I quit playing blackjack when the casinos did away with the $2 minimum table bet. Yes, once a high roller, I could spend hours playing with $20. Today, thatÕs two hands of cards. To be successful at blackjack, a player has to pay attention to the distribution of cards to the other players, always hold on 17 and take advantage of the opportunities when they come along like splitting aces and eights or doubling down when the dealer has a low card showing. It would be a tense but exciting moment whenever I would double my bet and my $4 fortune would be riding on the next card coming out of the deck. Card players always have to ante up before they can see what cards they are dealt. ItÕs much the same for homebuyers today.
In addition to the initial $2,000 earnest money check, my clients have spent $1,800 for the opportunity of a serious look at a house they may not buy. Buyers are risking serious money just to play the homebuying game. That wasnÕt always the case but a market dominated with short sales and bank REOs has changed the rules.
A few years ago when buyers found a home they were serious about, they would place an earnest money deposit into escrow, review the property disclosures and reports furnished by the sellers and hire a whole house inspector to ensure there were not any material defects or safety issues. Usually, items showed up during the whole house inspection and the seller would be requested to resolve those issues. If the buyers discovered any problems with the property that could or would not be resolved to their satisfaction, they could cancel escrow and their earnest money deposit would be returned. Buyers would be out the $250 to $350 for a home inspection but usually no other costs.
It was pretty common for sellers to pay for most of the inspections and reports concerning the property including: the initial pest inspection, the follow up pest clearance, the septic inspection, if the home was serviced by a well then the well flow test, maybe a survey, certainly a roof inspection and two-year certification and sellers generally repaired anything of significance discovered during the buyersÕ investigation.
There were several reasons for the traditionally accepted principal of Òseller conditioningÓ of the home for the buyer. Buyers were paying top dollar for a property and expected it to be in good condition, lenders wanted assurance that the security for the buyersÕ loan was in favorable condition and sellers were making huge profits from the sale. ThatÕs all changed over the last few years in a market dominated by short sales and bank REOs.
When involved in a short sale, sellers are usually financially unable or unwilling to spend any money for inspections, reports and repairs for the buyerÕs benefit. Although short sale sellers may provide some individual property disclosures regarding the propertyÕs history, I have found many to be incomplete or suspect. A sellerÕs financial problems can be emotionally stressful and lead to disinterest in the property and its sale.
The existing lenderÕs cooperation by discounting the mortgage is necessary for the short sale to proceed but lenders limit their liability to the mortgage discount only. They are not enthusiastic about paying for inspections or any requested repairs from the buyer. Most short sale buyers find themselves with limited or inaccurate property history furnished by the seller and confronted with the lenderÕs ÒNotice of Non Responsibility.Ó It falls upon the buyer to incur the expense of gathering accurate property information or risk buying a money pit.
While short sale sellers may provide some history about their home and the minimum state required disclosures, lenders who are selling their REOs have no such legal obligation. REO sellers prefer offers that donÕt require property inspections or repairs. Buyers are usually on their own and faced with spending serious up-front money to ensure the integrity of the property. If they discover the property has serious problems they may be entitled to a refund of their deposit but any money spent on inspections is forfeited.
Timing is critical. Standard purchase contracts allow buyers 17 days from the time of the sellerÕs acceptance to perform all their property investigations. ThatÕs usually sufficient when in escrow with an individual seller but often not enough time to thoroughly investigate a home without a history. It may take a week or longer to reconnect the water, propane or other utilities.
When homebuyers must ante up money for a peek at the condition of a home they have under contract, they should start with the pest report. A $125 pest report is the most comprehensive property inspection for the least amount of money. The inspector will provide a bid to correct any issues discovered. The next most critical report would be the buyerÕs $300 to $400 whole house inspection. If the whole house inspector doesnÕt include the heating and air conditioning, a buyer should call an HVAC technician. A $400 roof inspection and two-year roofing certification is inexpensive insurance. If the home has a septic the cost is $400 for pumping and inspection. A well-flow check and county water potability test is $400. The property appraisal will cost $400 to $450 and must be paid up front.
Buyers can easily have $1,500 invested in home inspections and then discover a major unexpected problem. They are then faced with a decision. Since they already have time and money invested in the home, should they move forward with their purchase or walk away?
As my favorite gambler Kenny Rogers once said, ÒYou got to know when to hold Õem and know when to fold Õem. Know when to walk away, know when to run.Ó
Ken Calhoon is a real estate broker in El Dorado County. He can be reached through his Website www.kencalhoon.com.