Is This Home Perfect for You?
Based on your carefully thought-out list of possibilities and priorities, does this home feel right? Think where you are now in life—and where you plan to be in the future—will this house meet your most important goals? Does it fit within the amount you want to spend (invest)? Does the home offer good value?
To answer these questions, examine the house closely. Envision its livability. Estimate maintenance and repair costs. Imagine how it might meet your everyday patterns of living. By reading through the experiences and mistakes in this article, you’ll see how to carefully inspect a house and make a good homebuying decision.
Our agent said it was a lot of house for the money.
LESSON: “A lot of house for the money” can sometimes mean “a lot of money for the house.”
“We had been looking for a two-or three-bedroom, two-bath house,” recalled Tyrone Jones. “That size was all we needed or wanted. But our agent alerted us to a great bargain that had just come on the market.
The house had four bedrooms, three baths, and 2,400 square feet. At a price of $289,500, our agent told us it was really a lot of house for the money. “Since I can’t pass up a bargain,” Tyrone continued, “we decided to take a look. Based on the price information our agent gave us, I figured we could buy this house for less than $120 per square foot [p.s.f.]. Other houses we had considered were priced at $250,000 for around 1,600 square feet. That works out to more than $156 p.s.f. Compared to these houses, the bigger one seemed cheap.
“And even though other houses were more in line with what we were looking for, we didn’t want to pass up this deal. So we bought it. In hindsight, I think we decided wrongly. To buy the house, we pushed ourselves financially. And, the house didn’t give us the warmth we wanted. Besides, it costs too much for upkeep. Instead of getting a lot of house for the money, we’re paying a lot of money for the house.”
Tyrone and his wife fell into the bargain trap. They sacrificed their basic goals for a good deal. When someone needs a good buy just to afford a house, shopping for a bargain makes sense. Or if you find a home that fills your most important needs and you buy it at a bargain price, that’s even better. But think twice before you commit yourself. Don’t grab a great deal unless you have placed “great deal” as your top priority.
Sometimes a Bargain Is Not a Bargain
To Tyrone, getting a price of $120 p.s.f. as compared to $156 p.s.f. seemed like a moneywise decision. But Tyrone later realized that the larger home required higher property taxes, insurance, utilities, mortgage payments, and maintenance expenses. As his experience shows, don’t merely think “a lot of house for the money.” Figure the extra costs of owning the house over time. Do you want to spend money for rarely used unnecessary space? (Before you answer this question, consider whether creativity can help you turn the extra space into productive uses.)
Just as important, think carefully when you compare the per-squarefoot costs of homes of different sizes, quality, and design.
- Smaller homes nearly always cost more per square foot than larger homes of the same quality. The expensive components of a house (baths, kitchen, heat and air, plumbing) don’t increase proportionately as a home increases in size. When comparing large to small, ask whether the difference in price and operating costs makes the larger home a better buy than a smaller home.
- Dollars-per-square-foot works best when you compare homes of the same size, features, and quality. Tyrone should have compared the p.s.f. price of the large home he bought to more similar homes. If he found that other comparable large homes typically sold for, say, $135 p.s.f., only then could he have concluded that his home (at $120 p.s.f.) might present a bargain.
- Before finally deciding, Tyrone should have compared the homes according to their livability, energy efficiency, architectural style, and condition. Price per square foot serves as only one standard of value.
Our agent was part order-taker, part chauffeur, and part narrator—but she didn’t give us the help we needed.
LESSON: Know what services to expect from your agent.
Peter Chen reflects, “We didn’t really know what to expect from a real estate agent. Ours was friendly enough. But she hardly did anything that we couldn’t have done for ourselves. She seemed like she just wanted to take our order, chauffeur us around, and then act as an announcer.”
“She’d say things like ‘What kind of home are you looking for? What neighborhood do you want? What price range fits your budget?’
“The problem,” says Peter, “is that we weren’t sure what, where, or how much. That seemed to frustrate her. When she did drive us around to look at houses, she didn’t seem to know very much. Once inside a house, she would simply announce, ‘This is the living room. This is the kitchen. This is the master bedroom.’ Even as first-timers, we do know a kitchen when we see one.
“But,” Peter continued, “she was nice, so we didn’t want to hurt her feelings and switch agents. In the end, we realized we made a mistake by sticking with her. With a better agent we could have explored more options and made a better choice. In fact, after it was over, we laughed because we realized how silly it was for us to stick with an agent we would not recommend to our friends.”
A Good Agent Does More Than Show Houses
Peter Chen and his wife fell into a trap that catches many first-time homebuyers. They call a real estate office about a listing, get hooked up with an agent who wants to show them houses, and then stay with the agent by default. You prevent this mistake when you know what services to expect from an agent and then work only with an agent who delivers.
Here are the ways a real estate professional should help you make a better homebuying decision:
- Talk through your housing possibilities and priorities. Guide you to clarify and rank your potential choices.
- Review your finances, help you improve your borrower profile, and suggest finance plans and lenders that can maximize your affordability. (Alternatively, your realty agent may put you in touch with a loan agent who will help you improve your borrower profile.)
- Suggest trade-offs and compromises that will match your priorities.
- Inform you about neighborhoods, communities, and developments that seem right for you.
- Provide market facts, such as recent comp sales prices and timeon-the-market data for homes similar to the ones you’re interested in.
- Alert you to good buys as soon as (sometimes even before) they come on the market.
- Require the sellers of homes you’re interested in to prepare a Seller Disclosure Statement. A disclosure statement warns you about defects that can mar the desirability of a home or its neighborhood.
- List ways that you might improve a home (redecorate, remodel, renovate) to enhance its market value or better meet the needs of your family (preferably both).
- Stay in touch with your homebuying efforts from beginning to end. Verify that the loan representative, real estate agent, and underwriter are actually completing their assigned tasks according to schedule.
- Anticipate, prevent, or overcome roadblocks or problems that may arise. Keep you fully informed. Pave the way for a smooth and successful homebuying experience.
You may not want all of the services mentioned above. But certainly insist on more service than order-taker, chauffeur, and announcer. Successful real estate agents have worked with hundreds of homebuyers. They’ve run into all types of homebuyer problems, obstacles, and goals. By requiring agents to deliver a variety of services, you gain the benefit of their expertise and experience. The best realty agents don’t sell real estate. They help people become homeowners. A good agent works with you until you’re sure you’ve found the right home.
Our agent never mentioned …
LESSON: Always ask sales agents (or sellers) for specific factual disclosures that list the defects of a home and its neighborhood.
One of the most misunderstood topics in real estate is the legal concept of “disclosure.” Because the laws and practices of disclosure are constantly changing, many home sellers, buyers, and even sales agents have become confused.
From the early 1900s up to the 1960s, real estate agents represented sellers. Legally, agents worked for the interests of property owners. With respect to homebuyers, the rule was caveat emptor, “let the buyer beware.” In most home purchases, the law required neither sellers nor their agents to reveal a home’s defects. If you didn’t discover a home’s crumbling foundation or inadequate wiring, that was your tough luck. You had little recourse against the sellers or the agent. Unless the sellers or their agent gave explicitly false warranties or representations—“That roof never leaks”—you were assumed to have bought the home in as-is condition.
Today, the doctrine of caveat emptor is dead. From the late 1960s and still evolving up through the present, innumerable court decisions, federal and state laws and regulations, and real estate licensing standards have sealed the coffin on “let the buyer beware.” The general rule has become “let the sellers and their agents beware.”
Today the law gives little comfort to sellers or realty agents who fail to disclose a property’s serious defects. Whether you’re working with a seller’s agent, a buyer’s agent, or a dual agent, anyone who fails to reveal a property’s serious defects can be held liable for that omission. Yet, even with the death of caveat emptor, plenty of room still exists for confusion, misunderstanding, and deception.
First, consider the term serious. What kinds of defects qualify as serious? At one extreme is a Massachusetts case. A house had a dangerously defective gas heater. On several occasions the heater had malfunctioned. The home’s owner and soon-to-be seller was told by a repairman that the heater could easily start a fire. Even with this warning, the seller did not replace or correctly repair the heater. Nor did he inform the eventual buyers of the home.
Shortly after buyers took possession, the heater exploded. The results were fatal: Two members of the family died. The court held the seller criminally liable. He was convicted of involuntary manslaughter and sentenced to 15 years in prison.
Defects in a home that could likely lead to extensive property damage, injury, or death are serious. Both sellers and agents must disclose them or suffer the consequences. But what about substandard wiring that is in good condition and has never created a problem? That’s a gray area. What about several light switches and electrical outlets that don’t work? Those are probably not serious.
Due to these gray areas of liability and uncertainties—not to mention potential injury or loss of life—insist that sellers tell you all of a home’s problems. Many sellers, and some agents, have not adjusted to the death of caveat emptor.
To illustrate: Consider this question from a would-be seller. In a letter to Q&A newspaper columnist Nina Groskind, a homeowner writes that he knows his home has “several flaws, some minor, some more significant.” He then asks (fully prepared to hide as much as possible), “What obligation do I have to ‘tell all’ to people interested in purchasing my home?”
Ms. Groskind answers that the homeowner might be able to get away with “nondisclosure.” But (1) he’d better not tell his real estate agent, because the agent would have to pass the information along to the buyer; and (2) the owner should not make any explicit false statement that could mislead any prospective new owners of the home. It’s sellers like these that you must guard against.
Known or Suspected Defects
As you try to get as much information as you can about a prospective home and neighborhood, another type of problem arises. What if the seller or the agent doesn’t know about the termites in the foundation or the wood rot under the roof? What if they don’t know, but only suspect, a defect might exist? In the case of no knowledge, courts generally rule that sellers or agents can’t be expected to disclose what they don’t know. However, ignorance doesn’t offer an airtight defense.
Laws in many states require owners or agents to make certain kinds of property investigations. In Massachusetts sellers must test their homes for urea formaldehyde foam insulation. In California real estate agents must visually inspect most homes they list for sale. Even further, some judges and juries have held sellers or agents liable for not disclosing defects they should have known about or reasonably suspected might exist—even though they claimed no direct knowledge.
In a far-reaching California case, a realty firm was held liable for not disclosing that a home’s hillside location made it susceptible to damage from mudslides. The agent claimed no knowledge or expertise on the topic of mudslides. The court said “too bad.” Even if the agent didn’t know, he should have reasonably suspected there might be a problem.
As you can see, inspections and disclosures can confuse everyone involved in a homebuying transaction. In so many ways the law is ambiguous or simply not well understood. That’s why the false assumptions about disclosure and nondisclosure contribute to so many homebuying mistakes. The traditional tendency of sellers to hide or understate defects adds to the potential for error.
But there’s also another long-standing practice in homebuying that can divert you from getting the information you need to make a good decision. It’s called “puffery.”
Beware of Puffery
“This is a great neighborhood. You’re really getting a bargain. This home’s in first-class condition. You’ll just love the people here. Oh yes, it’s very quiet.” Often homebuyers who don’t get the information they need fail because they unconsciously accept puffery in lieu of facts. None of these statements actually includes any factual content.
Some unethical agents (or sellers) purposely use puffery to mask their lack of knowledge—or as an explicit attempt to avoid disclosure. These agents have learned to couch their comments in terms of puffery or opinions because opinions permit them to escape liability for misleading you.
“You said this was a great neighborhood,” complain the angry home-buyers to the agent who sold them their home.
“Well, it is a great neighborhood,” responds the agent. “Sure there’s a crack house several doors down and I know the drive-by shootings can be annoying. But the neighborhood association is working hard to turn things around. All this community spirit really does make this a great neighborhood. You just can’t find that spirit and feeling of togetherness in many neighborhoods these days.”
By the agent’s definition, the neighborhood is great. Can you prove that your definition of “great” outweighs the agent’s? Did the agent misrepresent the neighborhood? Were his comments merely sales puffery and a matter of opinion? If you took a case like this to court, you would probably stand a better chance of winning today than in years past. But in most states you’d just as well spend your money on lottery tickets as on lawyers.
Exceptions to the Laws of Disclosure
Although society is moving away from the doctrine of caveat emptor, the evolving laws still omit some types of sellers, properties, and transactions. Government agencies, financial institutions, auctioneers, and court-appointed trustees may be excluded from some disclosure laws. Buyers of commercial and investment real estate receive less protection than homebuyers. And if you’re buying at a foreclosure sale or through probate, you will probably be buying as is. In some states, FSBOs (owners who sell their homes without an agent) need not meet the same high standards of disclosure required of real estate agents.
Rules to Follow
Today’s laws of disclosure make homebuying less risky than in the past. Yet, disclosure laws don’t complete the difficult task of information gathering. They scatter into many gray areas, they may be circumvented by puffery, they may not be understood adequately by agents or sellers, and such laws frequently carve out exceptions for certain types of people, properties, or transactions.
So buy proactively. Don’t expect others to reveal all they know or should know about a property and its neighborhood. Exercise initiative. Follow these guidelines:
- Ask your real estate agent (or lawyer) to explain fully the laws of disclosure that apply to homebuying in your area. Learn how disclosure laws may not apply; learn the types of nondisclosure problems that are prone to arise in the homes or neighborhoods you’re looking at.
- Ask your agent questions that require factual answers. Don’t accept opinions. Probe for details.
- Ask the sellers to prepare a written list of every defect, problem, or shortcoming of their home and neighborhood. If anything is not 100 percent perfect, tell them you want to know about it.
- Stay alert for agent or seller evasions such as, “I believe,” “I think,” or “As far as we know.” If the sellers or their agent don’t know, then follow up with further inquiry or investigation. Many home-buyers mistakenly accept these kinds of seller or agent hedges.
- Hire professional inspectors to examine the condition of the house, its component systems (heating, air conditioning, electrical, ventilation), and built-in appliances.
- Closely inspect the home and neighborhood yourself. In the end, it’s going to be your house. Successful homebuyers take charge of the inspection process.
- Assume everyone you’re working with is acting in good faith. But take precautions as if they weren’t. Trust, but verify.
We didn’t hire a professional inspector. My dad knows all about houses.
LESSON: Ask your dad, brother-in-law, or Uncle Harry to inspect your home as an additional safeguard. But don’t substitute family members or friends for a professional inspection.
If a friend or family member “knows all about houses,” you may be tempted to skip a professional inspection and save yourself $200 to $400. Don’t do it. Marci Alvarez tells why.
“When we bought, we were short of cash. So I asked my dad to inspect our house for us. He has worked as a painter, a carpenter, and even built a den and an extra bath for my parents’ house. With all that experience, I figured he would be able to discover any trouble spots. Unfortunately for all of us, he missed some type of problem with the fuse box and the wiring. After we moved in, we must have blown a dozen fuses, and several wall outlets kept getting really hot every time we plugged something in and turned it on.
“When I told my dad about the problem, he tried to fix it, but I think he just made it worse. Eventually, we did get an electrician out to the house. By the time he finished rewiring, the bill went past $1,900.”
“If that wasn’t bad enough, my husband first blamed me and next blamed my dad. They argued over it for several weeks. It was not fun. Spending $1,900 for circuit breakers or whatever it was the electrician charged us for was bad enough. But the family turmoil was even worse.”
“Then, after I thought the whole episode was behind us, my dad insisted on giving us a check for $1,900. We didn’t want it. But there was no way we could refuse without more arguing. Now we have the $1,900, but I feel guilty about accepting the money and regret ever getting my dad involved in the first place.”
Don’t Burden Parents or Friends
When it comes time to get your home inspected, hire a professional house inspector. Professional inspectors evaluate dozens of houses a month. They know what to look for. They own the necessary tools of their trade. They learn to recognize signs of problems in their early stages so they can caution you about what to expect in the future. Moreover, professional home inspectors take on financial liability for any mistakes they do make.
Ask your family and friends to join with you to celebrate your new home. Don’t ask them to shoulder the responsibility of inspecting a home. If tempted, remember Marci’s shocking experience.
We didn’t think a new home needed to be professionally inspected.
LESSON: Even when you’re 100 percent sure of your builder’s reputation, buy some peace of mind. Secure a professional inspection.
“Christine Estep is weary—weary of paying for a home she can’t live in,” opened a front-page article in the Miami Herald. Christine Estep is one of the tens of thousands of homeowners whose homes were damaged by Hurricane Andrew. But instead of having her home repaired, Christine and the other 343 homeowners in her Village Homes condominium complex are about to see their homes demolished. The relatively new complex was “so riddled with construction defects” that engineers have recommended tearing down all the units and rebuilding from scratch.
To make matters worse, the developer of the complex was the well-known Florida development company, Arvida. At the time of the first phase of construction, Arvida was a subsidiary of the Walt Disney Company. After Disney, another company of high standing, JMB Realty, became Arvida’s parent. In a multimillion-dollar case like this, accusations fly among homeowners, architects, lawyers, engineers, and contractors. Yet, no one disputes the engineers’ basic conclusion that the construction quality of the units in the Village Homes complex failed to meet even minimum standards of safety.
Engineers, as well as government investigators, say the homes had undersized foundations, inadequately designed roof trusses, masonry walls without necessary steel reinforcement, unanchored support posts, and missing hurricane straps. Now you might wonder, aren’t newly constructed homes inspected and approved by government building inspectors? How could major defects slip by? A lot of other people are asking the same questions. But it’s not the first time.
Government Inspectors Sometimes Fail to Do Their Jobs
Over the years many cities throughout the United States have been rocked by permits-for-sale bribery and payoff scandals. In fact, Janet Reno, former attorney general of the United States, once worked as Florida’s prosecuting attorney for Dade County (Miami). In that job she led a drive to investigate the government building inspection process. Ms. Reno never prosecuted anyone for a crime, but her office did file charges for lax enforcement of building codes.
A county investigator discovered that one building inspector inspected and approved seven newly built houses in five minutes. A former building inspector in Dade was quoted by the Miami Herald as saying, “It was a farce. The building and zoning department for years pushed quantity, not quality.”
Although it will be years (if ever) before a complete accounting of errors and responsibilities are tallied up and assigned to the various parties involved in Christine Estep’s case, the construction defects and lax inspection practices that brought about Christine’s losses are all too common. Just because a home is new (or nearly new) does not mean it’s defect-free. A few builders and developers are crooks, others are careless, some need to cut corners temporarily to stay solvent, and others just plain make mistakes. Any way you look at it, new does not necessarily mean perfect.
Avoid unpleasant surprises. Employ a professional inspector even when you’re buying a new or recently built house or condominium.
I thought lead paint had been outlawed years ago.
LESSON: Environmental concerns have come home.
When your concerns turn to the environment, you may think of disappearing habitat for spotted owls, illegal killings of elephants for their tusks, or perhaps clear-cutting the Amazonian rain forests. But some of the most dangerous environmental problems may lie right where you live.
Jackie Shattuck and her husband, Mike, recently bought a home. Their inspection report showed the house to be nearly defect-free. The wiring, plumbing, roof, foundation, and appliances were in good condition. Unfortunately, the Shattucks thought only of the physical condition of their home. They forgot to check its environmental quality. That mistake cost them nearly $5,000.
“Lead paint,” Jackie recalls saying when she heard the bad news. “I thought it had been outlawed years ago.”
As a matter of law, Jackie was right. Once it was learned that lead-based paints could cause serious illnesses, including brain damage (especially to children), this toxic metal was phased out of use in household paints. Prior to 1977, though, lead was a common ingredient. Although no one knows exactly how many older homes still have layers of lead-based paint lurking under less toxic (and more recent) paint layers, estimates place the number somewhere between 20 and 40 million. “If you’re buying a home built before the late 1970s,” advises lead specialist Stephanie Pollack, “assume there’s lead until proven otherwise.”
Removing the danger of lead-based paint (which is called deleading) requires trained specialists with special equipment and protective gear. Depending on the size of the house and the number of rooms affected, deleading a home can easily cost $3,500 and may run up to $6,000 or more. Without deleading, paint chipping and flaking through natural wear can create a health hazard. Should you begin sanding, tearing out walls, or other particle-disturbing remodeling efforts, lead-based paint becomes a clear and present danger. Inhaling lead paint dust can cause permanent respiratory or neurological damage.
Other Environmental Concerns
Lead-based paint isn’t the only contaminant you need to check before you buy. San Francisco Board of Supervisors member Angela Alioto, an outspoken environmentalist, discovered an old, long-out-of-use buried oil tank in her home’s yard. To remove the tank and clean up the soil cost her $9,000. When journalists questioned the councilwoman, she admitted she had not had her home inspected for environmental dangers before she bought it.
Environmental dangers can threaten health and sometimes cost thousands of dollars to remedy. This is one instance where “better safe than sorry” really applies. The exact type of environmental dangers you confront will vary depending on where you live, the age of the home you’re planning to buy, and the type of building materials used in your area.
Talk with local or state environmental agencies. Many of these agencies have published environmental booklets that are written especially for homeowners. You might also pick up an environmental booklet from your local Realtor. When risks are slight, you may decide against a full environmental inspection, but at least stay alert for these types of problems:
- Lead-based paint (federal law mandates disclosure)
- Lead pipes or lead solder
- Asbestos (commonly found in many types of building supplies, materials, and floor tiles)
- Formaldehyde, especially urea formaldehyde foam insulation
- Contaminated ground water
- Volatile organic compounds (VOCs are found in most household chemicals, adhesives used with wall-to-wall carpeting, and pesticides)
- Radon (a gas released by radioactive decay that rises up from the ground especially into the lower levels of a home)
- Underground heating oil tanks
- High-power electrical lines and transformers (whether these actually produce any hazards is subject to debate)
- Mold (If mold is listed as a possibility from your general inspector, then call a mold specialist to inspect the property. Even new homes can have mold issues, and older homes that have gone through renovation or new roofing may not have had the proper ventilation put back into place, therefore creating a mold issue that was not preexisting before the renovation or new roof.)
In our industrial world, no one can escape all contaminants. Still, at least identify risks, assess their relative dangers, and estimate costs of cleanup. Many state, federal, and local laws now apply to environmental hazards. Some of these laws mandate seller disclosures. Others require that you be given various forms or booklets. Whatever the case in your area, actively investigate. The environmental quality of a home ranks just as important as the condition of its roof or furnace.
We now know why the sellers put up paneling in the downstairs den.
LESSON: Be cautious of recent redecorating, repairs, or remodeling by sellers. They may be hiding a problem.
“If you want to get top dollar for your house when you sell, put it in tip-top condition.” Over the years, this advice from books and real estate agents has encouraged millions of homeowners to clean up, paint, wallpaper, panel, or otherwise redecorate and repair their homes before they place them on the market. “Package your home for profit,” writes Peter Percelay in his book by the same title. “By effectively packaging your home, rather than just putting it on the market, you can reap thousands of additional dollars on your sale.”
Percelay then goes on to tell his readers, “Your goal is to give buyers confidence in your product… . But you should never use packaging techniques as a way of hiding serious problems or defects in your home.” Yes, and you should never inflate your resume, pad your expense account, or bring pens and pencils home from the office. But some people do.
Within our society, there are dishonest practices that, if perhaps not widely accepted, are at least widely practiced. Hiding a home’s defects through redecorating or remodeling seems to be one of them.
When you’re shopping for a home, stay alert to this possibility. Many people who consider themselves honest have nevertheless imbibed too much of the spirit of caveat emptor. More than 200 years of this attitude hasn’t been eradicated by two decades of consumerism. Sally Roth knows from experience.
Sally bought a home that was built into a hillside and had a lower level den. Not long before the sellers had put their home up for sale, they had “packaged it for profit” by installing wood paneling on the walls of the den. Not only did the paneling add a nice aesthetic touch, it perfectly hid the water stain marks where water had poured through during the rainy season. Because Sally moved into the home in July, she didn’t learn of the problem until the wet months of December and January.
Most people who prepare a home for sale want to enhance its appeal. They’re not trying to hide anything. But some people are. If you find a home that has been freshly painted, plastered, paneled, wallpapered, repaired, or redecorated, closely inspect the improvements. As diplomatically as you can, secure written disclosures and warranties that pertain specifically to the condition of the property before the improvements were made. Assume the sellers are honest, but inspect the home as if they weren’t. Again, I remind you: Trust, but verify.
After we moved in, the sellers’ remodeling contractor put a lien against our home. And we had to pay it!
LESSON: Ask to see the sellers’ receipts. Verify that all recent work on the home has been paid in full.
Every state allows contractors to place liens against a home for unpaid work or materials. The exact nature of these laws differs, but they generally give firms and tradesmen 60, 90, and sometimes up to 180 days after they have completed their work to file a lien.
In Rob Shoo’s case, his sellers had remodeled a back porch into a sunroom at a cost of $2,700. The work was completed in late February. In March the sellers placed their house up for sale. In early April Rob put in his contract and the owners accepted. The transaction closed in mid-May. On May 27 the Dependable Construction Company filed a mechanic’s lien for unpaid wages and materials.
As a matter of law, the sellers were financially liable for the charges. But the mechanic’s lien establishes a valid claim by Dependable Construction against the house—regardless who owns it. The lien sits in the public records as a cloud on the home’s title. Unless Rob can get the sellers to write a check for the amount they owe, he will have to write a check himself. As long as the mechanic’s lien remains valid, Rob cannot sell or refinance his home.
To avoid this potential mistake, check the sellers’ receipts for any work that has been performed recently on the house. As further precaution, ask the sellers to sign an affidavit stating that either all work performed has been paid in full, or no work to the home has been completed within the past 90 days (or whatever other statute of limitation for filing liens applies). If you buy a home with recent improvements, verify whether the contractors have been paid. If you don’t verify, you risk paying for them twice—first when you buy the home, and once again when you pay off the lien to clear the home’s title.
We should have looked at the utility bills.
LESSON: Energy audit a home before you buy it.
“We were renting a house just about the same size as the one we bought,” says Patty Snyder, “so we thought we knew how much our utility bills would run in our new home. Boy, were we wrong! Our heat and air- conditioning bills nearly doubled. Utilities now average $430 a month. We should have gotten copies of the sellers’ utility bills.”
The recent run-up of oil and natural gas prices has brought this homeowner expense back into view. Total utility costs can amount to $3,000 to $5,000 a year or more. With utility bills at these levels, an energy- efficient house can save you $750 to $2,000 a year. I’ve talked with some homeowners in Maine and Vermont who, after installing super-energyefficient improvements, have reduced their total winter heating bill to as low as $900 a year.
Check the Home’s Energy Usage
One simple way to check a home’s energy usage is to go over the sellers’ utility bills. That won’t tell you everything because you’ll have to adjust for their family size, lifestyle, and comfort zones. But if you find their winter heating or summer cooling bills top, say, $300 or $400 a month, you may want to find out why.
Besides looking at utility bills, closely check windows, doors, appliances, water heater, furnace, and air conditioner. Do these promote energy conservation? What about the site placement and exterior design of the house? Is the home situated to protect against north winter winds as it brings in sunlight from the south? What about water usage? Fresh water for households is becoming a more expensive resource. Does the yard require heavy watering? Are the showers and toilets equipped with water-saving devices? Is it likely your local or state government will require an energy retrofit for the home at some time in the future?
In many parts of the country, utility costs rank right after mortgage payments as the largest household cost—higher than property insurance, maintenance, or property taxes. Because an energy-efficient house can save you thousands of dollars, explicitly include this cost when you compare houses.
Those little repairs and renovations sure can add up.
LESSON: Little things can mean a lot.
If you buy an existing home, you may want to paint and wallpaper, lay new carpeting, repair wood rot around the eaves, enclose a porch, put in a skylight or two, restore the hardwood floors, strip the paint and refinish those oak doors, patch the roof, and maybe remodel a bath and kitchen.
How much money, time, and effort will these repairs and renovations add up to? If you make a reasonable estimate, double it, and add a 25 percent contingency factor, you may come close to an accurate answer. Some unwritten law of the universe states that everything costs more and takes longer than you originally thought. This law certainly applies to putting a house into shape.
Compare it to paying bills. You sit down to write a few checks for $50, $100, maybe $200, and all of a sudden the checking account balance drops $1,650. How do all those little checks add up to such a large amount?
When you evaluate a home, realize that little things do add up. As you think about the repairs, redecorating, and renovation you’d like, make a comprehensive list. Check figures with qualified contractors or suppliers. Most important, don’t keep a bunch of little numbers running around in your head. Put all the figures down on paper and add them up.
Redecorating and renovation can boost your home’s value by thousands of dollars. But the amount of your profit depends on how accurately you anticipate your costs.
Before we could add central heat and air, we had to spend $1,800 for new wiring and ductwork.
LESSON: Often, repairs and renovations can’t be made without incurring other necessary costs.
To replace a roof may cost $3,500. But if the plywood under the shingles has suffered wood rot (water + wood = rotten wood), your costs could climb to $4,500 or more. If interior ceilings and supports have been water-damaged, the costs could go higher.
When Jagdish and Carrie Sheth bought their Galveston, Texas, home, they planned to spend $2,800 to put in central heat and air-conditioning. Their actual bill totaled $4,600. Although Jag and Carrie figured right about the cost of the heat and air unit, they forgot to add the cost of upgrading the 100-amp electrical system to 200 amps. The upgrade was necessary to power the heat and air-conditioning system safely. Also, because the previous heating in the house had been gas floor heaters, the home lacked ductwork. Together, the electrical upgrades and new ductwork pushed their costs above the Sheths’ original estimates.
One Thing Leads to Another
Often, planned repairs and renovations cost more than you originally figure because the work you want can’t be performed by itself. To do this, you must first do that. In home repair and renovation, one thing leads to another.
Unfortunately, many contractors calculate cost estimates for only their basic work. Some purposely lowball bids to get you committed. Then they “discover” other work that they must (or should) perform. In other instances, it really is impossible to know the full extent of necessary repairs until well into the work. For example, all competent heating and air-conditioning contractors know the necessary electrical upgrade their heat and air units will require. However, roofing contractors may not know how much wood damage a house has suffered until they rip off the old shingles.
There is no perfect way to handle this problem. But you can try to get a no-surprises estimate. As a matter of good communication, make sure your contractor (or other cost estimator) understands that you want to know the costs (or at least the nature) of all labor and materials necessary for a total repair or renovation. Also ask for a worst-case/best-case range of estimates. Then you have a lower and an upper limit. None of these solutions is perfect, because even the best no-surprises estimate can miss the mark. (The construction budget for Australia’s world- famous Sydney opera house began at $6 million. Costs at completion exceeded $100 million. Now, that’s a real cost overrun.)
Home repairs and renovations may require unanticipated expenses. If you buy a home that needs work, recognize that you risk cost overruns. Use this fact to help negotiate a lower price. You can reduce risk through good planning and thorough inspection. But it’s tough to eliminate it entirely.
The house looked great. I just didn’t like cold showers, listening to my son’s favorite radio station, or lugging groceries up the stairs.
LESSON: Looks aren’t everything. Evaluate a home’s livability.
The feeling’s great when you see a house you fall in love with. High ceilings, hardwood floors, lots of natural light, a large country kitchen, a big stone fireplace, beautifully finished woodwork: The house could be featured in Architectural Digest. Before you jump to make an offer, though, evaluate whether the house will work for you. Don’t mistake great looks for livability.
Walk the Floor Plan
As a start, walk the floor plan—not for the purpose of viewing the rooms, but to judge internal accessibility and convenience. In your daily living patterns, what rooms will require frequent travel between them? How many steps is it from the master bedroom to the kitchen, the laundry facilities, or the main living area? How convenient is the parking (garage, carport, street)? Can you easily carry groceries from your car to the kitchen?
Enter the kitchen. Can you work efficiently between the stove, sink, and refrigerator? This area is called the work triangle. A poorly designed work triangle can add hundreds of steps a day to food preparation and cleanup. Measure the kitchen counter, cabinet space, and placement. Are cabinets and counters situated to provide enough room to prepare and store food conveniently?
Before leaving the kitchen, turn on the dishwasher. How loud is it? Can you hear it as you walk to other rooms of the house? What about televisions, radios, and stereos? Where will you place them? Take a radio from room to room. Can you play it without hearing the sound elsewhere in the house? Problems with noise rankle many homeowners and family members. Do you really want to hear rap music blasting from your son’s bedroom at 10:00 at night?
What about privacy? Does the floor plan of the home provide enough private space? Can family members retreat from each other when they want to?
Check the bathrooms. How conveniently located are they? How long must the water run before you get hot water? How strong is the water pressure in the showers? Does the pressure ebb when someone flushes a toilet or turns on a faucet or another shower? Does the water temperature hold constant? Can you hear a running shower or flushing toilet throughout the house? Are the bathrooms well illuminated with natural or artificial light?
From the Outside In
Once you’ve completed a livability inspection of a home’s interior, go outside. Admire the azaleas, the hedges, the flowers, the expansive yard. Now, think: How much care and expense will this greenery require? Do you want to spend weekends pulling weeds, trimming bushes, and cutting grass? Can you afford to pay someone else to do it for you? Cast your eyes around the exterior of the home. Will it require frequent painting or staining? How much time and money will you spend to maintain the appearance and condition of the home?
Go to the front entrance. Will visitors stand in the rain until you let them in? Or is there an area that protects against the weather? Step inside the house. Is there a coat closet nearby? What would incoming visitors see? Piled-up dirty dishes in the kitchen? Children’s toys scattered about? A pristine formal reception area and living room? Do you even care what visitors will see?
Sum Up Your Thoughts
Consider the house as a whole. Does the home reflect a sense of scale and proportion? Are some rooms too large, others too small? Does it include enough closet and storage space? Will the home heat and cool evenly? Or will it develop hot spots and cold spots? Is differential zone heating and cooling possible?
Now evaluate. Bring your thoughts together. Are the good looks superficial? Or are they integral to your needs and to the design, function, and livability of the home?
Realty agents love to show homes with curb appeal. They like homes they can advertise as a “decorator’s dream.” Agents know most homebuyers prefer a home that looks good, a home they can show off to friends and relatives, a home they can be proud of. All perfectly reasonable. Few buyers want to own the ugly duckling of the neighborhood. But when comparing houses, stay detached. Don’t fall in love with appearance. First, figure out whether the home could live well for you and your family.
We had such great views.
LESSON: Before buying a house with a view, determine whether the view is protected.
Heather Caldwell loved the townhouse she bought. It was close to the city center, yet the development was surrounded by trees. “We felt like we were living in a forest,” Heather remembered. “At least for a while.”
One year after Heather bought her new townhouse, the developer began phase two of the project. The bulldozers arrived, down went the trees, and that was the end of Heather’s view of the woods. But her disappointment didn’t end there. Once the second phase of the project was sold out, trees along the road leading into the complex were cut down. In their place, the developer built a strip shopping center topped with an orange roof. “Within less than four years,” Heather said, “we lost our wooded views and tranquil setting.”
In Chicago, Fred Paine bought his one-bedroom condominium at Lake Point Towers because it offered spectacular panoramic views of the city from his living room and bedroom. Three years later, Fred’s view had changed. Instead of city lights, Fred looked straight into another high-rise. Not only had Fred lost his view, he had lost his privacy.
On the outskirts of Orlando, Florida, Mindy and Ron Lange bought their home because its lot bordered a grove of orange trees. Then central Florida was hit with back-to-back winter freezes. The orange trees were killed. Instead of replanting, the grower sold his land and moved his business to Homestead. The Langes’ property now backs up to another subdivision. Gone forever are the views and privacy the orange groves provided.
Only Pay for Protected Views
Before you buy a home with a view, check to see how well that view is legally protected. Will zoning laws, building regulations, or environmental restrictions keep someone from blocking or destroying your view? Many homebuyers pay a premium price for a home with a view, only to lose not only the view but also thousands of dollars in property value. Although you can’t get 100 percent protection because the government might change the laws, at least know what chance you’re taking.
Both Heather Caldwell and Fred Paine mistakenly believed their views were permanent. Had they checked the zoning laws or developer’s plans, they would have discovered the views were temporary. Naturally, the Langes couldn’t have forecasted back-to-back record-setting winter freezes. But, had they investigated the area, they would have discovered that even before the killer freezes, many orange growers were selling their groves to subdivision developers. With this knowledge, the Langes may have decided to look elsewhere, or they may have chosen to offer a lower price for the home.
Never assume your view will last. Before you buy, look into the future. Then adjust your price accordingly. Or, look for another property.
I didn’t notice that the house was situated on two lots.
LESSON: An extra lot can mean extra value.
Ralph Wozniak tells how he missed out on several hundred thousand dollars. “Some years back,” says Ralph, “I was looking at houses in the well-established Point Grey neighborhood. My choice came down to two houses. One was sitting on a normal 33-foot lot. The other was built on a 50-foot site that included two 25-foot buildable lots. To my way of thinking, the houses were about equal in pros and cons. Both were priced at a little over $100,000. In the end, I bought the house with the 33-foot lot because I preferred its kitchen. The fact the other house was sitting on two buildable lots didn’t affect my decision one way or the other. That was my mistake.”
Lots Appreciate More Than Houses
Here’s why Ralph should have noticed the profit potential offered by two lots. Four or five years after Ralph bought, home prices in Point Grey started spiraling upward. They went from an entry level of around $90,000 up to around $200,000. Ralph recalls that at the time he was feeling pretty happy with himself. His home had grown in value to around $225,000. Then he heard the two-lot house he had passed up had just sold. The price was $395,000.
It wasn’t the homes in Point Grey that were appreciating, it was the lots. This time around, the two-lot house was not sold to a homeowner. It was sold to a builder, who promptly tore down the house. In its place she built two houses—one on each lot. These two new homes sold for $475,000 each.
When Ralph judged his home to be worth around $225,000, he was wrong. His house was worth $25,000 to $35,000. His lot was worth $190,000 to $200,000. Remember: Houses seldom appreciate much. Only in times of rapid inflation in construction costs will a house increase in (nominal) value. In most instances, it’s the land value that’s going up. When you own two buildable lots, you double your chance for gain.
Find Bargains in Slow Markets
In hot markets, smart homebuyers quickly learn that a home with two lots means extra profit potential. They bid up its price. In slow markets, though, buyers don’t give it much value. Since they don’t expect appreciation, they’re not willing to pay a premium for a two-lot house. To them, an extra-large site just means a bigger yard. So if you’re buying in a slow (or uninformed) market, there’s a good chance you can buy a second lot for a relatively small amount of money. Generally, the best places to look are older neighborhoods (especially neighborhoods that show strong potential for turnaround or even well-kept neighborhoods that are moving upscale).
Depending on how a home is situated on a two-lot site, you might put the extra lot to immediate use. If the size is big enough, you might subdivide the site. This would permit you to sell the extra lot by itself. Or you might build another unit (house, cottage, carriage house) that you could rent out and hold as an investment. Given these possibilities, think carefully before you reject a house with two or more buildable lots. You might pass up big hidden value.
We focused on problems, not possibilities.
LESSON: Before you reject a home, think through its possibilities.
To some homebuyers, shopping for a home amounts to one frustration after another. If a house isn’t too large, it’s too small; or maybe it’s a long commute to work, is located in a less desirable school district, needs too much work, lacks enough light, is too expensive, or has the wrong floor plan or architectural style. Whatever the home’s features, these home-buyers can easily point out problems. They reject everything they look at because no house feels right.
Tom and Joan Search in Vain for the Perfect House
Past friends of mine went through this stage. Tom and Joan wanted to own their own home for more than two years. They earned good incomes and had saved down payment money. They worked with good real estate agents. They diligently pored over the real estate classified ads. And during two years of looking, they must have inspected 80 to 100 houses, maybe more. Yet, they never bought.
Why? Because to them every home they inspected had some problem, defect, or flaw. Tom and Joan said they knew exactly what they wanted and wouldn’t settle for anything less.
Although at the time my friends didn’t realize it, the difficulty of their home search was not what they thought it was. They described their problem as “We just can’t find what we’re looking for.” But their real difficulty was attitude. When they walked into a house, they immediately began to find fault. In their mind’s eye, they thought they could imagine exactly what they wanted, and if the house they were inspecting in some way violated their wish list, they rejected it—no ifs, ands, or buts.
No Perfect Spouse, No Perfect House
Then one day when Tom was talking with me about the couple’s inability to find a home, I changed the subject and asked, “Tom, why did you marry Joan? You’ve complained that she’s overweight, and she hates football. And you know she’s always trying to get you to stop fishing and hunting.”
When I finished, Tom immediately began to defend Joan, list her good points, and emphasize how well they got along together (which of
course I knew). Then the light bulb went on in his mind. He stopped his praise of Joan and said, “All right, I see what you’re getting at. I may not be perfect, and Joan may not be perfect, but we still have a good marriage. So why not stop insisting on the perfect house and find one that will work for us?”
“You got it,” I answered.
Several months later, Tom and Joan bought a triplex, renovated it, lived in it for several years, sold it at a profit, and then built a custom- designed house. After they moved in, I asked Tom, “Well, now that you’ve custom built your own house, do you have everything you wanted?”
Tom smiled and said, “Do we have the perfect marriage? No. Do we have the perfect house? No. We love each other and we love the house, but nothing’s perfect.”
Are you frustrated shopping and comparing homes? Then think of Tom and Joan. Shift your sights from what’s wrong with a house to what’s
right—or what could be made right. Much of this article describes mistakes in homebuying that commonly result from failing to spot a home’s defects, flaws, or features that don’t suit your priorities. But you also can
become too critical and reject houses too quickly. Strike a profitable balance. List problems. But also look for ways to make a less-than-perfect house work for you. You can trade up later.