If you are home buyer in this market, your Realtor® should tell you these three things:

1. Short sales are selling, BUT they remain an exercise in patience

Statistically, we are seeing many short sales close. In fact, year over year, as reported we are seeing an unprecedented increase in sold short sales. However, I suggest that home buyers still stay cautious. What we don’t know is how long these escrows have been open and how long each one is taking to actually close. Anecdotally, they are taking anywhere from 45 to 60 days to get an acceptance from the bank. You can expect to add another 30 – 45 days to actually get your own loan and the escrow to close. So this can be, as you see, a long time. The days of making an offer and moving into your home 30 – 35 days later are gone. At least when it comes to short sales. So, be advised, home buyers, and learn patience. It isn’t easy, of course when you’re waiting to hear back and then hear a no or a maybe from the bank, but be prepared for it. And don’t get too attached to the home until you have a definite yes!

2. Many REOs are underpriced

Many first time home buyers seem to be having trouble with this fact. They read everywhere that homes are cheap and then they find an REO that seems like an incredible deal. Well, okay, they say, that works. And then they offer the asking price. After making these offers on about five to six homes they lose hope and decide to wait until the market gets better. What happened? The bank was underpricing the homes. The banks assume buyers are getting CMAs and they’re playing the game with them. Realtors® would do well to tell you this, but sometimes they worry that you might think they’re trying to get you to offer more and therefore are not on your side. However, I believe they are doing you a disservice if they don’t tell you that the home is underpriced. If you walk into a pristine home and the price is too good to be true, remember that it probably is! REOs are underpriced by banks and lenders in the hope that they will receive multiple offers and the ultimate price they get for the home is much, much higher.

3. This is a good market, but…

…you must be prepared. Make sure you know the area you are buying in, and get a CMA from your Realtor®. Most importantly, before you even go shopping ensure that you are pre-approved, have spoken to a lender and have the down payment set aside. This market provides incredible opportunities for the home buyer who is prepared to pounce on the right home, but if you are not ready the chance might just pass you by. If you are even considering buying a home today, the first step is to speak with a lender. Check your credit, get pre-approved, know what your payments will be every month and work backwards until you know the price you can afford. Only then, head out to look with a buyer’s agent you trust.

Good luck!

Hapy Friday! Today, I would like to go over some of the problems clients have faced in the past regarding their impound accounts. No one likes receiving their property tax and home insurance bills and being shocked by them, then angry that there is no money anywhere to pay the two. This is easily avoided, of course, by having your mortgage company take a little bit every month with your mortgage payment and then pay those two charges when you are billed for them.

On the face of it, it’s a perfect plan. Mortgage companies are required to give you the option of having an impound or not, and frankly, some of them feel more comfortable if they do. That way, they know they have a reserve and that you are not going to default on either your property taxes or home insurance, both of which the lender sees as a problem that directly affects them. However, impound accounts are far from perfect. It is necessary to be vigilant if you are a first time homebuyer and of course even if you are not.

Ensure the Bills are Paid

Many times, information just doesn’t get processed right. The insurance company sends you the bill, even though you have informed them that you have an impound account. Or vice versa. Either way, it is still your responsibility to follow up with both companies (insurance and mortgage) and make sure that the billing and payment gets handled properly. Even if the mortgage company says that the payment has been paid, call the insurance company and confirm. I once had an incident happen (to me, nonetheless!) where the mortgage company had sent the payment but the account number was incorrect. Meanwhile, the home insurance company was billing me. Well, many faxes and phone calls later, it was set right.

This is important enough that you take time off from work. That was driven home to me when the forest fires got close enough that I called insurance and made sure it was still valid. Never again will I rely on someone else to do a job I’m responsible for!

The Impound Might Send You a Check…

…but do not spend it! Cash it and keep it in reserve. A few months later, they’ll say that your account is short and you have to cover the difference. There is a reason this occurs: sometimes the property taxes paid by the person to who owned the home before you are much, much lower than you owe. That’s because property taxes get reassessed during a transfer of ownership. This can take a while. Meanwhile, during the mortgage company’s impound account audit, they look at the amount of property taxes on record (low) and how much they have held for your payments (high). That number will soon be revised, but for now, they are not allowed to hold more than a certain amount and so are required to send the money back. Even if your mortgage broker had the number right. So, don’t spend the money! Cash the check and save it. You’ll be glad you did.

However, it is Nice When Things Go Well!

Sometimes, however you do end up paying a lot more unfront when you buy the home, thanks to reserve requirements which some lenders insist on. This is a good thing. Remember the new property tax assessment I just spoke about? That creates a supplemental tax bill. The supplemental tax bill is the difference between what the previous owner paid and what you are to pay for the time in the tax year you moved into the home. That’s when you’re glad the lender had the reserve requirements.

You can call the mortgage company and see if they have more money in the impound account than you will need in the year. They can do the calculations for you. Taxes are usually roughly 1.125% of the transfer price. Add insurance and most mortgage brokers will use the 1.25% formula to calculate your mortgage payment. If the amount in the impound is indeed more than will be required for the year, you can go ahead and fax them the supplemental tax bill(s) as well and have them paid. That’s when you’re really happy with the lender for requiring reserves!

I guess all this means that you have to be vigilant. I know many home buyers like to have an impound account because they’re not good at setting money aside every month to cover expenses like home insurance and property taxes, but if anything goes awry, most companies (and definitely the county your taxes go to) will hold you accountable. Even if it’s a genuine error on the part of the mortgage company. So keep a tab on it and the impound account can be quite a boon!

I must be focusing on the home sellers quite a bit lately… and honestly, there aren’t a lot of them out there. Most homes on the market – the ones that catch a first time home buyer’s eye anyway – are bank-owned. (By the way, some of them are such a steal lately. I was in Roseville yesterday showing homes and came across some fantastic finds for under $200,000.)

Anyway, for the purpose of this post, I’m going to focus on how you as a home buyer (first time or not) can pick the right neighborhood and be happy with your purchase. The fact that home prices have fallen so much makes it hard to choose the area you really want to live in. Couple that with the fact that REOs have generally deferred maintenance and unkempt front lawns and picking the right home seems like quite a gamble. But not if you follow these simple tips:

Friends and Family

Sure, you might not be the person to want your mother-in-law over at your home for dinner every night, but having family and friends in the same area might be a good idea. For one, chances are you have already been to their homes a few times, so you know the neighborhood. And instead of checking the newspaper for crime statistics and other details your relatives probably have first-hand knowledge of most of what you care about.

A built-in social life means a lot to many people as well. You might think you don’t care about that now, but sometimes having the yellow book or google as your only friend when you want to head out to just pick up something from the nearest store or find that perfect burrito place in town is not such a great idea.

Distance from Work / Commute Time

Some home buyers like to focus on the time it would take them to get to work. I remember my daughter’s pediatrician saying that he was all but two minutes away from his place of work and he loved it. He almost fainted when I told him I lived in Pollock Pines. Well, to each his own. I like to clear my head before I head home, unlike some others that would rather just get home and then relax.

Whichever camp you belong to, make sure that your home choice matches it. A good way to do this is to drive around during your lunch hour. If you prefer to live close to work, get a drive-by look at the homes listed in the area. You can also just search the area on our MLS search right here, but driving around gives you a visual of the homes, so you are better prepared to judge them. If you are one who likes a commute, time yours and then drive around on the weekends. Don’t judge your commute by the weekend drive time though. Pollock Pines for example is just 45 minutes from Sacramento on the weekends, but during week days it can take almost an hours and a half!

Do your research. Get a look at homes, compare prices and styles. Take your time getting to know the area. Some places are notoriously only business areas. Be sure you can live there or far enough away that you can separate home from work and relax when you’re home. Well, I suppose I should qualify that with an “if that’s important to you.”

Other Ways to Pick

The best things – my husband and I have decided – about moving to Pollock Pines are the neighbors. I have never met nicer people anywhere. Because it is a smaller town than Sacramento, the sense of community is greater but it isn’t so small that everyone knows your name and where you are and what you’re doing. If neighbors are important to you, some footwork might be necessary. It isn’t so odd to knock on a few doors and ask what the area is like. People are quite friendly when you ask about anything that is important to them. And if they aren’t nice, well, move on. Why would you want to live next to a grouch?

Google can be your best friend when looking for a certain interest and then buying a home close to it. For example, if you have a dog and want a dog park close, just search for “dog park” and the place you’re looking at. Same for horses. Or maybe you want to live close to a vineyard or a small home brew club. Google can give you all the answers and then you can do your research from there.

Hopefully, I’ve helped point you in the right direction. It’s usually a good idea to take some time to figure out what is important to you before making the leap to buy a home. Then you come from a place of motivation and reason to buy. Just because home prices have fallen drastically in a certain area doesn’t make it the ideal place. Take some time to do your research and once you know the right place, feel free to pounce on the right home!

This is the last part in a three part series. It seems like often home buyers who don’t have much experience purchasing or selling houses are not aware of how things really proceed in a real estate transaction. Sometimes even if they have been active in the market in the past, laws and rules change and keeping up with them as a consumer is hard. TV shows like the ones we see on HGTV don’t help either, because every state is different and sometimes there are different conventions within the same state across counties. All of this creates a sometimes confusing environment for home buyers.

Here I wanted to go over a few of the main issues that come up during and after escrows so you are more informed as a home buyer. So far, we have discussed the “as-is, where-is” clause, disclosures, inspections, flood insurance, keys and buyer’s remorse. Today, I want to go over some things that would occur after escrow closes or very close to the end of the escrow.

Buying a Home as an Individual when Married

This comes up about as often as once every three to four transactions. Sometimes the client is investing in a flip and does not want to include the marriage partner in the risk involved to his or her credit. Other times, a parent wants to buy a home for his or her children and does not want to include the other. Whatever the reason, it is important that you know that if you are married, the title company will want to get the spouse to either be on the title of the home or they will want the spouse to give up all claim to the house by signing an interspousal deed before the main purchaser signs the main document taking title.

Most home buyers are a little confused by this and are confused when asked if they are married. However, there is a reason for this. California is a community property state, which means all assets and liabilities are shared equally between spouses. Thus when one spouse acquires a house half of it belongs to the other unless expressly signed off. So, even if only one spouse will be buying a home as a sole and separate property, both signatures are required at the notary. It is a good idea for both spouses to make the time to be there. In the past, I’ve had the spouses sign at different notaries and it always creates confusion and leads to closing delays.

Home Warranties are not Perfect

Lately, home warranties are a good way for home sellers to attract buyers. The idea is that the seller pays for a home warranty and if something in the home needs repair, the dishwasher, for example, the warranty company sends someone to repair it for a low fee – currently around $50. You can also add roof coverage or air-conditioning coverage to the home warranty and it is typically paid for a year. You can also extend it after the first year by paying for it yourself.

A home warranty is a pretty good thing for home buyers to have, especially if the seller has paid for it. A home warranty covers unexpected expenses, especially at a time when new home buyers need them most – when they are dealing with a new mortgage and getting used to homeownership. However, there are certain exceptions to home warranties that you should be aware of. For one thing, you should know that they do not cover outside plumbing. Read the home warranty exclusions before relying on them completely to avoid unpleasant surprises.

Taxes

This one gets almost all new home buyers. Even if you have created a reserve in your impound account for all the year’s taxes, you will still get a supplemental tax bill for the year. This is because there is a gap between the taxes the earlier home owner paid (based on home prices when they bought the home) and the taxes you will owe (based on the price of the home when you bought it.) So don’t be surprised if it is a hefty one. Depending on when you buy the home, you can receive one or two supplementalt tax bills. It is a good idea to keep some cash in reserve for this supplemental bill.

However, be sure to check the year on the tax bill. Even if you are sure it is a supplemental bill, ensure the year. With the amount of foreclosures on the market, tax bills missed by the earlier home owners can mistakenly become part of your liability if you don’t check the date. The title company is your best friend regarding this, so hang on to the title company’s phone number and the title officer’s name.

As if that wasn’t enough, another thing that can go wrong with your property taxes is that the mortgage company might just return your reserves months before your annual (not supplemental) taxes come due. They might see it as an excess in their audit, but hold on to that money and do not spend it! You’ll be glad come tax time.

I think that about covers it. These are the most common pitfalls home buyers seem to run into on a regular basis. As the risk of using a cliche, forewarned is forearmed, so be aware of these when you decide to buy a home and ask your Realtor® questions! Questions don’t bother us. Believe me.

This is part two in a series. The last time, we covered things related more closely to REOs or bank-owned homes, since that seems to be what most buyers are picking up lately. While the “as-is, where is” clause, disclosures and inspections are not necessarily specific to bank-owned homes, it is usually in the purchase of one that a home buyer runs across the them. Today, I want to go over three more that most home buyers are not prepared for and are especially shocked at because they appear so late in the escrow transaction.

Flood Insurance

Usually flood insurance is optional. However, I have had escrows where the client gets a quote from his insurance agent and we send over the proof of insurance to escrow, but the net sheet on the day of the signing comes back with a quote for flood insurance as well. What happened? The client thinks there is a mistake and refuses to sign. The lender however believes that flood insurance is required and refuses to remove it from the net sheet, will not have loan documents out without the home getting flood insurance. Who’s right?

Sometimes there really can be an error. Maps of flood hazardous areas are constantly revised and no one can say with any guarantee that a certain area falls within a flood zone. A classic example is Colonial Village. Just five years ago, flood insurance was required in all homes in that neighborhood, but then maps were revised and flood insurance is optional. Home buyers are advised to read their Natural Hazard Disclosure Reports closely. That is where you will find out if the property is in a flood zone. If it does fall into one of the flood zones, the lender will require you to carry flood insurance, just as you are required to carry home insurance. But at the very least, you’ll know during the contingency period, so that there are no surprises the day of the signing, which is pretty nerve-racking already without added stressors.

Keys

If you’ve been watching movies or the property shows on HGTV, you’ve probably got the wrong idea. Almost always, the happy home buying couple signs the documents and the Realtor® or the title officer hands them their keys. The pens are barely capped and put away, the ink isn’t dry and the keys to the new home are exchanged. Well, I have news for you: that almost never happens. Signing documents really is as dreary as it sounds. There will be a stack waiting for you when you get to the title office. You will be warned about what happens if you default on a payment, the details of your loan will be explained to you along with other disclosures and then you get to sign and go home. You don’t receive keys on that day.

After you sign the loan documents, they are taken back to the lender. The lender ensures everything looks right and then the loan is funded. This usually happens the following day. When the loan is funded, the title company is notified and the transfer of title is sent for recording at the county clerk recorder’s office. It is only after the recording confirmation is received that the keys transfer hands. Chances are your Realtor® will meet you at the property and take the key from the lockbox and hand it to you.

Most buyers are surprised that so much has to occur between signing and receiving their keys. It all usually takes no longer than 48 hours. But those can be the longest 48 hours you experience!

Buyer’s Remorse

Yes, Virginia, there really is buyer’s remorse. When it hits, even the most excited first time home buyers have no idea what is wrong. The truth is, there really is nothing wrong. Maybe it’s that the excitement of buying a home is now over. After the hundreds of homes to choose from, there is the one that has been settled on. Maybe it’s that you have just got a huge loan and feel like you have spent a lot of money. Or maybe it’s just the adjustment into a new place. Whatever the reason, buyer’s remorse involves a feeling of sadness or disappointment home buyers often experience after the purchase of a home. Sometimes, it hits during signing, sometimes before signing. Other times, home buyers complain of feeling especially low right after they move into the new home.

One way to overcome buyer’s remorse is to get involved in decorating the home. It also helps to have a housewarming. And definitely cancel all those services where you had new listings emailed to you automatically. Stop looking at new listings around you. Yes, it is a commitment, a little like getting married. Make the most of your new home and stop looking at others.

Hopefully, this helps you the home buyer anticipate some potential problems that could arise if you didn’t know everything about the home buying process. Come back for the last and final part of this series!

The alternative title for this post series was going to be “Nine Things that Knock Home Buyers Off their Feet” but I thought that was rather dramatic and I’ve decided to put drama in my life away for a while. Just for a little while. So there. Anyway, I’m writing this series because some of my clients had no idea about what to expect when it came to the home buying process. Recently, I read in a book and mentioned elsewhere that the real estate market at any time is filled with people that are inexperienced buyers and sellers. The reason I repeated it is because it struck me as so true. This post is designed to make you, home buyer, a little more aware of what to expect. Today I’m talking about the as-is clause, disclosures and inspections. Today’s post is more related to the REOs, if you’re considering buying one.

The “as-is, where-is” Clause

Banks don’t like real estate. It ties up their money so that there’s less to lend and reduces their profits. So when a bank (read lender, mortgage company, etc.) acquires a piece of real estate, either through foreclosure or a short sale, something I like to refer to as an “almost-foreclosure,” (Note: A bank doesn’t come into direct possession of a home when a short sale occurs. Rather, the owners have let the bank know they cannot make any more mortgage payments and the bank forgives the loan and sells the home short. It’s an alternative to the traditional, otherwise eventual, foreclosure.) the bank wants to get it sold.

Chances are, the lender has already lost money on the home. Add to that the fact that none of the lender’s representatives have ever been inside the property and have no idea what is wrong with it. Thus, most banks will have an “as-is, where-is” clause in the contract. As such, the bank will make no repairs to the home. What you see is what you get. (And sometimes, you get more than what you see.) In fact, the “as-is, where-is” clause is so common that if the lender does want to make repairs, it will be advertised prominently in the listing to draw buyers!

As a home buyer though, you should know that just because the contract says “as-is” does not relieve the banks of giving you time to get your inspections. And get your inspections you must! If something does come up as a deal-breaker for you, you can always get out of the contract, and provided you do it during the contingency period, you will get your good faith deposit back.

Disclosures

Okay, so you have found the ideal home. You think it’s perfect! Your Realtor® shows you the CMA and you decide it’s a fantastic deal! Now, what could be wrong with it? In a “normal” sale, a non-distressed sale, the seller would have to fill out a Transfer Disclosure Statement in which he would tell you anything he saw as a potential problem. This time, the seller is a bank. And the problem, of course, is that chances are the bank – or any of the representatives of the bank – has never set foot in the home that is now on the market. So they have no idea what’s wrong with it, so how can they disclose anything to you, the buyer?

What you will receive however from the two Realtors® involved is an agent’s visual inspection. This should name all the potential red flags the agents note. Be sure to read these two disclosures along with all the others you receive during escrow and go over them with your property inspector. Don’t be afraid to pick on every little thing if it bothers you. In the absence of any “real” disclosures, you have to depend on your own inspections and your Realtor®.

Don’t expect any help from the lender. Most home buyers don’t expect this and think that the bank will tell them if there is anything wrong with the home. Disclosures are important, but even in a non-distressed sale, real estate brokers will always insist you get your property inspections.

Inspections

Inspections, as I have covered elsewhere on this blog, are paramount to making a good real estate purchase. Which inspections should you get? A termite, roof and property inspection are the main three. If you live in the country, a septic inspection is also important. If there are any specific concerns you have – like mold – it’s not a bad idea to get that, too. Be sure to get these inspections during the contingency period. That way, if you do discover something that you do not like about the home, you can always back out of the escrow and get your good faith deposit back. If the inspections are scheduled after contingencies are removed and you discover something which makes you back out, you will lose your good faith deposit.

That being said, home buyers should be aware that certain things might still go unnoticed during a property inspection. This one happened to me: my friends bought a bank-owned home when the power was turned off. As such, the home inspection was not as thorough as it could have been. (REOs often do not have power. You should try and get the power turned on before you get your inspections. Sometimes, the timelines don’t work, however, and that’s what happened to us.) After escrow had closed, they discovered the home had no hot water. Further plumbing inspections revealed that the plumbing in the home needed work. When we asked the home inspector why he didn’t catch it, he said that such an in-depth plumbing inspection was not required of a home inspector. Thankfully, the repair cost a few hundred, not a few thousand. So, get all your inspections and then some. It might seem overly cautious, but it’s not.

I thought I should do this series because many of the homebuyers out there in the market today are first time buyers. While I love that the recent real estate downturn is inspiring many people to buy homes – something that was out of their reach in Sacramento for a long time – the market is unfortunately filled with REOs and thus also full of risks. Most of the time, the purchase works out just fine and many homeowners today are so thrilled that they bought a bank-owned home because they got such a fantastic price, but sometimes things don’t quite work out. Either way, I like to inform my home buyers what to watch for.

In the next two parts, I’ll be going over other concerns home buyers have regarding a purchase that are common to both REOs and non-distressed sales. Come back for that, and Happy House Hunting!

Sometimes, Realtors® seem to speak a language all their own. I still remember being a new Realtor® and being completely confused during an office meeting with the acronyms: RPA-CA, CMA, WPA and so on. What in the world did it all mean? And now, I’ll be talking with clients and then look up into their bewildered eyes. Oops, I guess I commit the same cardinal sin: speaking in Realtor-tongue.

So, Just What the Heck are Contingencies?

Dictionary.com defines a “contingency” as a “dependence on the fulfilment of a condition.” In other words, as a home buyer your offer is contingent upon the fulfilment of certain conditions you write into the contract. If any of the contingencies are not fulfilled, according to the terms in the residential purchase agreement, you can back out of buying the home and take your good faith deposit with you. So a contingency is what in the past used to be called “a weasel clause,” as in something that gave you the opportunity to weasel out of escrow in case something didn’t go the way you wanted.

Today, the real estate transaction is less scary to the home buyer. Contingencies are already written into the printed contract used by Realtors®. If you wish not to have contingencies in your escrow, you have to (literally) sign them away.

Specific Contingencies & the Contingency Period

The RPA-CA (Residential Purchase Agreement or Offer or Contract) includes the following contingencies: inspection (and disclosures), loan and appraisal. The first seventeen days of escrow by default is called the contingency period. It is during this time that you will get the opportunity to clear the above contingencies. The home buyer receives all disclosures, schedules inspections, gets a loan and the lender clears the appraisal. If anything is amiss, for instance – if the potential home buyer cannot get a loan, he can walk away from the transaction and get his good faith deposit back from the title company where it is deposited. The same is true of the appraisal, something most home buyers worry about. If the home that the buyer is buying does not appraise for the price on the contract, the lender will, of course, refuse to lend that amount to close. Thus, the buyer can then either choose to cancel escrow or drop the price. Of course, all changes must occur with both parties’ permission.

I also have to mention that with the huge number of bank-owned homes on the market lately, the contingency period has suffered a bit of a contraction. A strong offer during the real estate boom years used to mean a 14 day contingency period – shorter than the 17 default days offered by the purchase agreement. Today, banks are reducing these days even further. I once saw a counter sent by the bank to my clients with the total contingency period shortened to just 10 days. While this reduction limits the number of days the property stays off the market (in case the escrow were to fall through and the house needed to be put back on market) with tougher lending guidelines and escrows and appraisals taking longer, it does severely limit buyer’s rights and can potentially put them in a difficult situation should the lender want more comps or another appraisal, for instance.

How Contingencies are Removed

As with all contractual agreements in California, this too must be removed in writing. At the end of the contingency period, the listing agent will usually ask for this form from the home buyers. It is usually up to the buyer’s agent to keep track of the total contingency days and remind the home buyers that they should remove the contingencies. If they do not, the listing agent can serve them with a “Notice to Perform.” Usually, this means that if the buyers do not remove contingencies, the seller can assume that the escrow has fallen through and – after returning the buyer’s deposit – can put the house back on the market.

Consequences of Removal

Home buyers should be careful, however. Once these contingencies are removed, it is assumed that escrow is going to close. Also, by removing contingencies, the buyers have now handed over their good faith deposit. If – after written removal of contingencies – the home buyers default on closing escrow the sellers retain their good faith deposit as liquidated damages. This default on buying the home could be for any reason, even if their loan fails to go through at the very last minute.

As such, many home buyers will “forget” to remove contingencies in writing. The jury is still out on whether in this case they should get their good faith deposit back. I’ve heard both sides of the story.

Do Contingencies have to Exist?

Contingencies are in place to protect the home buyer. Some people have asked me if there need to be contingencies even if they are making an all-cash offer and the escrow period is greatly reduced. I believe it’s always a good idea to keep contingencies. As a buyer it is your most important asset in buying the home. A lot can go wrong with an escrow, even if you are absolutely certain you will buy the house and do not need a loan. The disclosures could reveal something, or the inspections might find something you would not want to live with. In such cases, the home buyer is relieved to know that he can still cancel escrow and not have lost his deposit. Even if the escrow period is greatly shortened, leave time for inspections and disclosures. Cash escrows can close in two days – yes, I have seen them – but it’s still a good idea to extend that to at least a week and keep three days to clear inspections and disclosure reports. Contingencies are a home buyer’s best friends. Don’t scorn them.

I’ve been hearing lately that home buyers are skimping on the right home inspections because they are financially stretched thin. And I want to take the time today to talk about what inspections you should get before you buy a home and how important these are to your contemplated real estate purchase.

Time is on Your Side

As a home buyer, the first ten to seventeen days are yours. You must guard this contingency period and use every day you have been given to get any and all inspections and disclosures on the property as you can. Please, please do not fall in love with the home before this period is over. I know. This comment might as well fall on deaf ears, because most buyers have already decided they love the home and will buy it no matter what. They’ve figured out the furniture placement and which room is for which of their children. All right, then. At least treat the first few days as important so you know what’s wrong with the home that you might have to fix later – somewhere between your kids growing up and before the grandchildren come to visit. There. Now that might make sense.

But seriously, the contingency period is a little like dating. This is where you get the time to bring in whoever you need to approve of the property’s structure, appliances, electrical system, plumbing set up, roof, and so on. As a home buyer, this is your active time. While the lenders are working on getting your paperwork processed and ready to send to the underwriter, you should be at the property getting your inspections done. There is no better use of your time than this.

Let’s go over some of the common inspections home buyers ought to get.

The Pest Inspection

A termite company will send out a pest inspector to check for “wood destroying pests” in the structure. Since wood destroying bugs like beetles and termites can threaten the structural integrity of the house, you can probably tell that this is an important inspection. It is so important that the seller of the home might have even gone ahead and got a pest report. A pest report will tell you where the problems are on the property and will be divided into Section 1 pest issues and Section 2 pest issues. Section 1 is an active infestation, Section 2 is something that could become an active infestation given enough time.

The pest report is only valid for four months. The pest report will also show you how much the pest company will charge to fix all the problems in the home. Remember that if you are buying a bank-owned home, chances are that the bank will not fix anything. In that case, it is up to you to make sure you understand the liability in buying a home that might have a lot of pest damage. There might be active infestations that can get missed if the home is a big fixer.

Cost of pest inspections: $90 – $125.

The Roof Inspection

The roof inspection is another important one you should not miss as a home buyer. With the cost of a new roof currently bouncing around $9,000 to $10,000 it is not something you want to have to replace if you are already financially unstable. Even if you are doing well as a new homeowner, no one wants a big bill on top of their mortgage payment.

To me, there is really no argument against getting a roof inspection done except maybe getting one scheduled in time. There is no cost to getting one done, you don’t need your Realtor® to even open the property up for the inspector, you can then be assured of the structural soundness of the roof when you are huddled in your home during one of those New Year storms we always get in Sacramento and your home insurance company is happy as well!

Cost of roof inspection: Free. (Roof certifications and / or repairs costs vary. Again, keep in mind that with a bank owned home, you will probably not get a roof certification or repairs. Ask the roof inspector to spell out the costs associated with fixing it on the report. Always a good idea to get it in writing!)

The Entire Home Inspection

This is the big one. Plan on having about 2 – 3 hours for this one, especially if the home you are buying does not have a slab foundation and requires someone to crawl underneath the house to take a look at the structure under the ground. The home inspection covers mostly everything inside the home. The inspector will also check the outside water systems, walls, and so on for any glaring issues. He might then direct you to call a specialist if he sees anything. Remember that most of this inspection is visual and not invasive. He will not, for instance, pull up the carpet to check for mold underneath.

In my experience, home inspectors do a pretty thorough job. The power should be on for this inspection to be done right, so if you are buying an REO, ensure that your Realtor® calls the listing agent and has the power turned on. This is the only way to see if the central air works, for instance and that the electrical outlets are wired correctly. The home inspection is also a good time for you to ask questions. If at all possible, show up early and talk to the inspector about anything you might be concerned about. That way, he can pay extra attention to those issues and let you know at the end of those three very important hours if your concern is warranted.

Cost of a Home Inspection: $375 – $600 depending on square footage of the home.

Other Inspections

While between the three inspections above, most issues are covered, (Of course, if the home has a septic system, that is another inspection you absolutely should get!) don’t be fooled into thinking that everything is just fine. Sometimes, it is also a good idea to bring along someone you know to have a good eye for a property. Even though inspectors have been trained to look for problems, they are still human. I once had some friends buy an REO, got all inspections done and then a week later they found out there was something wrong with the plumbing and had to get it fixed for $500 or so. The home inspector said he had only checked what he was supposed to and the problem must have been deeper than that.

While such misfortunes unfortunately cannot be avoided, if you have a contractor friend (lucky, lucky you!) it might be worth it to bring him along and buy him lunch or dinner later to just have him check the place out during the home inspection. His insights might be priceless.

You’ve Been Warned!

This list of recommended inspections is, of course, not exhaustive. If you think it is, you only have to take a look at the Buyer Inspection Advisory you sign along with the Residential Purchase Agreement or “the offer.” It lists a whole host of inspections you can get to ensure that the property you are buying is safe and – structurally, physically, topographically – sound.

I hope I have worried you home buyers now into getting all your inspections done and using every one of those contingency days to ensure the house you are buying is really something you can afford. There is really nothing wrong with the home having flaws as long as the flaws are either fixable or manageable. And always remember that the fees you pay up front to get these inspections will dwarf in comparison to the huge amount you may avoid paying later when going through buyer’s remorse.