Home Inspections: What Buyers and Sellers Need to Know

If you’ve ever bought or sold real estate, you’ve probably experienced a home inspection. If you’re considering your first home purchase, understanding the inspection process is a crucial stop along your path to home-ownership. Or, if you own property and somehow sidestepped a traditional inspection when you acquired it, knowing how to prepare for and successfully navigate through the inspection waters will be vitally important when you sell.

Whether you are a buyer, a seller, or real estate professional, home inspections can be stressful. They typically result in a second round of contract negotiations, sometimes even more emotional than the first. Inspections can rip a deal apart, shifting buyers back into house hunter mode and leaving sellers in the mire of having to put their property pack on the market. In order to avoid those worst-case scenarios, it’s important to understand the three key classifications to a home inspector’s findings: Maintenance Items, Safety Issues, and Major Defects.

Maintenance items, you would think, are pretty self-explanatory. This can include things like a tricky door lock, a broken window seal, or a missing gutter extension, just to name a few.

Buyers (especially first-timers), please take note: you are going to own a home soon. That comes with a lot of responsibility, including taking care of all kinds of little things that get wrapped into the “joys of home-ownership”. If you own an automobile, you have maintenance responsibilities such as changing the oil, keeping air in the tires, filling it with gas, and hopefully washing it every once in a while. Houses need maintenance too, though they typically pay you back in the form of appreciating value. No matter how much you love your car, it can’t do that. Maintenance items are normal, and when identified by a home inspector, consider putting them on your first to-do list once you move in.

Sellers, when maintenance items are brought to your attention, don’t take it personal. Again, maintenance is part of normal home ownership. Depending on what tasks arise from an inspection, you should consider tackling them as part of your regular duties while waiting for your sale to close. More importantly, if the fixes are cheap and easy, it may be smart to remedy them before they become one of our next classifications.

Safety issues can be scary. A broader definition, “serious safety deficiencies that immediately impact the life and/or health of future owners or occupants”, can definitely make you feel a little goose-bumpy. Whether you are a buyer or seller though, it’s important to remember that most fear comes from a lack of knowledge.

The absence of a proper ground-fault protected outlet near a sink or other water source can be dangerous; some people may not read warnings about listening to their plug-in boom box in the shower. An under-supported deck sounds, feels, and looks scary when an inspector recommends not to have more than a handful of people on it at any given time, especially while that recommendation is delivered while jumping up and down on it for the full “wobbly” effect. And environmental hazards, with all their disclosure requirements and government regulations, are often some of the scariest (and potentially deal-breaking) problems of all.

When confronted with these and other safety issues, remember that information is our friend. The opinion of a good contractor or subject matter expert can reveal solutions that remove the fear from the equation and maybe even shed light on an inexpensive remedy that resolves a problem altogether. Expenses are the determining issue of our next classification.

Material Defects, specifically “major” ones, are simply issues that cost a substantial amount of money to remedy. They may not be related to matters of maintenance or safety, but often are.

A roof covered in deteriorated shingles, even though it may not be leaking, could be considered a material defect. Older mechanical items, structural concerns, and even large, old trees, while not immediately unsafe or in need of maintenance, can greatly effect a property’s value, or more specifically, the pocket book of current or future homeowners. These issues can cost many thousands of dollars to remedy, an expense that no buyer or seller will want to bear.

The important thing to consider with material defects is that the value threshold to consider something a “major” problem is different for everyone. One person’s $500 problem can be more serious than another’s $5,000 issue. Or the customary percentage of a property’s value constituting a major material defect in one marketplace could be completely different from another – an inspection in Omaha will be completely different than one in Chicago, for example. You will find that the issues that arise during a home inspection often overlap in their classification, but this final idea of subjectivity really sums up most home inspection findings, regardless if they’re maintenance items, safety issues, or material defects. And that summary leads to the best logic on how to deal with a home inspection.

The best way to sail through and successfully deal with any home inspection is to hire, and listen to, a good Realtor®. Realtors® are the subject matter experts on how inspections affect real estate transactions, and they can guide you through the general give-and-take associated with them. They’ve often seen and already dealt with similar issues in the past. Realtors® can help you sensibly and objectively review inspection reports, and often know many other industry professionals and experts when you need to gather additional information before making a decision. If you don’t utilize the skills and advice of a Realtor®, in the very least try to follow one of the basic principles of the National Association of Realtors® Code of Ethics: “Whatsoever ye would that others should do to you, do ye even so to them.

Covenants: What Every Buyer Should Know

Restrictive covenants by design can have an enormous impact on the use and the value of property. Unfortunately, they are often times overlooked by the buyer and their agent. When purchasing property it is important to know what restrictions and obligations are tied to the property you are about to purchase and what potential consequences if you don’t, or can’t, comply with those restrictions and obligations.

Over the past few years, Home Owners Associations (HOA) in the Omaha area have used covenants to enforce rules and regulations upon their residents. HOA’s commonly enforce covenants that restrict the owner’s ability to install items such as fences, solar panels, and landscaping, siding, and color schemes.

When purchasing a property, it is essential that buyers read and fully understand any covenants that will apply to their home BEFORE submitting offers to purchase or at a minimum, a contingency should be included with any offer to purchase a property that makes the purchase offer conditional upon the buyer’s review of any covenants. Remember, restrictive covenants are not limited to areas of new construction. Many subdivision that are decades old can be subject to restrictive covenants. You can obtain copies of covenants from Aksarben Title & Escrow.

How Do Covenants Actually Impact the Property and the Owners?

Collectively, covenants fall into one of two categories: (1) restrictions impacting the use of the property; and/or (2) imposing certain obligations on the property owner.

Restrictions: Covenants can restrict your free use of your property. There are numerous examples of restricted behavior; however, here are a few of the more common ones:

(1) Architectural Review:  If your property is subject to architectural review, any new construction or modification to existing structures on the property will more than likely require pre-approval by an architectural review committee.  This committee is typically established and controlled by the developer of the property and then, after the developer has sold all or a substantial part of its property in the development, controlled by the subdivisions board of directors of the HOA.

Examples of typical architectural restrictions include, but are not limited to, limitations on exterior paint colors, color and types of siding, fencing, landscaping, and design of structures. How much authority do these boards or HOA’s have? Absolute; however, their decisions can’t be arbitrary or discriminatory. For example, a HOA could not deny a handicapped person in a wheel chair a request to install a ramp.

The architectural review committee considers whether the proposed construction or landscaping complies with the architectural guidelines and whether it will be consistent with other structures in the community.  The restrictive covenants typically grants the committee the authority to deny an application on purely aesthetic grounds.

(2) Rentals: Restrictive covenants may prohibit the owner from renting the property or place certain restrictions on the way your property may be rented.  For example, the restrictive covenants may provide that your property may not be leased for a term shorter than 6-months or 1-year. Why is that important to a buyer? If you are purchasing property on a beach or in the mountains, you may be purchasing it with the intention of leasing the property on a weekly basis.  A restriction prohibiting leases with a term shorter than 6-months would reduce the value for your particular plan.

(3) Home Usage: It is common for restrictive covenants to prohibit home based businesses such as a daycare or operating a garage. It may also prohibit the storage of RV’s or boats and may require homeowners to park in their garages.

Owner Obligations: another aspect of covenants is to obligate the owner to do or perform certain things:

The most common obligation is the requirement to pay HOA Dues or Assessments. The dues or assessments fund common expenses of the HOA.  Common expenses incurred by the HOA may include maintenance of the common areas, lawn service, snow removal, insurance, painting of structures, concrete maintenance, painting or siding maintenance, pool maintenance, etc. Keep in mind, that your lack use of these common items such as the pool, does not remove your requirement to pay the dues or assessments. You are obligated to pay these dues or assessments regardless of usage or complaints you may have against the HOA.

What Happens If I Don’t Pay My Dues or Follow The Covenants?

Most enforcement of restrictive covenants is carried out by the HOA. In an area with restrictive covenants, but no owners association, an individual owner may enforce the restrictive covenants against other property owners. Usually, this means that an offended owner must sue the offending owner to obtain an injunctive relief order preventing the offending owner continuing to violate a covenant. For example, an owner may sue another owner that has violated the covenants by building a fence, or shed, or installed solar panels, if such structures are prohibited by the restrictive covenants.

In most cases however, there is a HOA that monitors the subdivision and levies any complaints against the homeowner that is breaking the rules. Typically, the HOA will first provide the offending owner a notice of the alleged violation and provide an opportunity to cure the infraction. If the owner fails to respond to the notice or cure the issue the HOA may file a law suit against the offending owner to force compliance with the covenants. The offending owner may be responsible for HOA’s legal costs.

If an owner fails to pay their dues or assessments, the HOA can place a lien against the owner’s property and may ultimately foreclose on the property to enforce the claim of lien.

Are Covenants Good or Bad?

Depends on your point of view. Some people will intentionally purchase property with no covenants so they may have broader freedoms to use the property. Some find that restrictive covenants preserve the value of the subdivision; therefore, preserves the value of their home by providing a certain level of uniformity. Others simply don’t care one way or another. However, one thing is for sure, when purchasing a property you should absolutely know if there are covenants on the property and what those covenants require and if any dues or assessments apply. In order to make an informed decision, you, as a purchaser of restricted property, should carefully review all of the covenants affecting the property prior to purchasing it and consider the effect of their restrictions and obligations on your intended use of the property.  A little bit of research now may prevent a great deal of heartache in the future.

This article is not intended to give, and should not be relied upon for, legal advice in any particular circumstance or fact situation. No action should be taken in reliance upon the information contained in this article without obtaining the advice of an attorney.

Top Home Buying Tips

Before purchasing your home, here is Nebraska Realty’s top eleven home buying tips!

Tip #10: Get Pre-Approved by Your Mortgage Lender
It almost seems cliché’ these days to hear the phrase, “Get pre-approved.” But the facts are the facts: there is a substantial difference between a home buyer that is “pre-qualified” and one that is “pre-approved.” Just about anyone can get pre-qualified, even a buyer with horrible credit. Getting pre-approved means the lender has investigated the buyer’s finances, credit, debt-to-income ratio’s, and determined how much the buyers can borrow.

Tip #9: “Fees Are Like A Box of Chocolates…”
What the heck…while you’re getting pre-approved it will do you well to learn about lender fee’s. What is a legitimate lender fee and what is a junk fee? Ask questions and compare! Know and understand what “Discount Point’s” and “Origination Fee’s” are and how they will cost you. Remember, not every lender is the same!

DON’T…I repeat… DO NOT make any large purchases or move money from one account to another unless you get the APPROVAL from your lender! Purchasing that new living room set should wait until after closing. Why? Moving money from one account to another or charging a new living room set on your credit card can jeopardize your loan approval. Lenders routinely run a credit report a few days before closing to ensure nothing new has changed since you receive your pre-approval letter. This includes opening new credit accounts like Visa or MasterCard.

Tip #7: Don’t Attempt to Time the Deal
Attempting to time the market does not work for trading stocks and it does not work with purchasing real estate. The best time to buy is when you have found the house you want and can afford! If you wait for the “perfect time” you will end up on the losing side of the transaction.

Tip #6: Get A Plot Plan or Survey!
At a minimum you should get a Plot Plan. If the property appears to have some potential boundary issues, get a survey done. Once the transaction is closed any boundary disputes discovered becomes your problem! It is not uncommon to discover that decks and garages are encroaching on the neighbor’s property or utility easement. By discovering boundary issues before closing, you can require the seller to correct these items prior to closing or you may be in the position to withdraw from the purchase contract if the dispute is severe enough.

Tip #5: More Is Not Always Better
Is more better? If it’s the largest most expensive home in the neighborhood and you qualify to purchase it… should you? Honestly, bigger is usually not better when it comes to houses. Remember, you may qualify for a $250,000 mortgage…but do you really want one? Can you settle for $225,000? Don’t fall into the trap of, “OK, I qualify for it so let’s buy.” Not only will it result in a tighter monthly home budget, but it most will likely cause undue personal and financial stress in your life.

Tip #4: Plan for Other Home Related Expenses
In Tip #5 I said…”You may qualify for a $250,000 mortgage…but do you really want one?” Budgeting for home ownership is much more than just your monthly house payment. You must be aware of other required home ownership expenses such as real estate taxes, insurance (which are usually included in your monthly mortgage payment), utilities, H.O.A. dues, maintenance, lawn care, new roof, broken furnace & air, and the list goes on and on. These are called “sleeper costs” and you need to budget for them.

Tip #3: Purchasing A Home Is A BUSINESS Transaction NOT An Emotional Decision!
It’s OK to fall in love with a home BUT it’s not OK to conduct business in the same manner. If you fall in love with something and you allow it to determine your actions, you might end up making some really bad decisions. Buying a home is very exciting but it’s a business transaction. If the numbers don’t work…don’t force it! Otherwise, I guarantee you will end up regretting it. Purchasing a home is an investment… be calm and make wise choices.

Tip#2: Improving On Tip #3
Making your offer on a home should be based on only two things: (1) Can you afford it, and (2) what’s the property’s actual market value? That’s it! Your REALTOR® can help you determine the market value… P.S. NEVER, and I mean NEVER, take stock or make an offer based on a valuation model from a Zillow, Trulia, or other online service! They tend to be inaccurate. Your REALTOR® knows how to determine value better than anyone so trust them.

Make your opening bid fair and reasonable. Something that’s not going to totally offend the seller. How low should you go? Well, there is no real answer since each individual sale in unique. However, there are some things you should consider:

  • What kind of market is it (buyer or sellers’ market)?
  • Market statistics for the neighborhood?
  • Are there other interested parties?
  • Home much can you afford?
  • How much deferred maintenance will be required to fix?

And the list goes on and on. Your REALTOR® can assist you with determining a good starting point.

Tip #1: Get A Home Inspection!
You don’t buy a car unless your uncle has checked it over…you don’t train for a marathon unless you have received the OK from your doctor…and, you don’t buy a home without having a home inspection. In fact, I believe it’s the most important few hundred dollars you will spend on the transaction! The home inspector’s sole job is to provide you with a bill of health report on the property. When the home inspector identifies potential issues (and they will), you can negotiate with the seller to fix the items, renegotiate the purchase price, or if severe enough, terminate the purchase contract. Your REALTOR® will help you structure the home inspection provision in the purchase contract and probably can provide you with a list of good inspectors. Remember, it will be the best money you have spent!

P.S.: I almost forgot…investigate the neighborhood. Because of Fair Housing Rules, agents can’t give you their opinion on the demographics of a neighborhood, nor should they! Your agent may legitimately think a particular neighborhood is awesome and safe and you may feel totally different. Such things are subjective to the individual so investigate for yourself if it’s a neighborhood you’d like to live in. Here are a few things you can do to determine whether or not a neighborhood is for you:

  • Drive by the subject home in the morning, afternoon, and evening. Both on weekdays and weekends if time permits;
  • Determine your drive times to and from work;
  • How will your children get to their schools,
  • Locations to nearest shopping venues.