Daily News And Advice
What to Expect from a Home Inspection
A home inspection is part of a real estate transaction. The idea is that a professional home inspector looks at a property and identifies problems a potential buyer might need to consider. If you’re a prospective buyer, you can go to a home inspection. Either way, the inspector will create a report of their findings.
If you’re buying a home, an inspection can help you avoid the potential disaster of buying a home and then realizing it has structural issues that aren’t fixable or would be extremely expensive to repair. You should have a home inspection before closing on a loan. If there are issues and you’re the buyer you can contact the seller if any major problems are discovered.
An inspection is different from an appraisal, although the two are sometimes confused with one another. An appraisal gives you an estimate of your property’s value. An appraisal doesn’t identify specific problems, and a mortgage company will usually require an appraisal. An inspection isn’t required but is important.
There are also buyer and seller’s inspections. A buyer’s inspection occurs after you’ve made an offer on a home but before closing. If there are certain issues, you might renegotiate. A seller’s inspection is something that happens before a home is listed. A seller might opt to do this to fix issues before they put their home on the market.
What Do Inspectors Look For?
A home inspection isn’t going to look for everything, and there are specialized parts of a home that may require a separate inspection.
A home inspection is a visual assessment of a home’s mechanical systems and structure. This includes windows, doors, ceilings, the roof, and walls. An inspector will look at major appliances, examine the heating and air system, and evaluate the electrical and plumbing systems. Inspectors aren’t there to evaluate if you’re getting a good deal.
Inspectors don’t care about cosmetic issues unless they’re also safety issues.
When an inspector completes a report, you may see that it’s in the form of a checklist, or they might detail problems in paragraph form. It would be unlikely for any inspection not to have some issues unless the home is completely new.
How Does an Inspection Affect the Sale of a Home?
If an inspection brings up issues, then a buyer and seller might renegotiate, or they could end the potential deal altogether.
If you’re the seller and the prospective buyer walks away because of the inspection, you’ll have to put the house back on the market. If a home that was pending or under contract goes back on the MLS, it can be a red flag to some buyers.
If there’s renegotiation, a potential buyer might request that the seller make necessary repairs. They can also request a credit from the seller so they can make the repairs themselves.
A seller might hire their own experts to confirm the inspector's findings before they agree to anything. Inspectors can be wrong.
Hiring an Inspector
If you’re in the process of buying a home, it’s important to hire a good inspector. Look for an inspector with a certification from an organization like the American Society of Home Inspectors or the International Association of Certified Home Inspectors. Members of these groups must pass exams, complete continuing education, and follow a code of ethics.
You might consider interviewing an inspector as well, and they can share more about their experience. Some inspectors have specific experience in certain areas. For example, you might need an inspector with experience in historic homes.
You can also ask for references from past clients.
Finally, expect to pay anywhere from $300 to upwards of $500 for an inspection. You typically pay this when the service is rendered, and it’s not part of your closing costs.
Top Reasons a House Isn’t Selling
We’re currently in what’s described as a seller’s market across much of the country. While demand has waned a bit in the fall of 2020, inventory is still limited, and the real estate market is strong.
While that may be what you see in the headlines, perhaps it’s not what you see in reality if you’re trying to sell a home.
There are some common reasons, many of which are avoidable, that may be why your home isn’t selling.
It’s Priced Too High
This sounds simple, but still, homes continue to be priced too high. One of the biggest challenges sellers face, according to real estate agents, is resisting the urge to overprice their home. Pricing a home is an art and a science, which is where agents are so valuable.
However, you have to listen to your agent.
When you have an emotional connection to a home, you’re even more likely to price it too high.
If you priced your home yourself, it’s a good idea to consult an experienced agent sooner rather than later.
You can also gauge what people think about your price by looking at other local listings or listening to people's feedback at open houses and showings.
Your Home Is Unique
A unique home can be a great thing, but that can also make it more challenging to find a buyer. If your home is unique, that doesn’t necessarily mean you need to change anything to sell it. You might just need to be patient and wait for the right person to come along.
You might need to shift your marketing strategy a bit as well. Reframe the unique elements of your home to be benefits. Your marketing needs to be carefully tailored to that audience of people most likely to be interested in a unique home.
The Order of Your Photos is Wrong
When people browse apps and websites for homes, they’ll usually only see the first photo initially. Then, they have to decide to click through to the rest actively. What is the first photo of your listings conveying and could it be better?
Don’t use the front of your home as the first picture. Buyers have a short attention span, so choose the best interior photo. Then, the next four photos need to be equally impressive because once people get to the fifth photo, they’re likely to start losing interest.
Also, your photos may be bad altogether. A home needs to be staged, cleaned, and ready for great photos. You also need a professional real estate photographer. Overcome the urge to want to rush to get your home on the market. It’ll pay off to wait until everything is ready, including the best possible photos.
Lack of Accessibility for Viewing
As a seller, some things aren’t in your control, but many things are. When buyers want to see your home, they need to be able to as soon as possible. You want your home to be available for anyone interested to see it in person. This means you keep your home clean and showing-ready at all times and that you’re flexible with your schedule.
It’s a pain at the time, but it can make a difference between selling your home and having it sit on the market.
Flat-Out Rejecting Low Offers
When you’re selling a home, and you’re emotionally attached to it, getting a lowball offer can feel like a personal insult.
Don’t shut down low offers right away.
You may end up with a successful negotiation that started with an offer that was initially way too low.
Keep all of your options open as a seller. You never know what might happen.
Finally, not selling a home can sometimes be an issue of timing. For example, spring and summer tend to be better times to sell a home. Fall and winter are the worst times.
There are also larger economic issues that can impact whether or not you sell a home, and if you have an option, you may need to wait. If you can’t wait, even if you sell your house, it could end up being for much less than you hoped, if timing is a factor.
What to Know Before You Buy Land
Whether you’re planning to build your dream home or you want to buy land as an investment, it’s different from buying property with a structure already on it. For example, even though someone might be willing to sell you a piece of land, there’s no guarantee you can use it how you want. There are issues related to zoning, water rights and septic systems to think about.
You have to do a lot of research to figure out what you can and can’t do with land once you buy it.
The following are things to know before buying land.
Consider it a Long-Term Investment
If you’re thinking of land as an investment, you need to look at it as something long-term. It’s not a quick flip investment. You should plan only to buy land if you’re going to hold on it for at least 10 or 20 years. It can protect you against inflation, but its value isn’t going to go up quickly.
Realize that if you find cheap land, there may be a good reason that’s the case.
Pay Cash If Possible
If you aren’t going to build a home right away on a piece of land, you’re going to have to pay all cash, or somewhere from 30 to 50% cash upfront. If you’re going to build right away, it’s known as a construction to permanent deal, which is different.
For raw land, if you don’t have immediate building plans, lenders will see you as risky, making financing a challenge.
Even if you plan to build with a construction to permanent loan, you don’t have collateral in the form of a pre-existing home, so you need to have nearly perfect credit.
With a construction loan, it’s short-term financing, and there aren’t fixed rates. Your bank releases funds as construction stages are completed. Then, the loan becomes a mortgage.
To deal with the financial hurdles, paying all cash is the best option.
If your land isn’t on a municipal sewer system, then any structure you build on it will probably need a septic tank. That means you’ll need a percolation or perc test. A perc test looks at how absorbable the soil is to the liquid that comes out of the septic tank.
If you can’t support a septic tank with your land, you can’t build, nor can you get a mortgage.
Before getting your heart set on land, you have to look at deed restrictions to determine what you can and can’t do with the property. You’ll also have to figure out how binding these restrictions are. A realtor should be able to help you here.
You may find restrictions like limits on the building styles or the minimum or maximum dwelling square footage.
The more rural the property, the fewer the deed restrictions are likely to be, but that’s not always the case.
Land may be zoned for commercial use, residential or both. You have to figure out if the land is zoned for additional structures like detached garages and plan to have one. Zoning restrictions can determine the minimum structure size you can build.
If there’s an easement on a property’s title, you need to know what that stipulates before buying. An easement lets another person or entity have the legal right to someone else’s property for specific reasons, no matter who owns it.
That might, for example, mean there’s an easement that lets other people go over your property to get somewhere else, reducing your privacy.
If you’re looking at land not on a city sewer system, you may have to dig a well for water. That can be $10,000 or more to drill the well, plus the costs of water filtration. Some people even have to add lakes and hydrants, so firefighters have access to a rural water supply.
Buying land can seem like a great opportunity, but a lot of research goes into it to make sure it’s something feasible. It’s not an easy process. You should do your due diligence and consult with experts and specialists when necessary to make sure you’re following all applicable real estate laws and local zoning guidelines.
Why the Second Investment Property is So Much Easier to Finance
First time real estate investors find the approval process is very much the same as financing an owner occupied property. There’s a credit report checked, bank statements and assets are reviewed as well as income and employment. Yet there are some additional guidelines rental property financing require. The first and most obvious is the amount of down payment needed. Most conventional programs ask for a down payment of at least 20% while providing slightly better terms with a 25% down payment.
This is much different compared to a primary residence where the minimum down payment for a primary residence is just 5% in most cases. The other is the interest rate on the loan. Rates for rental properties will typically be anywhere from 0.25 to 0.50% higher. But buying a subsequent rental property is much easier. Why?
The first reason might be that the buyers are familiar with financing a rental with the experience gained with the first purchase. Yet the real reason is the way lenders treat the rental income. With the initial purchase, the income from the rental won’t be counted. Instead, the buyers must be able to qualify with their current income without the benefit of rent. Even though the unit is rented out and the tenants are paying the rent each month, lenders won’t use it when qualifying. With the second rental purchase, the income can be used.
Investors want to see if the income generated is enough to cover not only the financing costs such as the principal and interest payment, property taxes, insurance and an amount reserved for maintenance. If the rent is not enough to cover the costs of ownership, it’s very likely the investor will move on to evaluate another property. If there’s not enough rent to positively cash flow the investment, it’s an expense, not income.
The difference in the way lenders treat rental income between the first and second relies primarily with the notion that lenders want to see the owners properly manage and maintain the unit. If after two years of timely mortgage payments and proper management, the rental income can be used to help qualify. There are still down payment and interest rate adjustments, it’s just that it’s easier to qualify because the income can be used. In both instances, there is income coming in, but the way lenders treat the two transactions are different.
After the first, the second is so much easier to qualify for. This is also a reason that real estate investors soon discover how much easier it is to qualify they ultimately own multiple rental properties. Sometimes to the point of quitting their current jobs and becoming full time landlords. When this happens, it’s not uncommon to hand over the job of managing the properties, collecting the rents and fixing things when they’re broken to a property manager. For a fee, a property manager will handle these day-to-day activities. All the buyers typically need to do is find another property and turn over the landlord duties to someone else.
|Mortgage Rates |
Averages as of January 2021:
30 yr. fixed: 2.66%
15 yr. fixed: 2.19%
5/1 yr. adj: 2.79%