How to Buy a House | Part 5 – Inspection & Appraisal

December 9, 2019

So you have an accepted offer and you’re ready for what’s next. In this video, I walk you through what you expect when having your house inspected and appraised. Buying a house doesn’t have to be scary. Learn what to expect in this video series.

 

Transcription:

Hey everyone, it’s Andrea Lutz, and today I’m here to talk to you about buying a house. Now you found the house that you like. You’ve gone through, you’ve made the offer, you’ve negotiated it, and now we’re at inspections. Inspections can be a scary thing for a lot of people, but don’t let it be. This is a used home, and just like with a used car, when you go and look at it, it’s not going to be perfect. There’s going to be some problems, but it’s all about what you’re comfortable with and what you’re happy to take on when you’re buying this house.

So first and foremost, you’re going to find an inspector that you trust, that you have been recommended to, that you feel comfortable with. This is a really big deal. This inspector can really help you in falling further in love with this house, can protect you if it’s a major problem and you need to get out of the house. And you want to make sure that that person is really keeping your best interests in mind.

So find that good inspector, book an inspection, do it right away when you get that accepted offer, because a lot of times these inspectors can book out a couple of weeks. And then see if you can make it work with your schedule where at least you can go for the very end of the appointment. I don’t think you really need to be there the entire time. Sometimes the inspector’s up on the roof, sometimes they’re down in the crawl space, and they’re in and out of areas that you really can’t follow them in anyway. But ask the inspector when you book your appointment, “When would it be a good time for me to come so that you can show me around the house?” And they’ll give you the answer that’s right for them. Some inspectors like you to be there the whole time. Some inspectors want you to just come at the very end so they can point out the issues and they are able to be more focused in finding those problems for you if you’re not by their side the whole time, so they’ll give you the answer that’s best for you.

When you’re walking through the inspection with your inspector and you’re not sure on some of these things, just feel very comfortable asking them questions. That’s why they’re there. So if they say, “Well looks like the roof is a little wavy here,” you can say to them, “Is that a major concern,” or, “Are you freaked out by that? Should I be freaked out by that?” And they may say, “Well, it just looks like there’s a little sagging between the rafters and that’s no big deal at all.” Or they might say, “It looks like the decking is rotted and that roof needs to be replaced. And that’s a big deal because that’s going to be a lot of money.” So just ask questions, and be there, and be present, and make sure to just kind of feel comfortable discovering those issues with your inspector. Their job is to educate you here. So don’t feel embarrassed about not knowing the answers right off the bat.

So the things that I like to think about is major defects and habitability issues and health concerns. So when you’re going through the house with your inspector, they’re going to point out different things that are concern points. Some of these things are going to be habitability issues. For instance, if there is a leak in the roof and it’s coming through the house and it’s creating a puddle in your living room, that’s a habitability issue. You don’t want to live in a house that has leaky roof, right? So that’s a major issue. You want to make sure to ask those home owners to rectify the issue, get that leak fixed, because you can’t live in a house with a leaky roof. That’s a big deal.

The other thing you want to think about is health issues. Some health issues can be like there’s raccoons living in the attic and that raccoon feces could be bad for your health. Sometimes you can find mold in the house. Now mold is a really tricky thing to uncover and discover. Sometimes it’s just a little mildew, and a little mildew is not a big deal. You could just wipe that off with a cleaning solution and that’ll go away. A lot of times you find mildew and bathrooms and areas that have some humidity. If it’s mold, sometimes that mold is a big deal and sometimes it’s not. And maybe this is a situation where you need to have somebody come in and look at it in more detail. But mold can be a health issue and if you’ve got a susceptibility to mold, you’ve got to be careful about that and make sure that you’re taking good care of yourself.

Another health issue was radon. And here in Southern Indiana we have a lot of radon. So you’ll want to have a radon test performed, and if they find high levels of radon in your house, I would suggest that you ask the sellers to remediate that radon issue. So those are the major health issues that I see over and over again is like the mold and the radon and sometimes other things like if it’s got a really wet basement or if there’s a lot of water in the crawl space that can create some problems in the house for health issues.

And the other thing is like major defects. Now, everybody has their own definition of major defect. It’s also in your purchase agreement. So if you really want to read what realtors think about major defects, it’s in your contract. But I think this is something that’s taking away a major chunk of the value or the comfort of the home. So in my mind a major defect is something like the furnace doesn’t work. That’s kind of a big deal and that’s a habitability issue too, right? Like if you don’t have heat, it’s not a comfortable home.

So major defects are something that’s going to be a big chunk of money to repair, taking away value of the home, or taking some of these other considerations, taking away some of these other considerations like health and habitability. Another major defect that you see a lot, especially here in Southern Indiana with our clay soils, is a foundation issue. If you find out that your house has a foundation issue, that’s a major concern. We do have great structural engineers and I would recommend that you have somebody come in and check that out and give you further detail.

And that’s a good segue because that brings me to the point talking a little bit more about inspections. You’re going to have this general inspector come out and look at the whole house. Well they are not typically electricians or plumbers. They are not in my experience ever structural engineers. So you need to make sure that you understand a good idea of what here during this inspection is a major problem. And if your inspector says, “I don’t know if this is a major problem or not, this is not my area of expertise.” And it’s something that concerns you, then you need to have a specialist come out. And maybe that’s an electrician, maybe that’s a roofer, maybe that’s a plumber, maybe it is a structural engineer, or maybe it’s somebody who specializes in mold or radon. But you need to have them come out and give you an idea of what that actually looks like.

I encourage my buyers to actually do a full investigation. Once you buy this house, it’s yours, and the problems in it are yours too. It is your duty as the buyer to go through this process and take your time and uncover anything that concerns you. And you have the right as the buyer to ask for more time if you need it. Roof to crawl space, everything that’s a concern to you and make sure, “Okay, I’ve got a good handle on this now. These are the issues with the house. It’s going to cost me about 10 grand to fix it. I’ve got that in my savings account, plus I got a great deal on the house. I’m in.” Or, “Every penny I have is going into this house already and I have no money to fix it. And if these sellers can’t pay for these repairs, I cannot move forward. I just don’t have the money to do it.”

That’s okay. That’s what this process is all about. So while you’re going through this process too, think about those things. “Do I have money in reserves to make these repairs? How much money do I have? Would I feel comfortable doing some of this work on my own? Or how much is it going to cost by have somebody else do it?” Those are all things you need to uncover and discover. And then when you’re done with the inspection and all of your followup inspections, if you have any, sit down with your real estate agent and talk through all of this. I would encourage you to read through the report page by page. Some of these reports are super duper long, so just take out a piece of paper and a pen and write down anything that freaks you out.

I mean, I’m not talking about peeling paint, I’m not talking about a door that sticks. Those are just part of having a used house. I’m talking about foundation issues, roof leaks, major issues, the sink in the kitchen is leaking and it’s rotting out the cabinet. That’s a big deal, right? Write all those down and then sit down with your real estate agent and say, “This is my list. These are my concerns.” And work with them to determine what makes sense in terms of asking for repairs from the seller.

Now, this is a negotiation like any other negotiation in a real estate transaction. So just because you asked for it doesn’t mean you’re going to get it. Now, if you ask for some repairs and they will not repair them for you, that is a moment in time when you can take your earnest money back and walk away from the transaction. You can do that. If you give them a list of repairs and they say, “Yeah, we’ll do all those,” and you still want out, they get to keep the earnest money. So that’s another thing to think about. But make your list, work with your real estate agent, and then through this negotiation you’re going to land somewhere, and hopefully it’s a comfortable place for you and you’re able to move forward with a home.

When you’re doing these negotiations with your real estate agent, there are really a couple other things to consider in terms of what you’re asking for. Let’s say that you have three things that are really important to you that ask the seller to repair. You have a broken window, you have electrical issues in the main breaker box, and you’ve got a leaky sink in the kitchen. Those are all good things to ask for and they’re all issues that should be repaired.

So you ask for the seller to repair those issues. That’s one way to go. You can say, “I want these things fixed before closing and I want to see the receipts of the professionals who did the work.” Or you can say, “We’ve got a broken window, a leaky kitchen sink, and we’ve got a like electrical issues in the main breaker box. Here are the quotes that I got for these repairs and this is how much money I want for those repairs.” And in that situation, instead of the seller doing the repairs, you are going to manage the repairs with that money. What happens in those situations is at the closing table you will get checks written to those contractors for the amount needed for those repairs.

So maybe you’ll get a check for the broken window. Maybe there’s a window and door company that’s going to do that. You’ll get a check for the plumber who’s going to fix the kitchen sink, and you get a check for the electrician who’s going to do the work on the main breaker box, finished and done. I really like this option for a lot of reasons. One, because the seller is really busy, they’re moving out, they’re moving on, they don’t want to have to worry about these repairs. Secondly, you get to choose the professionals you’re going to work with, which is awesome. And you know the work that they’re doing is to your standard and you don’t pay them until it is. So it just kind of gives you a little more control in the situation and I think that’s kind of nice.

So I hope that all of that works out just the way you want it to and you’re moving forward. So you’ve come to an established inspection response. Either you’re getting repairs or you’re getting money, or you’re very happy with the house just how it is. Yes, that would be amazing. And now I would call the bank and I would say, “Hey, can you go over and get that appraisal done?” An appraisal is really straightforward and once you order it, really it’s just sitting back and waiting for the result. What you’re looking for here is for the bank to find the house to be at the value that you paid for it or more.

And this is only if you’re having a bank loan. If you’re paying with cash, you don’t have to do an appraisal if you don’t want. You can if you’d like. But this just gives you an idea of the value of the home. So let’s say you bought the house for $205,000, and the appraiser goes out and they find that it’s worth $207,000. Yahtzee. That means you already have some equity in the house, you got a good deal, and everything’s moving forward.

Same scenario. Let’s say you paid 205 for the house and the appraiser went out and they said it’s only worth 199. Well, that’s kind of not so great. Now you have to go back to the seller and say, “Listen buddy, I overpaid for your house. It’s only worth 199. I need you to give me a better deal here and I’ll pay the 199.” Now, not to get too nitty gritty in this, but essentially what happens is the bank will only fund the 199, so they’re only going to give you a loan to pay for a house that’s $199,000. So there are just very limited options here.

Either the seller can reduce the price so that you’re only paying 199, or if they refuse to do that and you’re willing to pay more, you can come with cash to closing to cover the surplus. So in that scenario, you would come to the closing table with $6,000 in hand. So that’s another negotiation, but usually not. If in a fair market and if things are priced right, you’re not going to have to deal with appraisal issues. But it does come up from time to time. Once you’re through the inspection and the appraisal, oh my gosh, you’re almost there. And in the next video, we’ll talk a little bit about preparing for the closing table. So we’ll see you next time, guys. Don’t forget to subscribe and have a great day.