A home inspector can make or break a sale for both sellers and buyers. It's why, no matter whether you're buying or selling, the home inspection process can be somewhat terrifying!
For sellers, it's a stark reminder of the nagging issues you might have turned a blind eye to over the years. And for buyers, it's a recipe for pure heartbreak—falling in love with a home that might just end up making no sense to buy.
But don't let the inspection stress you out. And remember, that's not what your home inspector wants either—all he or she wants is a comprehensive to-do list and a happy client.
So form a team with your home inspector to make the process easier and more effective. Knowledge is key! Here are seven essential things you keep in mind.
We know your puppy is adorable—but even if your home inspector lovesdogs or cats, pets running underfoot makes the job much more difficult.
Inspections often require opening exterior doors again and again, offering pets far too many opportunities to dash to freedom. When you leave the premises for the inspection—and many inspectors ask sellers to do so—take your pets with you. Please.
With animals out of the way, "every time I walk in or out, I don't have to worry about losing a cat or a dog," says Alan Singer of Sterling Home Inspections in Armonk, NY.
Whether you plan on being there for the inspection or not, make sure to clean up beforehand. No, you don't need to scrub—an inspector won't ding you because your stove's grimy. But all that clutter? Yeah, that's all got to go.
"It makes a huge difference when I walk into a house where everything's put away," Singer says. "It's a game changer not just for me, but for the home buyer."
Often, the inspection is the first time the buyers are (almost) alone in the house for an extended period of time.
"If it doesn't feel like how it did before—if we're trying to dig through items—it can sour their experience," Singer says.
Your home inspector will likely come up with a seemingly endless list of problems after the walk-through. Don't panic!
"I'm on their side, but still, I'm judging the house fairly," Singer says. "Even my home has problems, issues, maintenance things."
Yeah, there are times when you should worry (we'll get to those a bit later). But not every issue is mission-critical, and your inspector will know which problems you should tackle first.
There are a few starkly frightening home inspection terms that seem to be in everyone's vocabulary: mold, radon, and asbestos.
And yes, they're scary—but no scarier than a roof that needs replacing, home inspectors say.
"People who write articles tend to scare homeowners about mold or radon," Singer says.
So let us—your humble (and rather defensive) writers—take a moment to correct that assumption: Don't worry so much about mold and radon!
Singer, who started his career in homebuilding, says, "everything is upgradable, fixable, or replaceable. You just need to have a list of what those things are."
Here's one problem we give you permission to stress out about (just a little): water. No, it's not a deal breaker (remember that part where we wrote almost anything can be fixed?). But it's important to address any water-related issues before the deal closes—or at least immediately afterward.
Make a note of issues such as puddles and leaky ceilings. And give special attention to the basement. Addressing water problems in the basement can be an expensive and difficult proposition, Singer says. "A wet basement can be hard to fix."
You might want to know how many more years the roof will hold up—and while your inspector might be able to give you a rough estimate, he can't give you a precise timeline.
"People think that we as inspectors have a crystal ball," Singer says. "Or that we have X-ray vision" to see through walls or examine the inner circuitry of your kitchen stove.
Sorry, folks: They don't, and they can't.
"We can't tell you how long it will last," Singer says. "We can just tell you if it's in good shape."
It's easy to forget your love for the home when you're counting the dollar signs and hours you might have to spend on repairs. But just remember to take a deep breath, think rationally, and consider whether it's a smart investment in your future.
Singer empathizes: "The justification can sometimes be a horrible process, because our brains are all about money and time and (asking) ‘What kind of mistake am I making?’"
Barring any major renovations needed—such as a new roof or mold removal—your inspector's visit will simply provide a to-do list. But not everything needs fixing immediately, so don't let a long list dampen your love for the home. Just take things one at a time.
Find Out What Really Happens When You Waive Contingencies to Score a Home
In a white-hot market, you may feel pressure to make some concessions to win over a seller—and, no, we're not talking about sending a basket of banana-nut muffins.
When you make an offer on a home, it's standard to throw in some contingencies—telling the seller that if the home isn't up to snuff for a variety of reasons, you have the right to walk away from the deal—with all of your cash in hand.
That's all hunky-dory in a buyer's market. But as the housing market has rebounded, buyers are getting competitive—more and more are waiving those contingencies, or protections, in order to speed the deal through to closing.
You want the house, and the seller doesn't want any hiccups. So getting those pesky contingencies out of the way is a win-win, right?
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Of course not!
It's riskier to waive some contingencies than others. We set out to discover which are the most innocuous of the bunch—and which are the most terrifying. We asked an expert to discuss the pros and cons of each common contingency, and then we ranked the risk factor of waiving it on a 1-to-5 scale, with 5 being the highest.
Remember—these aren't hard rules. Everything depends on your local market, your personal situation, and, above all else, your tolerance for risk.
Contingency: Early move-in
Fear factor: 2
Closings can be delayed, so many buyers ask for the right to move in their possessions (or themselves) early. But it isn’t something sellers or seller’s agents love.
“I would never allow my sellers to agree to it,” says Katie Wethman, a Realtor® with The Wethman Group at Keller Williams Realty in McLean, VA. "There are just too many unknowns if the deal doesn't close."
And those unknowns go both ways.
If you move in early, you'll lose some of your negotiating power. After all, it'll be much harder for the seller to believe you'll walk on the deal if you've already moved all your stuff in. And if the deal falls through, you'll face eviction from the seller and scramble to find a short-term living arrangement.
Bottom line: Moving in early could potentially do more harm than good, so waiving this contingency has minimal risk.
Fear factor: 1
The homeowners association rules contingency lets you get out of the deal if you discover the restrictions don't jibe with your lifestyle (say, they won't allow you to have three Rottweilers or paint your front door eggplant).
Let us be clear: We do not recommend getting to this point on your path to homeownership without asking about the basics of the home you're trying to buy—including HOA rules. Ask for a copy and read it beforemaking an offer.
Bottom line: Since we think you should do your homework, waiving the HOA contingency seems pretty low-risk.
Fear factor: 4
This contingency gives you the right to back out of the deal if your home financing falls through. And waiving it can go very, very wrong.
That's because any number of things could happen before your loan's been sent through underwriting. The lender could decide to lower the total loan amount, spike the interest rate, disqualify you from a certain loan, or a myriad of other "oh crap" situations. If you're locked into a home offer and can't hold up your end of the bargain, you could lose your earnest money.
But not every buyer needs to worry as much about financing. Say, for example, you're paying in cash. You won't need the lender, so you won't need this contingency. And if your credit is spotless, you're making a solid (at least 20%) down payment, and you've had the same good job for a while, you're also in a better position to take this risk.
Bottom line: Talk it over with your Realtor and mortgage broker and find out just how confident you should be in your financing. But keep in mind: Even with a pre-approval letter, things can still go awry in the final lending stages (including the appraisal—see the next item). That's why we're rating this one high on the risk radar.
Fear factor: 3
An appraisal is required by most lenders, and it can be useful to buyers trying to negotiate a price. But appraisals can be tricky.
That's because a number of factors can affect the outcome of an appraisal: the appraiser might rely heavily on the value of comparable homes that sold for mysteriously low prices, or perhaps he saw the house in less-than-ideal conditions.
And especially in a hot market where homes are selling for inflated prices, the appraisal value might not match your expectations—but you still won't get a discount.
"Sometimes the market—that is, the price a buyer and seller agree to—isn’t the same number as what an appraiser thinks it’s worth," Wethman says.
Bottom line: If you're looking to woo a seller, you might want to skip the appraisal contingency, especially if you think it won't change the asking price of the house. But be careful—your lender may not agree to a loan over the appraisal price, leaving you to foot the remaining cost of the home.
Because it could go either way, we're placing the risk level squarely in the middle.
Contingency: Home inspection
The right to get a full, professional home inspection—and flee into the night if new and horrifying info comes to light—is a crucial contingency.
Without a licensed inspector viewing the property, you can only guess what might be potentially wrong with the home, now or 10 years down the line.
By waiving this contingency, you lose the right to make any requests for additional repairs—or to run away—before the deal closes. This is scary stuff, people. Nobody wants to be stuck in a money pit.
If you're still convinced waiving this contingency is the only way to win the seller's heart, try finding some neutral ground, Wethman says. Like a general inspection contingency, which gives you the right to void the contract, but not to ask for repairs.
Bottom line: Unless you know you’re getting a fixer-upper and will have to make repairs anyway, you're gambling big time by waiving this one.
Contingency: Clear title
Fear factor: 5
If the opportunity arises to waive this one, it's time to run for the hills. Abort mission. Just say no.
You may not be able to waive a clear title search in your area—in some parts of the country, it isn't even legal. But if you discover you can, don't.
A title search will churn up all kinds of important info—like who actually owns the home and if there are any liens on the property. It might seem far-fetched, but title problems happen all the time. Waive your right to it, and you might find that along with your new home, you've acquired thousands of dollars’ in liens.
“Personally, I would never waive this even if it was an option,” Wethman says.
Bottom line: Seriously, the risk is high.
The Earnest Money Deposit: How It Helps Buy a Home.....
What is earnest money? Depositing earnest money is an important part of the home-buying process. It tells the real estate seller you're in earnest as a buyer, and it helps fund your down payment. The earnest money check is typically cashed and held in a title company trust account, or in the broker's escrow account. You get a receipt from your brokerage when you hand in the earnest money.
Without the requirement of earnest money, a real estate buyer could make offers on many homes, essentially taking them off the market until they decided which one they liked best. Sellers rarely accept offers without the buyers putting down earnest money to show that they are serious and are making the offer in good faith.
Assuming that all goes well and the buyer's good-faith offer is accepted by the seller, the earnest money funds go toward the down payment and closing costs. In effect, earnest money is just paying more of the down payment and closing costs upfront. In many circumstances, buyers can get most of the earnest money back if they discover something they don't like about the home.
How much should you put down in the earnest money deposit?
The amount you'll deposit as earnest money will depend on factors such as policies and limitations in your state, the current market, what your real estate agent recommends, and what the seller requires. On average, however, you can expect to hand over 1% to 2% of the total home purchase price.
In some real estate markets, you may end up putting down more or less than the average amount. In a market where homes aren't selling quickly, the listing agent may note that the seller requires only 1% or less for the earnest money deposit. In markets where demand is high, the seller may ask for a higher deposit, perhaps as much as 2% to 3%. Your real estate agent may recommend that you are more likely to win a bid if you give the seller a large deposit. In fact, the seller may be willing to negotiate on the purchase price a little if you make a bigger good-faith deposit.
On the other hand, you may not want to put too much earnest money down. Coming up with that much money, and losing the use of it for weeks or months before the sales contract closes, may not be the best use of your cash.
However, you may wind up having to do some paperwork for your mortgage lender, and the bank may want to verify the source of the funds for larger deposits of earnest money. It won't be a problem if you can show that you've had the money for at least 60 days.
When do you make an earnest money deposit, and who holds it?
In most cases, after your offer is accepted and you sign the real estate purchase agreement, the contract stipulates that you give your deposit to the title company. In some states, the real estate broker holds the deposit.
Always check the credentials of the title company or real estate broker taking the deposit, and verify that the funds will be held in escrow. Never give the earnest money to the seller; it could be difficult or impossible to get it back if something goes wrong.
After turning over the deposit, the buyer's funds are held in an escrow account until the home sale is in the final stages. Once everything is ready, the funds are released from escrow and applied to your down payment.
Can you get your earnest money deposit back?
If the deal falls through, a small cancellation fee is usually taken out of your earnest money deposit, but the remainder remains in escrow. Whoever holds the deposit determines whether you should get the earnest money back under the terms of the purchase and sale contract. Make sure that the purchase agreement covers how an earnest money deposit refund is handled.
To be on the safe side, make sure the purchase agreement contains contingency addendums that stipulate how a refund is handled (e.g., an inspection contingency protects the buyer if the real estate fails a home inspection). Buyers can also usually get their earnest money back if they find problems with the property, or if they are unable to get title insurance.
A financing contingency ensures that the earnest money is refundable and the buyer can get out of the transaction if he cannot get financing. Keep in mind that a pre-approval from a lender does not guarantee a borrower can get a loan at mortgage rates he can afford. Even if a buyer has a good credit score and is pre-approved for a mortgage loan, the lender can still turn him down based on unforeseen factors such as the appraisal amount being too low. In such cases, a standard contingency allows buyers to renegotiate the purchase contract, or get their money back.
Do Raindrops Keep Falling on Your Head—Indoors? Try These Easy DIY Fixes
April showers bring May flowers, which is all well and good for the flowers. Those rainstorms, however, can also point out the flaws in your home—like leaking windows, faulty doors, and sagging gutters.
You probably want to wait until the summer sun is shining to take on major roof repairs, but if your home is feeling a little soggy, these do-it-yourself tips can prevent further water damage.
Drafts are nice only when the window is open
Small gaps or cracks in your window sills aren’t just bad for your heating and cooling bills. Broken seals can also allow water to creep inside your home, damaging wood window frames and floors.
To test your windows, examine each frame carefully and use your hand to feel for drafts. “If you see any cracks, buckling, warping, or if you feel a draft, this could be a sign of leak areas,” says Tomas Lelczuk, owner of 911 Restoration of Miami, a home restoration company that specializes in water damage and disaster recovery solutions.
To reseal windows and stop the leak, add small beads of caulking to any cracks or drafty seals on the window frame, then run your finger across the frame to smooth out the caulk and “find all of the microcracks,” Lelczuk says.
Your doors may need an attitude adjustment
“Door leaks are common where the door swings into the house rather than outward, because an inward-swinging door tends to funnel water in,” says Lelczuk.
If your door fits that description, Lelczuk recommends checking around the threshold for cracks, splits, and early indications of wood rot on the door or frame. Small cracks and splits can be repaired with caulk, but large damages and rot may require a replacement door.
Once it's repaired, keep an eye on your exterior doors.
“To prevent rainwater from entering your home, make sure the threshold is functioning properly. It may need to be adjusted periodically,” says J.B. Sassano, president of Mr. Handyman, a home repair company with franchises in the U.S. and Canada.
Are your gutters not as perky as they used to be?
Your gutters take a lot of abuse, especially if you’re in an area prone to heavy snow or rainfall. Now that snow and ice have made way for rain, you’ll need to make sure your gutters are in good working order.
Start by checking your downspouts.
“Downspouts easily clog if your home has a lot of trees,” says Sassano. For loose clogs, running a garden house into the downspout may be all you need to clear the debris. For tighter clogs, a plumbing snake can shake the debris free.
Next, check along the gutters for sagging areas.
“Sagging ends up allowing for debris to get lodged and create blockages, which may allow for leaks,” says Lelczuk. If the same spot keeps sagging, you may want to call a professional, but you can handle smaller issues yourself.
“A fix for sagging gutters is to bolster them with gutter hangers so there is a peak in the center of the roof line, which will allow for water to drain to both sides and into downspouts,” says Lelczuk.
Once everything is flowing nicely, check for small cracks in your gutters. If you find any, fix them with a patch kit.
Repairing leaks and other issues in your windows, doors, and gutters will help your home get through those spring showers smoothly, but don’t forget to check for new damage periodically. If any of these problems crop up again, use the same tricks to repair them and keep the inside of your home nice and dry while you work on those bigger summer DIY jobs—like tackling the roof and the basement.
Full Disclosure: What You Need To Tell Buyers About Your Home
Whether you have owned your home for a few years or a few decades, you know its quirks, best features, and flaws. When you decide to sell your home you need to be aware that your experience with your home is something you may have to share with potential buyers.
Most buyers opt to have a home inspection before they finalize their purchase, but you as the seller must also follow state and federal regulations regarding disclosure of known facts about your property’s condition.
As a seller you may feel uncomfortable revealing problems in your home that could discourage potential buyers, but it’s best to be open about issues before your home goes under contract. A home inspector is likely to find problems and the buyers will be less favorably inclined to negotiate with you if they feel you have withheld information. If a flaw is found after the sale is complete and the buyers have reason to believe you were aware of the problem, you could face a lawsuit.
Federal disclosure rules
The majority of disclosure issues are handled by state regulations, but federal laws apply to one area: lead paint. If your home was built prior to 1978, it may contain lead paint. Your home must be checked for lead paint and a disclosure form completed unless your home was built after 1978.
State disclosure rules
State regulations vary and often change, so rely on your real estate agent (here's how to find a real estate agent in your area) to be up-to-date on disclosure requirements for your area. Some states allow sellers to complete a disclosure form listing information about their home, or a disclaimer form that says the sellers don’t have any information about issues in the property.
In some areas you need to disclose what you know about natural hazards like whether your home is in a flood zone or in an area known for earthquakes; other required disclosures can involve pollution issues, prospective zoning changes, or if it's located within a historic district.
Another issue that sometimes causes problems is when a home has been a crime scene or if someone died on the property.
Things you should disclose to prospective buyers
The impact of full disclosure
Most sellers are aware of the benefit of letting prospective buyers know about positive features of their home such as new appliances or a new roof, but there can also be a benefit in disclosing defects in your home. Any issue that you have addressed during the years in your home can provide proof that you’ve kept up with maintenance. You may want to provide a binder with receipts and insurance claim information to show buyers what work has been done on your home.
If there’s an ongoing problem that buyers will need to handle, it’s better for them to hear about it from you so you can negotiate about when repairs must be made and who will pay for them. In fact, if you have a particular concern about your home, you may want to hire a home inspector yourself to get to the details before you put your property on the market.
Openness about your home’s condition is the best way to avoid lawsuits, even if disclosure is not required in your state.
What Is a Home Warranty? Peace of Mind for Home Buyers
What is a home warranty? In a nutshell, it's a policy a homeowner pays for that covers the cost of repairing many home appliances if they break down.
After all, lots of things you buy come with a warranty in case they break down, from cars to smartphones. But what about homes? It turns out you can get a home warranty plan, too.
“Home warranties provide financial protection from a service provider for homeowners who might be faced with unexpected problems with their appliances,” explains Shawna Bell of Landmark Home Warranty.
Many people buy a one-year home warranty plan right when they close on a home, since such protections can provide some much-needed peace of mind that you won't get hit with unexpected, out-of-pocket expenses soon after moving in. Imagine what a bummer it would be, after all, to wake up one morning to a broken boiler, knocking appliances, a leaking water heater, dripping plumbing, or malfunctioning fridge in your new home.
A home warranty plan can lessen those homeowner and appliance worries, which for many is worth every penny. A couple of warranty plans to consider: Choice Home Warranty and TotalProtect.
What does a home warranty, like one from Choice Home Warranty, cover?
Don't mistake a warranty for homeowners insurance, which covers your home's structure and belongings in the event of a fire, storm, flood, or other accident. Home warranty companies, in comparison, will cover repairs and replacements on home systems, including electrical systems, plumbing, water heater, washer, and kitchen appliances due to normal wear and tear—no calamities required.
Home warranty companies, including Choice Home Warranty and Home Service Club, generally set up a service contract to cover the following items (you can read a sample contract to find out):
How much do home warranty companies charge?
While homeowners are often required to get homeowners insurance along with their mortgage, home warranties are a fully optional purchase. Basic coverage starts at about $300 and goes up to $600 for more comprehensive plans, says Bell.
A homeowner can include add-ons to a service contract if needed (e.g., coverage for a swimming pool, various appliances, or an external well).
Although many home warranty companies offer plans to homeowners at any point, the best deals can often be snagged if purchased when you become a first-time home owner. You're eligible for these plans whether you're buying a condo or single-family home. And some warranty plans are the "build-your-own" type, which means you can customize a basic plan to cover particular systems (like plumbing) and appliances, or you might include optional add-ons like a tuneup for your HVAC.
“The home warranty offered at the time of the real estate transaction typically offers the most comprehensive coverage and price points, so that’s why it’s the ideal time to lock it in,” Bell says.
At the end of the first year, you usually have the option to renew your home warranty or bail with your service provider.
Benefits of home warranties for home buyers and sellers
A home warranty benefits homeowners by providing reassurance that they can move in without worrying about shelling out even more for add-on or surprise repairs.
A home warranty can also benefit home sellers (if they don't have it already), since it can cover these elements during the listing period; some home warranty companies even offer free seller’s coverage during this time with the hopes that the buyer will decide to continue the coverage. Often, home sellers will offer to pay for the first year of a buyer's home warranty to entice buyers to bite.
But not everyone thinks home warranty companies are worth the cost. Typically a warranty isn't necessary with new homes, since most of the appliances are already covered under manufacturers' warranties. But in general, the older your home, the greater the odds that something'sbound to break, and the wiser it is to get a home warranty. Best of all? Not all home warranty companies differentiate between newer and older homes in terms of cost, making a warranty an especially cost-effective option if you are purchasing an older home.
Be sure to read the fine print on the contracts from a warranty company such as Home Service Club and Select Home Warranty. And remember, this type of warranty doesn't usually cover pre-existing conditions and you may have to pay a deductible if something breaks.
What if something breaks under a home warranty
Home repairs are a big headache, so you're probably wondering if that broken appliance, leaky plumbing, ductwork, or HVAC is a covered item under your home warranty. To find out whether you may have to pay a deductible, call your provider or customer service to connect with a qualified contractor in your area.
One thing to remember is that a home warranty does not mean you're off scot-free for a certain "covered item." Typically you'll have to pay for a service call, service fee, or part of the bill up to your home warranty deductible first.
While not everyone will think a home warranty is worth it, it is a good idea for people who lean toward being better safe than sorry when buying a home. Consider the appliances you own and how reliable your plumbing is. Speak with your real estate agent for advice, and then check out the home warranty companies in your area (try Select Home Warranty and TotalProtect). This way, you can read a few sample contracts and decide for yourself.
Looking to acquire a property? You don’t have to limit yourself to the traditional channels of searching real estate listings and working with real estate agents. You can also purchase a property at auction.
Should You Buy A House At Auction?
Pros and Cons of Auctions
The benefits of buying at auction include expanding your options and possibly purchasing at a discount. You may face less or more competition to buy a property compared with buying the traditional way, but you’ll also be dealing with a different pool of potential buyers—often, experienced investors.
Perhaps the biggest risk of buying at auction is that you’ll have limited knowledge of the properties for sale, making an expensive misstep a very real possibility. And, as with any real estate purchase, you’ll need to read, understand, and sign lots of paperwork (ideally with the help of a real estate attorney).
Real-estate lore is rich with tales of homes bought at auction for well below market value, and such bargains do exist. However, auctions are generally a riskier way to acquire property than buying through the usual process. That reality makes it vitally important to be well-educated about how real estate auctions work and prudent about the properties you consider bidding on.
To help you avoid making a big mistake, this article will explain the basics of residential property auctions so you can decide if this option might work for you—whether you want to live in the property or use it purely as an investment.
WHAT YOU NEED TO KNOW
When a homeowner has not paid the mortgage for at least a few months they may fall into default and end up in the foreclosure process. When this happens, the bank files a notice of default with the county recorder. If the homeowner does not pay the balance owed—or renegotiate the mortgage with the lender—the lender can put the home up for auction and force the homeowner out for nonpayment. These foreclosure auctions are held by bank-hired trustees.
Property Tax Default
Another way a home ends up on the auction block is when the owner does not pay the assessed property taxes. In these cases, it is the unpaid tax authority, rather than the bank, that seizes the property. The resulting tax lien auction is conducted by a local sheriff, clerk, or the county or local authority's comptroller’s office.
Attending the Auction
Regardless of the auction type, these events may take place at physical locations such as local government courthouses and hotel conference rooms, and these in-person auctions are completed rapidly. Real estate auctions also increasingly take place online, and online auctions may last for days or weeks.
Buying homes at auction has been and will continue to be popular, according to Earl White, co-founder of House Heroes LLC, a Florida real estate investment company that purchases houses, condos, and residential vacant land. “Owner occupants on a budget and real estate professionals migrate to sources where there is hopefully less competition
“However, foreclosure auctions don’t provide the discounts that existed during the time of the [housing] crisis,” White continues, explaining that when fewer properties are available, buyers are highly motivated because of home appreciation and favorable mortgage rates, and online auctions have increased competition and driven up prices.
Finding Real Estate Auctions
One way to find auctions is by contacting local governments directly, or visiting their websites for information, then following up by phone to confirm the details. Another is through sites like RealtyTrac and Auction.com. However, online information is not always accurate.
Properties may be listed that are in pre-foreclosure because the owner is behind on payments. These properties may never go up for sale because their owners catch up on payments or come to an arrangement with their lenders.
Local real estate agents and brokers can also be valuable resources. But you may not find them eager to help because agents and brokers don’t automatically earn commissions on live auctions. However, these realtors can earn commissions through online auctions.
Multiple Listing Service Data
Direct multiple listing service (MLS) reports are far more valuable to potential buyers than online listings, according to White, because they contain the full data for the listing, including photos and, most important, non-public broker comments. “Non-public comments are important because they specify critical information impacting sale price and days-on-market. For example, [these MLS reports contain information on] property defects, financing options, occupancy, and tenant leases."
The best way to assess an auction property is to work with real estate agents, appraisers, contractors and others who understand construction and remodeling costs and can accurately estimate the property's value and the cost of the work it needs.
While rules vary by location, MLS and county records are often only available to real estate licensees, White says. In his experience, they are usually happy to help free of charge if you contact them.
White also notes that in-person auctions have been disappearing, as even smaller counties have been converting their in-person auctions to online ones. Many locales have where both tax and foreclosure auctions fully online.
Keep in mind that foreclosure auctions are often postponed or canceled, even at the last minute. The lender might not have obtained all the paperwork it needs, or the borrower may have worked out a solution to avoid foreclosure.
What Bidders Need to Know
Before bidding at a real estate auction, you need to understand the risk you’re taking. A bad purchase could haunt you for years. You also need to understand the auction’s rules and be prepared to follow them before trying to participate.
You will have to register and submit a refundable deposit of 5% to 10% of the property’s expected selling price to the entity holding the auction. If the auction is happening in person, be sure to check in at least an hour before the scheduled start and get the official card you’ll raise when you’re ready to bid.
Winning a property at auction can work in two different ways.
The starting price of the auction may be the balance owed on the mortgage or a lower amount designed to spur bidding. In a foreclosure auction, the lender is not allowed to profit from the auction. Often, these properties are sold at a loss; if there is a profit, it is supposed to go to the foreclosed homeowner after the mortgage and any other liens are paid. Auction properties aren't always great deals—for example, the auctioneer could set a hidden reserve price on a property, which is the minimum that must be bid.
“Whether a buyer attends the auction in-person or online, they must keep in mind that there is a threshold price for every property where a wise purchase can become a foolish purchase, and they must not allow the event, venue, or their emotions to sway their decision,” advises Ron Humes, a realtor since 2000 and current VP of operations for Post Modern Marketing in Lexington, Ky.
The Problem of Accessing a Property
Auction properties rarely provide potential buyers at the same level of access that traditionally sold properties do. You probably won’t be able to walk through the property with your agent at your convenience, though some auction companies do offer open houses.
“I personally would never recommend a client purchase a property remotely without first conducting the eyeball test,” says David Roberson, a real estate attorney and broker in San Jose, Calif. He and his wife own 22 rental properties in three states, and he is the owner and operator of Silicon Valley Property Management Group. Either you or your trusted investment team should thoroughly evaluate both the real estate you are considering and the people you are dealing with before obligating yourself legally or financially.
Similarly, Humes cautions that sources that report on the current or future value of a property can be very inaccurate unless there has been an onsite evaluation by professionals who know how to gather and assess all the necessary details. The best way to assess an auction property is to work with pros—real estate agents, appraisers, and contractors—who understand construction and remodeling costs and who can accurately assess the property’s current and future value and the cost of the work it needs.
Property Condition and Inspections
The house could have all kinds of problems—remember, this was a house that used to belong to someone who couldn’t afford the mortgage or the property taxes, so they probably couldn’t afford any routine maintenance or repairs, either. Furthermore, once this owner realized they would be losing the home, they may have intentionally neglected it or even seriously damaged it. Also, properties that have sat vacant may have been vandalized or have had squatters.
Assume that if the property looks terrible from the outside, it probably looks terrible on the inside too. Auction properties are sold as is, and you’ll need to be able to afford any and all repairs. Tempting though it may be, you should not trespass to get a better idea of the property’s condition.
You may have seen flippers doing this on TV—entering backyards, peering in, or even climbing through windows—but it’s not legal. And you definitely don’t want to disturb anyone occupying the home, not only out of courtesy but also for your safety. Seek information about the property’s ownership history from local government records, talk to local real estate agents, and respectfully request information from neighbors.
Auction properties often do not allow a home inspection or any legal way to view the interior in person. If you can't afford the risk of buying a property in poor condition, stick with auctions that allow you to inspect the property before bidding. Without this information, it can be hard to know what you're getting into, what a property's repair costs will be, or its true value until after you've become the owner.
Even if you can get a home inspection, any inspection has its limits. Problems behind walls, in ceilings, and under floors might not be apparent until you take possession. If the utilities are turned off, you may not be able to detect leaks, electrical problems, broken appliances, or malfunctioning HVAC equipment.
Payment Options: Plan Ahead
Buying a property at auction usually requires a lot of cash. Each auction company and county government has its own requirements for payment, but you will probably need cash just to secure your right to bid. Down payment amounts and methods of purchasing often depend on the property and the auction house. More flexible financing options may be available by purchasing a bank-owned property the traditional way: Auctions are not the only way to buy foreclosures.
As for payment, bidders at an auction should bring cash, a money order, or a cashier's check for the sum required by the auction holder. Typically, you will have to pay for the property in full immediately after winning the auction. Occasionally, you may have until the next day to complete payment. Failure to complete the payment may result in forfeiting your deposit and being banned from future auctions. Be prepared to provide proof of funds to show you’re able to complete the purchase. If you’re bidding as an entity, such as an LLC, trust, or limited partnership instead of as an individual, you may need to show your entity documents.
Winners go through escrow and closing just as they would with any other home purchase. Bidders at property auctions are often real estate investors who can afford to pay cash. For auctions that allow financed purchases, you’ll need to get prequalified ahead of time.
Some auction houses prefer that you work with their affiliated lenders and will have those lenders on site at the auction. However, do your research beforehand to determine the interest rates available from competing lenders. This information may give you some leverage.
Also, be sure that you understand the auction fees you will be expected to cover. “Homes purchased at auctions many times have costs and fees from auctioneers, banks, attorneys, and other companies required to bring the property to the auction,” Humes said. “It is not uncommon to find 10% auction fees, bank interest and penalties, attorney fees, 12% sale carrying fees, property preparation fees, and the like that are passed on to the buyer.”
Check for Any Claims, Liens, and Occupants
Before you bid, you’ll want to hire a title search company to see who might hold liens against the property. If you win it, you’ll become responsible for any liens, which means more money out of your pocket.
There may be other claims against the home—not just tax liens, but contractor liens or a second mortgage. Bidders should check with the auction company to ensure that the property has a clear title. If you do win an auction, you’ll want to buy title insurance during escrow or immediately after closing to protect yourself against any liens not uncovered during the title search.
Also, in some cases, the (former) owner or a squatter will be occupying the property, meaning you will have to evict them—a process that can be unpleasant at best, and lengthy and expensive at worst. To simplify the process, you may want to offer them several thousand dollars up front to move out and hand over the keys.
Refrain from doing anything until you hold the title. Avoid the urge to start renovations or move into the property immediately after getting your certificate of sale. You’ll still need to wait up to 10 days or so to receive your certificate of title. The property is not truly yours until you hold that certificate; the owner could still retain their right to the home by filing an objection to the sale with the court or by paying off the loan.
The Bottom Line
Foreclosed homes may be financially appealing, but there are many obstacles to consider before buying. Also, just because a home is for sale at auction doesn't mean that you'll be able to get it at a good price (or that the home is a good deal at any price—it could be a money pit). But for savvy, intelligent, and motivated individuals, property auctions are worth exploring as a way to pick up a home or an investment property inexpensively.
That being said, consider non-auction properties as an alternative. “It can be possible to find a better deal when negotiating with a seller who has equity in a property and can negotiate on their own behalf without all of the auction’s affiliated penalties and fees,” Humes advises. “You may also have more competition at auctions from companies that purchase properties to flip as a business model. Auctioned homes are not always the best deal for the average homebuyer.”
If you're interested in trying to pick up a bargain property at an auction, there's a lot to learn. Auctions are a riskier way to purchase a property than through a real estate agent. It's important to be extremely well-educated about the process and about the properties you are interested in bidding on. Working with a local real estate agent or broker to identify potential properties may help, though they may not be interested unless you can reach a compensation agreement.
Finally, make sure to thoroughly review all the auction rules and conduct due diligence on the property before you bid. Seek the counsel of a real estate attorney—ideally one experienced with foreclosure sales—to make sure you understand what your responsibilities and liabilities will be if you’re the winning bidder.
FALL HOME MAINTENANCE CHECKLIST
You’re moving and it’s time to pack your kitchen. From appliances to crystal wine glasses, the kitchen runs the gamut of special packing needs and techniques. But first you need to decide the timing. If you’re okay living off restaurant food or eating off paper plates, you can pack up your kitchen all at once. Many people decide to do it in stages, packing up the things you don’t use first, and saving the everyday items until right before the move. Once you figure out which approach works best for you, you can get started tackling kitchen packing by type of item.
If you’re bringing your refrigerator with you, there are a few steps you’ll need to take time to prepare it for the move. Start by considering how you want to handle any food you don’t want to take with you to your new home. You can share frozen and fresh foods with neighbors and friends, and consider bringing extras like condiments and salad dressings to the office and put them in the shared fridge for your coworkers.
Contact an appliance specialist to find out what needs to be done to make sure your appliance can be safely moved. That might include addressing high-voltage connections, disconnecting the water line, draining the reservoir, and, in some older models, bolting down the motor and/or compressor.
The day before the move, defrost the freezer and clean the entire refrigerator with warm water and a mild soap. You can then prop the doors open overnight to help it dry completely. The next day, use masking tape to secure all the drawers and compartments so they won’t get damaged during the move. Remove shelves and pack them in a separate box.
For your plates, bowls and glasses, pick up dish boxes, which are moving boxes specifically designed to protect your dishes. They’re built with an extra layer of cardboard, which will give the padding needed to endure the bumps and jostling that can occur during a move. Dish sleeves, which are made from a thin, foam material, come in small and large sizes, and give each plate a safe cushion of protection. Put one plate in each sleeve and stack them vertically in your dish box. Then add crumpled newspaper or packing paper to fill the gaps in the box. The more extra padding, the better!
Glasses, teapots and vases — anything that’s “hollow” inside — should be filled with crumpled paper before being individually wrapped. That helps keep these delicate items stronger and they’ll be less likely to break if they end up getting stacked under a heavier box. Be sure to order dish boxes and other packing supplies ahead of time, so you’ll have what you need when you start.
You can gather silverware by type and wrap them in dish towels or ziplock bags. For steak and cutting knives, cover them with the blade sheaths that came with them if you still have them. If not, you can create your own protective sheaths with pieces of cardboard. Cut the pieces into strips bigger than the blade; place the blade between two pieces of cardboard and secure with tape. For other kitchen tools, group by size, and pack short, medium, and longer items together, respectively. You can either wrap them in packing paper or use shoe boxes or food storage containers to keep the tools organized in the main box.
If you still have the original boxes and packaging for small appliances like your toaster, coffee pot, and slow cooker, clean the appliances and repackage them like they were new. They’ll stay snug and safe during your move. If you don’t have the original packaging, you can take a large box and place a layer of packing paper or a heavy towel in the bottom to help fortify it. Then disassemble the appliance (if it’s supposed to be disassembled) and wrap each element separately (lids, inserts, attachments, etc.) with plenty of packing paper or bubble wrap. Put heavy pieces (like the pot from your crockpot) on the bottom of the box, and carefully place the smaller parts inside or around the bigger pieces.
Pull out all the pots and pans on to your counter and organize by stackability. Put frying pans on the bottom, then baking and casserole pans, then sauce pans. Although pans are durable, it’s smart to separate each with some packing paper to avoid scratches. Individually wrap the lids and wedge them into the corners of the box, including plenty of extra padding around them.
Treat baking sheets similarly to pots and pans, lying flat at the bottom of the box, and separating each with a layer of packing paper. Carefully wrap breakable baking pans in bubble sheets or multiple layers of packing paper and place smaller pans inside bigger pans. Fill any open spaces with dish towels, oven mitts, or more packing paper.
Now is a great time to lighten up your pantry and donate to your local food bank. It’ll give you less to carry on moving day, and you’ll be helping out your old neighborhood by providing quality food to folks in need. Pack or toss the open items — like flour, rice, and spices. But any canned food, dry pasta, beans or rice that’s never been open can be donated. Just make sure you’ve saved a few easy-to-make essentials — like your favorite soup or boxes of macaroni and cheese — to keep you going the first week in your new home.
Use a smaller box for packing up the pantry items you’ll be taking with you. These items will probably be heavy, and it’s easier to move heavy items in small boxes. Start with the heavy stuff on the bottom, like canned foods. If you tend to keep your sugar or flour in their original, open containers in your pantry, transfer them to food storage containers or Ziplock bags prior to packing. You don’t want to open up a box full of powder when you get to your new home. Individually wrap spices and place soft items, like bags of rice, nuts, or dried fruit in the nooks and crannies of the box. As always, use as much crumpled packing paper as you need to fill the box.
If you keep cleaning supplies in your kitchen, pull out the things you know you’ll need to do your final cleaning and set them aside in a tote or bucket. This might include dish soap for those last-minute pieces you forgot to pack, sponges and gloves, spray cleaner, scouring tools, and paper towels.
For the remaining items, consolidate whatever is left with the other cleaning tools and supplies in your house. If you want to avoid the hassle of packing the cleaning products altogether, you can gift them to your neighbors. But if you’d rather bring them to your new home, there are a few tips for safe packing. Place a bath towel on the bottom of a box, then carefully package each of the cleaning items to help protect against spills. For open bottles of cleaning solution, unscrew the top, place a layer of cling wrap over the opening, and then screw the top back on. Then wrap the entire container with several layers of cling wrap and tape securely. This double protection will help contain leaking if there are spills during the move.
For many homes, the kitchen is the center, where everyone gathers to eat and catch up and laugh. It may be one of the last rooms you decide to pack. But with a focused plan on how to organize, wrap, pack, and protect your kitchen items, you can box up the room pretty quickly and be ready to recreate that new gathering place in your new home in no time.
Did you know that approximately 1 in 4 first time homebuyers will use gift funds to purchase their home? According to the National Association of Realtors Profile of Homebuyers and Sellers, 24% of first time homebuyers used gift funds for their down payments. Since the rules regarding gift funds vary by loan type, check out these tips to ensure a smoother loan process.
Gift funds for mortgages have specific rules on who the gift can come from. Most loans allow gift funds to come from immediate family members such as parents, siblings, spouses, and domestic partners or close extended family such as grandparents, aunts, and uncles. The gift funds must be given with the expectation that they are a gift and that the funds will not be paid back.
The amount of the gift funds that can be received will vary based on loan type and sometimes the buyer’s credit score. For example, for conventional loans, if the buyer is putting down more than 20% then all of the down payment can be gifted. If it’s less than 20%, then a portion of the down payment must come from the buyer’s own funds. With FHA loans, all of the down payment can be gifted unless the credit score is below 620. If the credit score is below 620, 3.5% of the down payment must come from the buyer’s own funds and the gift funds received can be used towards additional down payment or closing costs. As a side note for the gift fund donor, tax law restricts how much money can be gifted to a family member per year tax free. Be sure to check with an accountant to see what current law allows.
When giving gift funds for a mortgage, the lender is going to require a gift letter. This letter typically includes donor name, relationship to the borrower, date and amount of the gift given, and proof it was received. The lender may also require bank statements from the donor depending on loan type. The reason for this is that the lender must be sure the donor has the ability to give the gift.
Understandably, some family members are uncomfortable sharing their financial information with other family members. Conventional loans allow the donor to wire the gift funds at closing and thus negate the need for bank statements. Another alternative is to receive gift funds from the donor as early as possible in the home search process. When a borrower begins the loan process they must provide the previous 2 months bank statements. Any funds that are already in the account at that time are considered “seasoned” and would not require additional documentation.
Since gift fund rules vary depending on loan type, it’s best to consult a mortgage professional to assist the buyer with the specific guidelines and documentation required by the buyer and the donor to ensure a smooth loan process and closing.
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