by Nick Gromicko and Rob London

 

Nick Gromicko, FOUNDER. http://www.nachi.org
International Association of Certified Home Inspectors (InterNACHI) is the world's most elite, non-profit inspection association.
President, ComInspect, www.cominspect.com
Director, Master Inspector Certification Board, www.certifiedmasterinspector.org
Author, 15 books and Co-Host of  http://www.NACHI.TV

Is it Better to Work with a Buyers Agent or a Sellers Agent ?

If you want to buy or sell a house and obtain the best representation available to you, I am of the opinion that you should work with an agent who represents both buyers and sellers on a regular basis, and there are two very good reasons for that. They are "Marketing" and "Negotiations".

Marketing:

Marketing is defined as the process that is used to determine what products or services may be of interest to customers, and the strategy to use in sales, communications and business development, or simply put for the real estate business- Marketing is understanding "who" your customer is, how to reach them, gain their confidence, and effect a sale.

An agent who just represents the seller should have the marketing aspect down pat, and that's a good thing- but what about a strict buyers agent? They won't market to sellers, and quite frankly, they might not even know how because they don't do that as part of their everyday business. If your dream home is not on the market, you will have to rely on another agent in the mix.

Negotiating:

Although I will concede that there is a level of expertise that comes with just representing buyers, or just representing sellers, all of the top negotiators know that reaching  the best agreements come from negotiations where there is empathy for the other side, and a bit of give and take.

If an agent has represented one "side" of the transaction consistently, then I think it would be inherently difficult to remember what the other "side" wants and needs in order to feel satisfied and happy with the transaction, and that's not to say that the agent can even get to that point.

Herb Cohen, author of the book titled,"You Can Negotiate Anything", describes negotiation as this: Negotiation is a field of knowledge and endeavor  that focuses on gaining the favor of people from whom we want things. It's as simple as that".  How better to gain favor than knowing exactly what one wants? When you only represent one side of the transaction, you WILL forget what the other side wants. It's just human nature.

Also, if you have ever heard of the Negotiation Institute, and/or Gerard Nierenberg, who is considered the foremost authority on negotiating, he says, and I quote, "To know what your opposer is thinking and striving for, you must turn detective, you must apply various methods and techniques to your primary objective of recognizing his needs".

The best negotiators are the agents that split their business nearly evenly between representing buyers and sellers, and never forget the ever-changing needs of each type of client in the the current marketplace,. The best marketing agents are also the ones that educate themselves to further their professionalism and their clients interests.

I represent both buyers and sellers, and am proud to have earned the Certified Negotiation Specialist designation, besides earning the following pertinent designations from the National Association of Realtors, such as Certified Residential Specialist, Graduate-Realtors Institute, ePRO  Internet Certified, and Accredited Buyers Representative,  I might venture to say that  what mayhave been the single finest marketing program that I ever have had the privilege of graduating from was with the "Marketing Corporation of America" in Westport a number of years ago. Although it was quite expensive, the lessons I have learned from a pure marketing standpoint are worth their weight in gold regarding the psychology of sales. That is, learning about client behaviors, patterns and tried and true methods of sales. Comprehensive and incredibly insightful.

If you are in the market to buy or sell and need a top notch marketer and negotiator, contact me today.

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Do you have a C.L.U.E. on That CT Home You are About to Purchase?

Every home has one, and there is important information contained in it.  The report will tell you what home  insurance claims have been brought against the property, such as fire, water and smoke damage, among others.Would that be a good thing for you to know?

C.L.U.E. stands for "Comprehensive Loss Underwriting Exchange" and is a claims history database that enables insurance companies to access consumer claims information when they are underwriting or rating an insurance policy. As C.L.U.E. reports play an increasingly important role in real estate transactions, inspectors will find their clients more curious about how C.L.U.E. reports can affect them.
 
C.L.U.E. was created in 1992 and is administered by ChoicePoint, a data aggregation company. Roughly 600 homeowners' insurers (about 90% of insurers) contribute claims data to the database. Most insurers renewing existing policies do not access C.L.U.E. reports at renewal, largely because they already have loss histories for these properties in their own databases. Many buyers now stipulate that a C.L.U.E. report on a home must be included with the real estate transaction.

What information is included in a C.L.U.E. report?

The report contains consumer claim information provided by insurance companies. Policy information, such as date of loss, type of loss, and amounts paid, and a description of the property covered, is all included in the report. Only loss history information within five years prior to the current date is stored in the database. No other sources of data, such as credit reports, civil lawsuits, criminal records or legal judgments, are incorporated into C.L.U.E. reports.

How can C.L.U.E. reports benefit potential home buyers?

C.L.U.E. reports let potential home buyers know about water damage, mold, and other issues that can make it difficult or even prohibitively expensive to insure a home. Without viewing the report, big trouble may be brewing for buyers who simply assume that they will receive an insurance policy for their new home.

Imagine a typical real estate transaction, in which the property sells, ownership is transferred, the buyer gets the keys, and the real estate agent gets paid. But a few weeks later, the buyer gets a letter from their insurance company rescinding the policy due to a previous claim. Many mortgage documents state that a property must remain insured. If the homeowner can't find insurance elsewhere, they can be forced into paying the mortgage company's premium insurance rates or foreclosing on the home. Understandably, many of these situations result in lawsuits:  buyers sue the seller for non-disclosure, the home inspector and the real estate agent if they did not insist upon obtaining an inspection or C.L.U.E. report for their client. This entire situation may have been avoided if a C.L.U.E. report had been ordered by the seller and reviewed by the buyer.

Note that you cannot order a C.L.U.E. report for a home that you are merely interested in buying. Only current owners, insurers and lenders for the property can order C.L.U.E. reports. However, you can request that the current owner of the property order a C.L.U.E. report for you to view.

Why should inspectors care about C.L.U.E. reports?           

During a buyer’s inspection, the inspector is tasked with exposing the property’s dark secrets that may make its purchase less desirable for the buyer. While this process traditionally involves inspection for current defects that affect the safety or functionality of household components, buyers should be concerned with previous defects that, as detailed above, can create nightmare scenarios after the house has been purchased.

If the inspector finds evidence of major damage that has since been repaired – even if the repair has made the component safe – he should advise his client to request that the seller order a C.L.U.E. report, if this has not been done already. Flood damage from four years prior, for instance, can make a property uninsurable under a new policy. Even if the inspector finds no such evidence, it couldn’t hurt to mention the report to the prospective buyer.

How do you get a C.L.U.E. report?
Homeowners can get an electronic or mailed copy of their own C.L.U.E. report for a small fee, depending on which state they reside in. If a homeowner lives in Maryland, Georgia, Massachusetts, Colorado, Vermont or New Jersey, they are entitled to a free copy of their consumer report.
 
In summary, C.L.U.E. reports play an important role in real estate transactions. Inspectors should be ready to inform their clients about the ways in which these reports can affect their ability to receive future insurance coverage.

Submitted by Nick Gromicko

Nick Gromicko, FOUNDER. http://www.nachi.org
International Association of Certified Home Inspectors (InterNACHI) is the world's most elite, non-profit inspection association.
President, ComInspect, www.cominspect.com
Director, Master Inspector Certification Board, www.certifiedmasterinspector.org
Author, 15 books and Co-Host of  http://www.NACHI.TV