Closing The Deal

Documents:

Residential Purchase Agreement – This is a standardized form often provided by state Association of REALTOR®s that will outline the terms and conditions of the purchase of a new home. It outlines instructions for buyers, sellers, agents and escrow officers as to which party will pay for items like inspections, repairs, fees and what the timelines are that allow for such terms. The RPA, as it is commonly referred to, will outline the names of each party, the address and tax Assessor Parcel Number (APN), purchase price, length of the escrow period financing terms and how the property will become vested under the new owner. There is also a section of the contract which expressly lists the variety of disclosures that the buyer should be aware of, including matters like mold and pest damage. There is a very special part of the RPA that buyers should read carefully and understand completely in which their initial will signify that they wish to adhere to policy of Arbitration and Mediation. Due to legal implications of this clause your REALTOR® may not give you advice on signing this section and you may need to consult an Attorney for legal advice. Additionally, contract will have some terms to be addressed in regard to when and how the new owner will take possession of the property or whether they will allow the current occupants to stay in the property. All of these terms must be covered upfront in the contract from the very start so that there is not need for further clarification further along in the process which could compromise the deal. Getting all of the details covered in the  offer is extremely important to the protection of the buyer. It is also important for a home buyer to read through the contract and understand what is being discussed and if there are any questions, a buyer should consult with their REALTOR®. Many homebuyers do not read the contracts but it is HIGHLY ENCOURAGED to read the contract, especially when you think about the magnitude of signing on a purchase for a home that is probably the biggest purchase of your life.

Buyers Inspection Advisory – This is a document that contains a complete list of conditions that a home buyer should be aware of in regard to having inspections performed on the property. It advises buyers on conditions such as Buyer and seller rights and obligations as well as agent obligations and responsibilities to all parties concerned. The BIA will also outline what kind of risks should be assessed by the buyer to verify the safety and general condition of the home that is being purchased. Risks include everything from having geological studies conducted to having roofs inspected. Of course none of the inspections are required but a general word of advise is to have, at minimum, a Home Inspection performed so that you can see if any further investigation is necessary.

Agency Disclosure – Agency Disclosure (AD) contracts are used to clearly define which agent is working for either party or in some cases for both parties and disclose those facts to all parties in the transaction. The AD also clearly defines what responsibilities and duties the agents have to both the buyer and the seller. At the basis of the contract either agent is required by law to perform their job with a fiduciary duty to their client as well as work with the utmost care, integrity, honesty and loyalty to their signed party. The agents also have responsibilities to the other parties, i.e. a buyer’s agent must perform their job with honesty and fairness to the seller and do so in good faith, no lying or insincere actions are tolerable by the state department of real estate. Violations of any of the conditions in the AD are grounds for license suspension, revocation and even heavier penalty by the justice system.

Statewide Buyer and Seller Advisory – The Statewide Buyer and Seller Advisory is commonly known in the industry as the SBSA and is an extensive document that includes the basic information of the AD and the BIA but further expounds on specific items like inspections and property conditions. The SBSA is to be signed by both the seller and the buyer in acknowledgement that they have read the  document and are aware that the property may have existing or imminent problems that will affect the functionality, safety or future marketability of it. Some of the conditions included in this document include oddities like neighborhood noise sources, a pets and animals clause, zoning regulations exist and even golf course disclosure in regard to errant golf balls.

The premise for this document is to make sure that the buyer and seller are both aware that conditions may exist or could develop and that they should further conduct investigations to satisfy any curiosity about the subject property.

Agents Visual Inspection Disclosure – The AVID is a disclosure to the buyer and seller that an agent has gone through the property and done a visual once over to verify the condition of the property and note any defects that may exist. This is a form that is provided to the REALTOR® by their state Department of Real Estate and is intended to be a general information piece. As REALTOR®s are not allowed to move items, access attics or crawlspaces the inspection is limited to what an agent can actually see during their observation. The form is streamlined so that the agent can walk through the property and start taking notes at the street curb and walk through the house noting conditions of entry ways, bedrooms, bathrooms, living areas, kitchens exteriors and garages or driveways. The purpose of the document is identify any material conditions with the property that may affect the value of it. Things like neighborhood demographic are not ever allowed to be discussed in the transaction and should absolutely never be listed as a material fact in the AVID. Things like barking dogs next door are allowed, however.

Transfer Disclosure Statement – The TDS is a document in which the seller completes a checklist of any material facts that may affect the value of the property. The seller will mark off conditions such as what kind of appliances are in the home whether they are gas or electric and then make any note of whether the appliance has had any repairs or problems in the past. The TDS also discloses items such as pools, property liens, additions, zoning violations etc. that the seller knows are pertinent to the property. If the seller knows that the living room of the home flooded in the last rain they legally MUST disclose this in the TDS, regardless of whether or not they had the problem fixed. Any repairs or work done on the property must be fully disclosed so that the seller can make an informed decision on whether the home is worth what they are offering to pay to buy it.

Combined Earthquake and Natural Hazards Book – The CEHD is a book that extensively covers every type of material item that may affect the property as determined by the state department of real estate. While it may seem the same as the SBSA at first glance, the CEHD is very in depth an provides detailed information on things like cripple walls on homes. If the buyer isn’t familiar with what a cripple wall is they will be after reviewing this booklets description and diagram of a foundation and a cripple wall. The book also discusses natural hazards like different varieties of mold, asbestos, radon gas and lead and how these chemicals are found in home and may affect the health of home occupants. Reading the CEHD is highly suggested to better understand how to protect your home and your family and pets from hazards resulting from unsafe structures or code violations that may be pre-existing.

 

Inspections: What is the home inspection?

One of the most important things that a new home buyer can get is a home inspection. The home inspection will not only tell you what kind of conditions are affecting the subject property but they will also help you to make a better decision on whether or not the house is something that you want to buy. This thorough and informative report will tell you everything about the property from electrical issues to chimney and flue conditions. Here are some helpful things that will be mentioned in a home inspection:

• Structural conditions will be addressed by the home inspection and include exterior walls, roofs, windows, exterior surfaces and foundations. When the inspector takes notes on the structure they may draw out a map of the property to show square footage, room orientation and unique features that will be noted in the report. While they are checking out the house and making the sketch they will call out things such as cracks in the foundation, siding, faulty exterior conditions and problems with patios and yards-capes like poorly draining or cracked patios that could lead to water intrusion in the house. All of this is mean to indicate whether there is or may eventually be a situation that shows that their is a structural problem with the house that may be hazardous or undesirable to the occupants of the house.
• The roof will also be discussed in the report in regard to what type of materials were used and what kind of condition they are in. It is not uncommon for a home inspector to make mention that a roof is in need of further inspection by a licensed roofing company when they see that the roof is deteriorated. For example; a report my state that a roof is comprised of Composite Shingles that are nearing the end of their life due to failing granulation. As such the inspector may suggest that a roof flooding test be conducted by a licensed roofing company to further test for functionality of the roof.  As a first time home buyer it is suggested that you carefully scrutinize the condition of the roof and factor the condition of it into your purchase. Leaking roofs can lead to serious problems like mold, rotting wood members, settling and damaged wall surfaces so it is really important to know whether it will need replacement or repair. roofs are not a cost that you want to have unexpectedly as they can become very costly depending on the type of roof and the shape of it as well. If the roof becomes deteriorated and leaks after you purchase the home you may have an idea of the cost to replace it or indication of whether a simple repair can save your house and how much you will need to save. The home report may help you with that judgement.
• Another very important item that will be identified in the inspection will be the plumbing of the house. A very important thing that is listed in every home inspection is the homes main supply shut-off valve. This is noted so that in the case of any plumbing emergency you as the buyer or future home owner will know where to go to stop the water from flowing freely into your home and causing any more damage. The same goes for Gas supply lines to your home and water heater or furnace. Make sure to take note of those locations when you receive your inspection report for future reference. Other plumbing comments that you can expect to see pertain to the materials used in the plumbing like steel, copper or polyethylene piping and whether or not they are insulated. Water heaters and other appliances that use water or gas will also be addressed in the report to indicate whether the device is up to code, safe and functional. Many times the inspector will discuss the temperature relief valve, flex coupler, venting and drip pan conditions of the water heater in this portion of the report as well.
• Electrical systems will be a carefully discussed aspect of the report due to the unquestionable safety issues that could arise from faulty electrical systems. The main panel and electrical supply will be scrutinized for code violations and to ensure that the system has been properly grounded. When the home inspector walks through the home they will not only test interior and exterior outlets to make sure they work but also for proper ground fault protection in circuits where there is a possible safety hazard such as near sinks or water sources. In the occurrence that an appliance were to fall into a full sink the ground fault protection outlet would automatically kill the circuit to that appliance so as not to electrocute anybody. Some inspectors will also inspect the appliances too. For instance they will run a dishwasher to make sure that it  works or test a refrigerator for a proper seal or even run a ventilation hood to ensure that it runs smoothly.
• Pest and mold recommendations (if needed) will be noted in the report if the inspector feels that there is either an existing or imminent pest or mold infestation that needs to have a licensed pest inspector further review the property. The home inspector will often times cite something such as a pile of insect droppings as an active infestation and something like a wet spot around the base of a toilet as an imminent concern for something such as dry rot or mold. These recommendations are something that should be given heavy consideration.

When you read through the report and see that there are numerous things called out keep in mind that not all of the things in the report are necessary to have done prior to buying the home and they may not be deal breakers for you on the property. Nonetheless, each one of them will not only make mention that there is a problem but oftentimes will provide some form of recommendation to either repair the problem or get further advice. The inspector will also provide you with their contact information if you have any questions about the report or need further clarification.

 

Inspections: What is the pest inspection?

A pest inspection is something that every person buying a home should have done regardless of what they see when initially walking through the house. A home inspector has special training and tools to go through the property with the additional experience that comes from being a professional in the field. Many times a report will provide comments to help the buyer that could only be attained by accessing a crawlspace or attic, something that a buyer should refer to the professional.

Some things that you can expect in a pest report include a map or diagram outlining where the problems are, definitions of section 1 and section 2 damage, description of each item, a recommendation as to remediation of the item and a price break down for remediation.

The map or diagram often times will be a simple sketch of the structure with numbers and letters on it. Each number and letter will correspond to items affecting the property and their corresponding description in the report. For example; you may find that there is an item titled 2A and upon reading the report learn that there is evidence of dry wood termite infestation in the eaves of the home’s Southern facing side. A recommendation that corresponds to that may be to have the house fumigated and the eave repaired with either a new wood member or putty.

Section 1 and Section 2 items are differentiated by whether they are active infestations or imminent concerns, respectively. Section 1 items include dry wood termites, subterranean termites, mold, fungus, dry rot, insect infestations and even bats and rodents. Section 2 items include wet spots on floors and under sinks, water stains in the ceiling and walls, dirt to wood contact, open screens and ductwork and even poorly designed drainage systems. Section 1 items often times will muck up a HUD funded loan so make sure you talk to your REALTOR® and lender to see what needs to be done to secure your loan. Section 2 items are things that may not be pressing to have corrected but should be addressed in the near future.

Remediation can be anything from fumigation with various chemical treatments, heat treatments, topical sprays or active removal of the infestation and replacement of damaged materials. Fumigation is not always desired by buyers that don’t know about the treatment of the home so be sure to talk to your pest inspector to get the details on what kind of chemical will be used and what the ramifications are to using the fumigation agent, if any. Most of the agents that fumigators use these days are safe for humans after a specified time period. During that time period the house will remain tented and locked so that no people can enter or occupy the property for their own safety.

Along with recommendations, the costs associated to remedying the items of Sections 1 and 2 will be clearly listed in a line item bid. You will see the item number and letter, name of the item that needs repair, a description of work and a price for the procedure. Depending on the extent of repairs you may have a small cost or a relatively high cost to address. Oftentimes, using the inspector that drew your report can help you get a competitive price on the work to be done and also earn you a reduced price or FREE re-inspection to ensure that the repairs are up to the inspectors standards and expectations.

 

Escrow: Opening and what is expected of you at that time?

Escrow is the process and time period that is commonly referred to in which a buyer and seller have a signed contract and instructions for the escrow company to have a lender release appropriate funds to all parties requiring payment as well as ensure that the property is properly vested and recorded for the buyer. The purpose of an escrow company is to be an account and service where funds, documents and instructions can be deposited, executed and conducted in a neutral third party capacity. The escrow company will literally open an account for funds to be held until all requirements to fund, transfer and record title are met.

It is customary for the buyer to get title insurance to protect themselves from blemishes on title as well as for the buyer to get a preliminary title report to check for liens, claims or clouds on title are removed prior to purchasing the property. Many large national escrow companies also have divisions that will take care of preparing your title insurance and preliminary title report as well as provide you with a natural hazard report. The natural hazard report that is received during this period is to make known to the buyer any known environmental or natural hazards that could affect the condition of the property. Hazards include, earthquake fault zones, fire hazards from nearby brush and foliage, flooding zones, dam inundation zones, known military ordinance testing areas, airport proximity and even notification about endangered species in the area.

When escrow is opened the buyer has up to 3 days to deposit their Earnest Money Deposit (EMD) in the escrow account either with check, cash or wire transfer from a bank. Make sure that when you make your deposit the escrow officer that takes your funds also gives you a receipt and double check that your contact information is correct so that the officer can get your escrow packet to you. In the packet you will often find the preliminary title report, natural hazard report and other documents that you will need to review and sign prior to closing escrow. In the process of buying a home you really don’t want to miss any details that could delay your purchase or result in any complications that could cost you the deal. If at any point you have questions about what is going on with escrow consult with your REALTOR® or escrow officer.

 

What will the appraisal tell me?

Often times when you buy a home you will receive an appraisal on the property. It is, in fact, very rare that an appraisal is not ordered for the property simply because a majority of homes are purchased with a loan and lenders typically require the home appraise at value for the purchase price. When the appraiser goes to a property they will inspect the house briefly to verify the condition of the home and confirm that the home is in comparable condition to the homes that they select to use as a comparison for value. This method is most common and is referred to as the Market Value Approach. Other methods that an appraiser may use are income valuation and replacement cost valuation. Each calculation model is used for different purposes and situations.

No matter what the type of appraisal that is used it is used and justified by the appraiser that prepared the report for good reason. Ensure that the appraiser is a licensed and practicing appraiser. The training programs that appraisers go through are in place to ensure that when parties receive an appraisal it is accurate and thorough. When you receive your report you will likely find contact information for the appraiser, disclosures that the appraiser feels are necessary, a description of the scope of work they will perform, a description of the property, details about the properties used for comparison, an analysis of the property to be purchased as well as a complete explanation of their final opinion of value.

Most times the appraisal will come in pretty close to what your agent’s opinion of value will be. REALTOR®s will provide you a similar report called a Comparative Market Analysis (CMA) that is more focused on a comparison among homes on the market. The appraisal will go through the home from the foundation up much like a home inspector but a REALTOR® may not do so. As such, they are limited to placing an opinion on value based on what they can see. Luckily, many agents preview many homes in the local market and have a very firm grasp on what values are supported by the current market conditions and what homes will sell for. Therefore, the appraisal and CMA should come in relatively close to one another and it is not uncommon for them to come in at the same price.