What a Homebuyer Should Know Before Closing

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By Leonard Baron

It's hardly page-turning literature, but there are many reasons why you should read these documents before making any property purchase:

Title abstract
• Title insurance policy and schedule of exclusions
• Plat or a survey while you walk the property boundaries
• Homeowners' association documents (bylaws, board of directors minutes, etc.)

What if you inspected a foreclosure, and everything about it looked great, especially the two parking spaces on the side of the house? Everything was so perfect you didn't look at the county plat or take the time to have a survey done - you simply rushed to buy it. Then, a week after closing, you show up and there's a fence closing off the parking spaces you thought were part of your land - turns out they weren't. The neighbor let the previous owner use those spaces because they were friends. You? You're out of luck.

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Many people who decide to sell contact a real estate brokerage with a sterling reputation, or go to one that has the largest number of listings. Frequently, when potential sellers call these firms, they are turned over to the first available broker in the office. That person is often not the best representative. As a matter of fact, what is a successful broker doing in the office anyway? There are a small number of brokers in most markets who have a better track record than their peers. Most of them have been brokers for a long time and did not lose their jobs when the housing bubble collapsed.

Sellers should obtain an appraisal for their home before they put it on the market. One of the major reasons house sales fall apart is that the bank assesses the home for less than the buyer has agreed to pay. For example, a buyer and seller agree on a price, of say $250,000. Then the buyer goes to his bank to get a mortgage. But, the bank appraises the house for $200,000. Now, the buyer has to put up more money. Sellers who get their own appraisals get a realistic idea of what price a bank would value a house at before they enter into a sale. Most appraisers already do some work for banks. An appraisal often tells a seller what a "safe" price is. And an appraisal's average cost is only about $200.

Watch: AOL original video on appraisals

Sellers must make sure that foreclosures in their area are included in the "comps" the realtor gives them. Traditionally, a broker will give a seller a list of similar properties in the market and that information is part of what is used to set a price. What brokers do not always do is put the price of any foreclosed properties that are comparable into the calculation. A typical foreclosed home sells for 25% to 30% less than similar inventory in the same area. If sellers don't take that into consideration, their home will not be priced competitively and they put themselves at a disadvantage. Sellers wind up slashing prices after their overvalued properties are on the market for several months without success.

Watch: AOL original video on home values

Low property taxes are critical to finding buyers. Property taxes in most cities, towns, and counties have gone up for years as home values appreciated. This revenue is used to run schools and other local services. However, now home values have dropped sharply, and the appraisals by local authorities on which taxes are based are too high. Many cities have a process for homeowners to request lower appraisals, and as a consequence obtain a reduced property tax. Some states even have a board of appeals for homeowners who do not think they were treated fairly. One way for people to get local authorities to cut the tax assessment of their home is to put it on the market at below the appraised price. If the home does not sell for several months, they can present empirical evidence of the lower value. A home assessed for $300,000 that goes on the market for $275,000, but does not sell for a year, is probably not worth $300,000.       

Turn the lights off! Most buyers ask for utility bills. "Energy wasters" who sell a home will rue the times they forgot to turn off lights, turn down the air conditioner, or left the TV on all day. It would be ill-advised to fake the amount of energy being used by simply living in the dark and cutting utility costs to nearly zero. However, careful and prudent use of energy can cut bills by enough so that a buyer does not have sticker shock about what it costs to maintain electricity, gas, or oil to run a house.

Not very many homes are actually built with environmentally friendly material or heated by solar panels or wind. But, those that are have a special appeal to the crowd that buys green cars such as the Prius. A seller may have one of only a few "green" homes in their town or city. That may make it highly desirable to many shoppers.

This item appears on most lists, and many sellers don't bother to take the advice to prune the hedges or clean the gutters. But, it is even more complex than that. Walk to the road on which your home is located. Now walk toward the house. What does a buyer see for the first time? Most sellers never bother to look at their homes through a buyer's eyes. Do the shingles need a paint job? Are the shutters looking shoddy? "Love at first" sight is no less rare with homes than with people.

Negotiate the fee with the broker. The fee paid to a realtor for selling a home is traditionally 6%. Sellers often believe that they can get that down to 5% or even 4%. But, in a market where brokers are desperate for business, pressing for 3% or even 2% may work. Whatever the savings are, they can materially affect how much a seller can drop the price of his home, and still walk away with a profit.

Sellers should do some of the inspection work and testing before their home goes on the market. Inspectors for buyers are often aggressive when they report what is "wrong" with a home to their clients. For as little as $250, an inspector will go though you house and tell you what the inspector is likely to flag such as a roof leak or old, energy-wasting windows. That gives the seller a chance to fix the problem for less than the buyer may want to lower the price by, or at least know the items that a buyer will use to negotiate down the price.

For as little at $200, you can hire someone who can make your home look better by moving pictures, furniture, lights, and addressing problems that may make the home show poorly. These people are cousins to the men and women who "fix" expensive homes before magazines come in to photograph them for stories. "Stagers" have lists of tricks that few realtors and almost no homeowners know. The "better" your home looks, the more appealing it will be to potential buyers.

Sell a house that does not need any work. In a market in which people count every penny and worry about job security, fewer buyers want homes that are "fixer uppers" that require work that could cost thousands or even tens of thousands of dollar to address. These days, a buyer choosing between two homes will most likely take the one that needs the least work. It may cost some money to get your home to the point where a buyer can walk in and do almost no work. However, it may be the difference between selling a home and having it languish on the market.

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Or, what if you bought a house and the previous owner had given a recorded easement to the neighbor to use your driveway? In this case your neighbor - whom you might like now, but who knows about the future - has the absolute right to park in your driveway, drive across it and work on his car in it.

Or, what if there was a significant restriction on your property, recorded in the property chain of title? Perhaps you're required to clip your trees so they don't block the neighbor's view, or there's a height restriction on new construction.

Or, maybe someone else owns the subsurface (oil, water, minerals, natural gas) rights to your land and has the right to drill for them from an adjacent property?

Or, perhaps the parking spaces you received in your new condominium garage were also given to another unit?

These are all real situations that occur on real properties. In fact, I've either read about or personally been apprised of each one of these issues within the past two years.

The hard truth is: In almost every circumstance listed, the potential for trouble would have surfaced if the new owners had read important documents before purchasing their property. You may decide you can live with a restriction, but wouldn't you like to know about it before you make the decision to purchase?

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If your yard looks like the set of a Tim Burton film -- before Edward Scissorhands has done his handiwork -- you need to tidy up or face rejection by buyers who will drive by and never come back.

Besides mowing the lawn, your to-do list should include trimming scraggly trees and shrubs, and removing anything that's dead or beyond resuscitation. Edge, weed and mulch garden beds. Plant annuals in a plot or pot for color (see "Cheap Ways to Improve Curb Appeal").

Cost to fix: To hire a landscaper to prune and groom a small tree and a couple of shrubs will cost about $80, according to www.diyornot.com. If you’d rather be packing boxes than mowing the lawn, you'll probably pay a lawn service $30 to $40 for up to a half acre, but you might get a neighbor kid to do it for less.

Paint over colors that reflect your taste but may put off potential buyers, such as a scarlet-red accent wall, a lemon-yellow child’s bedroom or a forest-green den. "Fun colors are for living, but neutral colors are for selling," explains home stager Chrissie Sutherland, of Ready Set Stage, in Greensboro, N.C.

Avoid using stark-white paint, though. Choose a warm neutral color -- beige, ivory, taupe or light gray -- that makes your rooms look inviting, larger and brighter. Redo painted trim in white.

Cost to fix: The national average for a pro to prep and paint a 15-by-20-foot room with one coat of latex paint is $764 nationally, according to www.diyornot.com.

If you've lived with a popcorn ceiling, you know that it accumulates dirt, defies cleaning and is hard to paint. Worse, if your home was built prior to the mid-1980s, it may contain asbestos. (It was banned in ceiling products in 1977, but existing supplies may have been used later.)

First, have the ceiling sampled and tested for asbestos by a licensed inspector. For more information, check out the EPA's "Asbestos in Your Home." If the test result is positive, hire a certified asbestos abatement contractor (not the same company that tested the ceiling) to seal it with spray paint if it's in good shape (not peeling or crumbling) and unlikely to be disturbed, or to remove the ceiling treatment and properly dispose of it -- an expensive proposition.

Removal is a messy and laborious process, with or without asbestos. The material must be wetted down and scraped and the underlying wallboard wiped clean. Once the popcorn is gone, the ceiling must usually be repaired with joint compound and repainted. Even if there’s no asbestos, you probably should hire a drywall or painting contractor for the job. (For a glimpse of the process, visit www.ronhazleton.com).

Cost to fix: About $100 to $150 per sample to test for asbestos (multiple samples may be required), and if it’s present, about $2 to $6 per square foot to seal it or $54 to $64 per square foot for removal, according to www.fixr.com. If you can get by with a painter, expect to pay about $2.50 per square foot for removal, repair and repainting, according to www.diyornot.com.

Photo by Mary Lou Skowronski, Flickr.com

Buyers these days expect hardwood floors, even in starter homes. If carpet hides your home's floors, remove it to expose them, even if the wood isn't in the best condition. If you don’t have hardwood, you may want to consider having it installed in a first-floor living area. If you must keep the carpeting, make sure it looks and smells its best by having it professionally cleaned, especially in high-traffic areas or if you have pets.

To find a cleaner certified by the Institute of Inspection, Cleaning and Restoration Certification, visit www.certifiedcleaners.org. If the carpet is beyond hope, you may have to replace it. Talk with your agent about the best strategy: whether to replace it now or give buyers the option to choose what they want.

Cost to fix: A pro can clean 500 square feet for about $126, according to www.diyornot.com. The cost to install hardwood flooring runs about $2,000, including labor, for a 12-by-15-foot room, plus another $600 to sand and finish it, according to www.diyornot.com. Pre-finished laminate flooring will cost a bit less.

From switch plates to chandeliers, builder-grade, shiny yellow brass is out. Replace it with chrome- or satin-nickel-finish fixtures for a contemporary look, or an oil-rubbed bronze or black finish to update a traditional room. This is a pretty straightforward do-it-yourself job.

For instructions, watch these YouTube videos: How to Replace and Install a Chandelier from Build.com and Buildipedia DIY's How to Replace a Light Fixture.

Cost to fix: You could buy two chandeliers (to put, say, over the kitchen and dining-room tables) and a few flush-mounted lights for about $225 at a big-box store such as Lowe's or Home Depot.

Acrylic knobs in the bathroom look cheap and can be hard to grip by young, aged or soapy hands. Replace them with a faucet-and-handle set that matches the existing fixture's configuration (centerset or widespread) and meets the standard of the Americans with Disabilities Act with flipper- or lever-style handles. A polished-chrome finish will cost you the least and still be durable. Plus, the National Kitchen & Bath Association says that the finish is enjoying a surge in popularity over brushed or satin finishes.

Cost to fix: You’ll pay at least $30 for a centerset faucet, plus $75 to $150 for a plumber (or more if there's corrosion or some other difficulty), according to www.costhelper.com. You can replace a tub-and-shower faucet set for about the same amount. If you're up for DIY, see How to Install a Sink Faucet on YouTube.

Photo by paintchipdiaries, Flickr.com

Nothing says 1970s like a Hollywood-style strip of bare, round lights over your bathroom mirror. Replace it with a fixture that includes a shade for each bulb in a style and finish that complements your faucet set.

If you have a one-person mirror, you could replace the vanity strip with a wall sconce on either side of the mirror to achieve better lighting for shaving or applying make-up.

Cost to fix: A 48-inch-wide, six-light fixture with shades starts at $80 to $100 at www.lightingdirect.com. You should be able to handle this job yourself.

Photo by JU5T1N, Flickr.com

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When you buy a property through a multiple listing service transaction, the escrow company will generally provide you with documents relating to the legal rights and responsibilities that come along with your purchase. It may also provide a plat of the property showing its boundaries (or in some areas you may need to have a survey done).

The title insurance company will provide an insurance policy stating that the seller has the right to sell it to you - with some exclusions to the policy. That's the Schedule of Exclusions, and you need to read and review the issues noted on it. You should also fully review all of homeowners' association documents.

You, as the buyer, will generally receive all these documents in an inch-thick packet of papers after you are going into escrow. Read them. Get together with your real estate sales professional, title insurance officer and, if necessary, your lawyer. Protect yourself.

You are making one of the most expensive and complicated purchases you will ever make. A little reading, review and research will go a long way toward reducing the chances of something going wrong.

Related:

How to Vet an Investment Property
Buying? Use This Checklist to Avoid Surprises
Demystifying HOA Fees and Special Assessments

Leonard Baron, MBA, CPA, is a San Diego State University Lecturer, a guest blogger on Zillow.com, the author of several books including "Real Estate Ownership, Investment and Due Diligence 101", and loves kicking the tires of a good piece of dirt! See more at ProfessorBaron.com.

Note: The views and opinions expressed in this article are those of the author and do not necessarily reflect the opinion or position of Zillow.

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