Home Buyers Beware
The real estate market is crazy right now. Most of the houses in my town that are for sale go under agreement in less than a week and there is almost always a bidding war. If you want to win the bidding war, you are often forced to forgo things like a home inspection which would have been unthinkable even a few years ago. So how can you protect yourself if you are a buyer in this market? I was interviewed by Veronica Dagher from the Wall Street Journal on this topic, and I had a few suggestions.
First, if there is a bidding war for a house, you will likely not win if your offer includes an inspection contingency but that doesn’t mean you have to go in blind. My suggestion is to bring a home inspector with you when you tour the house. The inspector won't be able to cover everything that they normally would, but they can home in on the big-ticket items – how does the roof look? Is the heating system old? Are there signs of water damage?
Second, walk around the neighborhood. If you see a neighbor, tell them that you are interested in the home that is for sale and ask them how they like the neighborhood. You’d be surprised what they might say. Approximately two years ago I was considering buying a house and I saw the neighbor out, so I said hello and asked how he liked his house. He said he loved it but mentioned that it floods in the spring. That was a red flag for me, so I moved on.
Third, when a realtor lists a home, they are required to include a property disclosure statement. Be sure to read that statement carefully. It should list the dates that major systems were installed or serviced. If you are buying a condo, be sure to read the association’s annual report and minutes. If everyone is complaining that their roofs leak, assume yours will too.
Finally, if you do buy a home without an inspection, be sure you don’t spend your last nickel buying the house – be sure that you keep some money on hand for repairs. The house probably looked great in the online pictures and the day you toured it but shortly after you move in you may notice that the carpeting is dirty, the paint is chipping, and the dishwasher doesn’t work, and you will need money to address those issues. Hopefully the issues are only cosmetic.
Once you are in the home, make sure you have a line item in your budget for home maintenance and repairs. People always underestimate this expense category. We tell our clients to budget 1% to 3% of the home's value for upkeep and repair. On a $500,000 home that translates into $5,000 to $15,000 per year.