How much of a project should you take on? We asked real-estate agents and a home inspector what buyers should consider when evaluating a home that needs work.
In this month’s Buying Advice, we’ll also check in with the latest housing statistics and help define a real-estate phrase that’s commonly used but not universally understood.
Repair, renovate, rehab Buying a fixer-upper is hardly ever anyone’s first choice. But with the number of available listings at or near record lows in many markets, paying for repairs is something more buyers have to plan on, says Chasin Prather, with ERA Buy America Real Estate in La Palma, Calif.
“Relying on the seller to make the repairs you want in this market is not a good strategy,” he says. “Assume you’ll have to take it in the existing condition.”
A recent home inspection at a 1952 tract home on which his first-time-buyer clients had made an offer turned up inferior galvanized plumbing, and other repairs were needed. Despite the large tab to make repairs, the seller offered to pay only one-quarter of the cost.
“The tight competition allowed the seller to say, ‘Take it or leave it. I have seven other offers,'” Prather says. His clients ultimately decided to buy it.
But Prather says there are times when it’s best to walk away. Here’s his list of problems you should walk away from:
- Mold: If you see or suspect (sniff sniff) mold in the house, you should definitely get it inspected carefully. (Did we mention that you should never skip a home inspection, or any additional specialized inspections recommended by the inspector?) Mold on the inside could mean repairs to plumbing and extensive drywall replacement. Exterior mold could mean that the house has improper drainage, which requires expensive lot grading to remedy and, if uncorrected, could mean a flooded basement every time it rains.
- Foundation issues; If an inspection turns up a problem with the foundation, you can bet that you’ll be draining your bank account to fix it. And if your lender becomes aware of the problem, it could jeopardize your financing, Prather says. Many lenders request a copy of the home inspection if it is cited on the purchase agreement.
- A bad floor plan: Many buyers with large families talk themselves into a home with a less-than-ideal floor plan by rationalizing that it would be made better with an addition. While an addition can add space, it can’t always resolve issues such as a cramped kitchen or bad access to the laundry room, bedrooms or backyard. “Be sure the rest of the home works for you,” Prather says.
Bill Jacques, president of the American Society of Home Inspectors, says first-timers should probably steer clear of a house that needs extensive repairs. He says most people overestimate how handy they are and underestimate the costs of repairs. “They end up taking on these large projects and not being able to finish them,” he says.
Problems that made his walk-away list include:
- A bad roof: You are looking at thousands of dollars to replace it, on top of any other work.
- A dead or dying heating and air-conditioning system: “If you have to replace the unit, you’re looking at a minimum of $5,000,” Jacques says. And if it’s a much older home, you might also have to commit to replacing some ductwork.
- An ancient, problematic electrical system: Many old homes, he says, have faulty wiring and electrical panels that could pose a risk of electrical fire. For example, he says, in many cases, old circuit-breaker panels made by Federal Pacific Electric Co. failed to trip and protect homeowners. Updating wiring is expensive, he says. Know that going in.
If many repairs are needed, he says, you have to consider whether you’d be better off waiting and buying something a little more expensive. “You will be spending all of your money [and time] trying to fix everything up,” Jacques says.
If you are going to give a fixer serious consideration, make sure you do your homework, says Tony Geraci, broker/owner of Century 21 HomeStar in Cleveland.
Price out repairs with a licensed contractor before you buy and have the contractor help you map out a realistic timeline for repairs.
If repairs are major, ask yourself if you are able to find another place to live. If you must move in, can you live with the house the way it is?
Know that a home inspection might not turn up everything that needs work. Make sure you have an emergency fund to deal with these problems.
See if your city’s planning department offers any grants, tax abatements or other incentives for renovations in your neighborhood.
Lastly, prioritize your projects and don’t tackle them all at once, especially if you’re doing it yourself. You don’t want to start working on both bathroom and kitchen and wind up getting stuck or out of money halfway through, when your counters are all ripped out.
“Doing it on your own saves you money, but there’s no one to complain to if you do it wrong,” Geraci says.
Housing-market snapshot Existing-home sales increased 0.8% to 4.98 million in February from 4.94 million in January and were up 10.2% from 4.52 million in February 2012. It was the highest sales level since the tax credit of 2009.
The national median price for an existing home climbed 11.6% to $173,600 in February from the same time a year earlier and registered the largest monthly increase since the hot housing market of 2005. In the West, where choice is the most limited and multiple offers are common, the median price rose 22.7% from last February.
Rising prices are finally beginning to translate into more listings. Total housing inventory at the end of February rose 9.6 % to 1.94 million existing homes, a 4.7-month supply at the current sales pace. However, it’s still 19.2% below a year ago, when there was a 6.4-month supply.
With such low inventory, the median time on the market dipped to 74 days in February, down from 97 days in February 2012. One out of three homes sold in less than a month, according to the National Association of Realtors.
Real-estate term of the month: Title search No matter where you live, your lender is going to require a title search if you’re buying real estate. Most first-time buyers have heard the term tossed around, but only a portion of them knows what it means and how it works.
We asked Alicia Champagne, a real-estate attorney in Wilmington, Mass., to shed a little light on this process. What is a title search? And how and why is it done?
In its simplest terms, she says, it’s a search of a property’s history to make sure that the seller has clear title to the property and that nobody else could stake a claim to it once you purchase it.
“Most of my homeowners say, ‘Alicia, hand me the piece of paper with clean title on it,'” she says. There is no such piece of paper, she says. Instead, title is just a synopsis of property records used to issue title insurance to a lender and confirm lot boundaries or easements.
While the process varies from place to place, it usually consists of a review of documents at the county recorder’s office and a search of the federal bankruptcy system. Each county recorder keeps a public record of real-estate transactions under the property’s legal description.
The person conducting the search is also looking for any tax liens, judgments, unpaid homeowners-association assessments or mechanics liens — filed for unpaid work on the property. If the property is part of an estate, he also determines whether probate is necessary. If there have been liens in the past, they must be discharged or removed to ensure that there’s no threat to title.
The person doing the title search is also making sure that the property hasn’t been conveyed to a trust or business. A separate search of federal bankruptcy records ensures that a seller can legally sell the home and that a trustee does not hold it.
Once the search is done, it is used to issue title insurance to the lender, protecting it against any other unforeseen threat to the deed, including fraud.
By: Melinda Fulmer
Don’t hesitate to give me a call at 970-227-7355 or shoot me an email at [email protected] if you would like more information about the current market!