fbtwittergoogle877.413.7325

Home buyer due diligence

Do your due diligence prior to buying a new home

Probably the most important step you can take when buying a home is to do a good job of performing “due diligence”.  What do we mean by due diligence?  These are the steps that help you make sure that the home your are buying is what you expect it to be, and to help make sure unexpected problems don’t show up later.  It is virtually impossible to remove all risk, but performing common due diligence steps can greatly reduce any future problems.  Although there are other due diligence steps, depending on your individual concerns and the specific property, here are the most common steps a home buyer should perform (if working with a broker such as Tellus Real Estate Solutions, ask them for advice):

Home inspection: The single most important due diligence step is to hire a home inspector and have them do a thorough job of checking the home and its components. In Washington State, paid home inspectors must be licensed. A home inspector will check the basics: roof, siding, attic, basement/crawlspace, plumbing, electrical and HVAC (the furnace). The focus will typically be on safety issues more than cosmetic issues. A good inspector can tell you what is wrong and tell you what is typical for a house of that age and location. Many inspectors will provide rough estimates for repair costs, though that is uncommon. The inspector may recommend more inspections by experts such as engineers, electricians, or plumbers to provide you with a more detailed evaluation of specific repairs required.

Sellers’ Disclosure Review: Washington State law requires that home seller’s provide a disclosure of all known ‘material’ defects in the property. Buyers can waive the right to receive the disclosure, and may be required to do so by some sellers such as banks. Review the disclosure form and ask questions about any issues mentioned. If there is little information provided or no disclosure is provided, pay special attention to the home inspection.

Neighborhood review: In many ways, this step is as important as the physical property inspection. Introduce yourself to your new neighbors and get a feel for the neighborhood. Drive by at different times of the day, on weekends and in the evening so you that you are aware of the types of activities that are typical in the immediate area of your new home. Check with the police and fire department to find out if there are any known issues with criminal activity or vandalism. Do some research on the internet to find out everything from ratings of local schools to the location of registered sex offenders in the area.

Title review: As part of the sales process, the seller will have a title insurance policy issued that benefits you as the buyer. If you have a lender, you will issue a title insurance policy to them. The title insurance policy guarantees your ownership rights. As part of issuing the policy, the title insurance company will conduct a title search and then issue a report of their findings that lists any issues against which they don’t insure. These items are ones that somehow limit your ownership rights or indicate claims by other people on the property.

Common items are existing liens against the property for home loans, judgements, utilities or mechanics liens (liens from contractors or other service providers put on the property to guarantee payment). You will want to verify that these will be cleared up at closing and that the escrow company will take funds from the sale proceeds to pay all of these debts. You or your agent can do some rough calculations to make sure there will be enough money to do this.

Other issues are more difficult to clear up, or impossible. There may be an easement on the property for public utilities crossing the property. There could even be an easement that allows neighbors to walk across the property to access a lake or stream on the far side of your property. Some properties come with restrictions on how the property can be used due to zoning or other rules.

HOA Rules and CCR Review: Many properties are part of a Home Owners Association (HOA) or are located in an area with Conditions, Covenants, and Restrictions (CCRs). CCRs will show up during a title search and might limit your ability to use the land. They may say all lots must be of a minimum size or that any homes built must be a certain style or architecture. Previous owners may have sold mineral, water or development rights to other parties.

HOAs are neighborhood organizations with a legal right to set rules of conduct for a neighborhood. They may provide services, such as a public pool or maintaining common mailboxes. They can also set rules that limit parking of RVs/boats in front of your home. Some require committee approval for external remodeling or painting.

Appraisal: If you will be taking out a home loan or a line of credit on the property during the purchase, your lender will require an appraisal.  For cash sales, getting an appraisal is up to you.  The appraisal provides an objective opinion of the market value of the property.  Your lender will want to know that the property is worth enough money to make their investment in you and the property a safe one.  For you, the issue is wanting to know that you are not going into the purchase transaction buying a property that is worth less than what you are paying for it   An appraiser must have a specific license in Washington state. A real estate agent is not an appraiser (usually, at least) and can only provide a Comparative Market Analysis (CMA) or a Broker Price Opinion (BPO), which is not as detailed or formal as an appraisal.

Home owners insurability review: Be sure to share details about your prospective home with your insurer.  Insurance companies track claims on all properties. There are some types of claims which could make your property non-insurable or which might raise your rates. Also, other factors such as proximity to police and fire stations can affect your insurance rates. You will want to verify that your home can be insured, and for how much, early in the due diligence process.

Septic inspection: A septic inspection is a specialized type of inspection. It only applies when the property has an on-site septic system instead of a connection to a public sewer.  In Washington State, the seller will usually pay for the septic tank to be pumped and inspected. The inspector will verify, to the extent possible, that the system appears to be functioning properly.  There are many types of septic systems; some are simple and others are quite complex. During the inspection, the inspector can usually help explain how the system works to a new buyer . Always show up for the inspection or make sure you have a representative there. There have been cases when the septic pumping service never even showed up to inspect the system, but provided a bill for pumping and inspection.

Well water testing: If the home has a well, or is on a well shared with other owners, you will want to verify that the system pumps enough water and that the water quality is acceptable.  County health departments provide guidance and instructions on how to properly sample water and have it tested. Testing water flow can be more challenging. If in doubt, hire a well drilling company to come and verify that the system works appropriately and identify any steps that need taken if it does not. For shared wells, identify who is responsible for maintenance and be sure to obtain any reports that have been made available.

 

Leave a Comment





This blog is kept spam free by WP-SpamFree.