Nolo’s Real Estate Tips for Home Buyers

If you're buying a new condo, townhouse, or other home in a new development, you'll have plenty of paperwork to read over before you sign on the dotted line. Of course, it's always a good idea to read it all carefully, but who doesn't start yawning after a while?

There's a new clause being snuck into these contracts, however, that should make you wake up and reach for your red pen. It provides that you'll have to pay the builder a 1% transfer fee when next you sell the property, and so will anyone else who sells the place, for the next 99 years! (Can you picture the builder's grandchildren rubbing their hands?) For more details, see this article provided by the National Association of Realtors.

The number "one" as a percentage sounds small and insignificant, but I wouldn't want to shell out $2,500 to the builder if I were to sell my house for $250,000, $5,000 if it goes for $500,000, and so forth. I'll bet you don't either. So look for that clause, and demand that it be stricken from the builder's contract. Every contract can be amended, and while the market's slow, you've got the upper hand in deciding what you'll accept in there. 

This is one of those issues you'd think would have been settled by now: Does a condo owner have a right to expect that his or her unit will be free of secondhand smoke from nearby units? And if so, can the owner demand a remedy, perhaps that the condo association pay to seal off their unit (which may be impossible) or that the neighbors simply stop smoking in their home?

Given the wide range of other things that condo associations typically govern, from the size of owners' dogs to the color of their house paint, you might even expect that smoking rules would be written into the typical Covenants, Conditions, and Restrictions (CC&Rs; the government document for homeowner associations).

Apparently not. In fact, as described in the article, "Battle Over Smoking in Condos Catches Fire in Florida," by I.M. Stackel of the Daily Business Review , the issue is just making its way to the forefront of public attention -- mostly via the court system.

Until it's resolved, both condo buyers and sellers need to put it high on their list of issues to address before the sale is finalized. Buyers who want to either avoid neighbors' smoke or have the right to smoke themselves should carefully read the CC&Rs, ask questions of the sellers, and talk to the neighbors' about others' experiences there.

Sellers who know that their unit is subject to the entry of secondhand smoke will want to disclose this to buyers. Yes, it might turn some buyers off, but as we explain in detail in Selling Your House in a Tough Market, that's better than facing a lawsuit later.

Like many homebuyers, we discovered during the course of the inspections that our new home-to-be wasn't entirely perfect -- in fact, it really needed a whole new foundation if we wanted a decent chance of surviving the next earthquake. (Not too surprising for a house that's nearly 100 years old.)

That led us to the same question many others have dealt with: Do the work right away, in the midst of all the craziness of moving, or wait a bit?

Of course, for some people, there's no choice, because their mortgage lender insists that the work be done before funding the loan. But our lender wasn't requiring this. So for us, the pros and cons looked something like this:

ADVANTAGES TO DOING WORK RIGHT AWAY:
1) Our lives were already in chaos, why not add a little more?
2) Once the work was done, we'd be able to settle in, hang paintings, and repaint if we wanted to, without having to undo it all and repaint over new cracks in the walls after the foundation work was done.
3) We could avoid buying earthquake insurance (which many homeowners with solid new foundations forgo)

DISADVANTAGES TO DOING WORK RIGHT AWAY:
1) The weather. It was one of the rainiest winters in my memory, which would have made it nearly impossible to store things outside that would have, but for the foundation work, normally been in the basement.
2) We didn't know anyone who'd need a house-sitter in January -- whereas, by waiting, we could house-sit for friends on summer vacations if the noise and chaos of construction got to be too much.
3) We'd have a chance to regroup, cash-wise. We moved into our new house before selling the old, which was already a financial challenge. We didn't want to be down to our last dollar when the inevitable new costs arose ("Hey, how about we replace your old, cracking floor slab while we're at it?")

So, three against three -- and we decided to wait. Mostly glad we did. We keep looking at the surrounding chaos, with a trench all around the house, deep holes underneath, and dirt piles in our back yard, and saying, "Can you imagine doing this in the rain?"  

But it does sometimes feel like we're moving all over again. And we did end up house-sitting for friends. (Thanks, guys.)

A foundation removal is a big deal -- there was dust pouring through cracks in the house we didn't know existed. It was shooting up behind the mantel! And the downstairs plumbing had to be disconnected for nearly a week.

Does this lead me to any advice for others? Nope, I'm afraid there no universal answer. Wait, there's a better way to put that: There's no wrong answer. Do what feels more comfortable, and expect some chaos either way!

As this recent article in the Washington Post by Michael A. Fletcher describes, a number of unemployed Americans are finding that, even if jobs are available in other cities, they can't sell their homes -- or can't sell them for enough to cover their mortgages -- leaving them, effectively, stuck.

Surprisingly, however, the article doesn't mention the possibility of renting out the space until house values improve. This won't work for everyone, but it can work well for those living in areas where rents have actually risen or held steady since the real estate bust. In many cases, demand has actually been driven up by the numbers of people foreclosed upon or otherwise unable to qualify for a mortgage.

For example, check out this July 27 Bloomberg article by Prashant Ghopal, stating that, "U.S. apartment landlords are seeing a surge in rentals as mounting foreclosures reduce homeownership and an improving job market for young adults encourages them to find their own places to live."

Still, even at a decent rent, the amount might not cover the mortgage and other expenses. You'd need to run some numbers. For help with that, see Nolo's award-winning book, First-Time Landlord: Your Guide to Renting Out a Single-Family Home, and the free article, "What It's Like Being a Landlord."

Sometimes a personal story is the most powerful way to illustrate the importance of certain tidbits of advice.

For example, if you've read any of Nolo's books on homebuying (such as Nolo's Essential Guide to Buying Your First Home), you've heard us say a million times that it's important to read the fine print in the Covenants, Conditions, & Restrictions provided by the homeowners' association (HOA) of your soon-to-be newly purchased condo or townhouse.

But, as a friend of mine buying a condo recently commented to me, "There were 300 pages of documents -- I'm not sure I ever would have read the whole thing!"

Good thing for her, the condo seller (of this existing complex, built in the 1980s) was not only a member of the condo board, but was upfront in making his seller's disclosures. He revealed that, on top of the regular homeowners' dues, there was a probable special assessment coming down the pike -- alarmingly enough, of an uncertain amount in the neighborhood of $10,000 to $20,000 per homeowner.

The problem is that various of the condo owners' roofs have started to leak, and not just because the roofs are old. (They'd already budgeted into the regular homeowners dues for regular roof replacements.) Apparently when the condos were originally built, someone didn't do the roofs correctly, and the flaws are starting to take a toll.

What's a condo buyer to do in this situation? My friend asked for and received a credit of $10,000 to be put into the escrow account at closing, but she's also researching madly, talking to contractors and people within the HOA about the likely costs of replacing over 100 roofs - or maybe just replacing individual roofs as they leak (a choice that the HOA members are still considering).

She may not get the answer before closing time -- but you can bet she'll be an active member of the homeowners' association, and attend all the meetings, to watch how this plays out!

Continuing on with the theme of popular culture depictions of real estate (my last blog posting sent you to David Letterman's Top Ten List), I hope you took note that home staging has truly "arrived" -- it made it onto The Simpsons!
 
That's right, in the episode that aired last Sunday, the town of Springfield was in financial crisis, and the house next door to the Simpson's was put on the market -- by just one of the many families moving to Detroit "in search of a better life."
 
Bart and Lisa soon notice delicious aromas of baking cookies wafting their way. But sensible Marge assures them that this is just a ploy by the sellers to make people subconsciously want to buy the house. Bart wonders, "What kind of a big fat moron would fall for that?"
 
Enter Homer Simpson, zombie-like, moaning, "Cookies! Must buy house!" He follows that with a litany of lines like, "Get loan preapproved," "Offer over asking," and "waive inspections," but I may not have the lines exactly right, since I can watch this episode only so many times at the office without others wanting to trade their jobs for mine.
 
But you can watch the whole thing, at Hulu.
 
Be sure to hang in their for the next best line in the episode -- when Bart introduces himself to the neighbor, saying, "You've no doubt read about me on your nuisance neighbor disclosure."

If you're a seller looking for more information on staging, check out Nolo's article, "Should You Hire a Home Stager?". 
 
 

It has happened to some homebuyers; the neighbors turn out to be NOT WHO THEY APPEARED TO BE. Luckily, late-night host David Letterman has supplied this handy list of Top Ten Signs That Your Neighbor is a Russian spy. Yup, if your mail carriers keep mysteriously dying of polonium poisoning, you just might want to investigate further.

On a more serious note, when home shopping, it's worth asking both the home seller and passersby you meet in the neighborhood about your neighbors' personalities and activities before you close the deal. Some states' disclosure forms will ask the seller to provide potentially neighbor-related information, such as local nuisances or legal disputes concerning the property. But others leave it to up the up to the seller's conscience as to whether they fill in the "Other" box.

There's nothing to stop you from knocking on your potential new neighbors' doors, introducing yourself, and taking your own measure of their personalities. In most cases, a Russian accent means you should look forward to some pleasant evenings over borscht, blini, or vodka. But, as Letterman warns, think twice if they hand you a business card where "Russian Spy" is crossed out and "Landscaper" is scribbled in . . .  .

For more information on checking out the neighborhood and the neighbors when choosing a new place to call your own, see Nolo's Essential Guide to Buying Your First Home.

Once upon a time, a buyer and seller could set a closing date and expect that, barring a few hours' panic about some little item, that would be the date upon which the home purchase would be completed and ownership change hands.

Those days are, for many home buyers and sellers, gone. The main problem seems to be that the lenders have gotten so nervous that, even after preapproving a buyer and demanding scads of paperwork -- bank statements, pay stubs, gift letters, bank statements from people giving you gifts, explanations from employers about why your income has changed over the past year, and so forth -- they've developed a tendency to come up with last minute requests for yet more paperwork.

Or, in some cases, lenders reportedly want to wait for pending home sales to close, in order to make sure they've got the absolute latest figures on comparable home prices. (How's that going to work if all the lenders do the same thing?)

In a similar situation, the buyer's mortgage broker may still actually be shopping the buyer's loan around to different lenders, each of which is seeing the buyer's paperwork for the first time, and coming up with its own requirements.
 
One real estate agent I spoke with recently said he'd been involved with a home sale in which the lender's demands delayed the closing by 17 days! What can you, as a home buyer or seller, do to avoid such messes?

If you're the buyer, I recommend getting everything together for your loan paperwork as soon as possible, then checking with your broker or lender regularly to follow up. Ask lots of questions, like "What's the next step for my application," "When should I expect to hear confirmation that it's going as planned," "What are all the possible ways to reach you," and "Do you have any upcoming vacation plans?" Don't take vague reassurances that the loan will close on time at face value.

If you're the seller, don't accept a purchase offer until you've checked out the buyer's finances and ascertained that the loan upon which your sale is contingent is realistic (at an appropriate interest rate, and hopefully based on a down payment of 20% or more).

Once you're in contract, ask your agent to keep in regular touch with the buyer's agent about how the loan approvals are going -- and be prepared for the possibility that you'll be paying for your home's mortgage, utilities, and so forth, longer than you expected. If there is a delay, don't rush to cancel the sale -- instead, consider charging the buyer a daily fee in order to keep the contract in force -- your purchase contract may even provide for this. You might even want to start renting the place to the buyers, if they're desperate for a place to live -- better that they pay you rent than pay hotel bills. (Sign a separate rental agreement for this, too.)

No matter which side of the table you're on,  remember that patience and persistence is key. Blaming the other party may not be appropriate. Ten years from now, those few days' difference won't seem like so much.

You've probably got a long list of places to advise of your move to a new home, such as your doctor's office, kids' school, magazine and alumni subscriptions, gym, and more. It's the kind of task that's easy to put off as you unpack.

But here's a good reason to tell your car insurer right away -- if you've moved to a better neighborhood, it may lower your rates! That's right, a zip code considered "safer" can equal lower car insurance premiums. If you've already paid, you'll get a rebate for the remainder of the year. Not that you could use any extra cash right now . . . . 

Interesting article by Alyssa Abkowitz in the May 2010 issue of SmartMoney, called "Wanted: Single Women Home Buyers." Abkowitz discusses what new-home builders are doing these days to attract customers their way -- specifically female customers, who are often either the "deciders," or, increasingly, are buying solo.

Okay, so if you've got double X chromosomes, now's a good time to stop and test yourself: What are the most important home features to you? And what cool features do you wish homes had, but rarely seem to encounter?

Actually, some of the items that today's builders are rolling out "just for you" seem fairly predictable, like giant walk-in closets, enhanced home safety and security features, and attention to aesthetic details.

Some, as Abkowitz points out, seem like things that any reasonable person would want, such as kitchens that open into the family room, walk-in pantries, and drop-zones for groceries. (Yay for drop zones! In my house, they're called "chairs.")

And then there are the really granular, sometimes oddball features: wall-mounted gift-wrapping stations with retractable shelves; "serenity packages" that features walls padded with noise-muffling material and bathrooms with hidden storage right in the walls for reading materials and feminine hygiene products; and a special hairdryer-ready drawer with the plug included. Wow, things I never knew I wanted!

Come to think of it, having read too many Victorian novels as a kid, those hidden drawers sound really appealing. Some hidden bookshelves and passageways would be nice, too. And how about a dumbwaiter?