For most of us, buying a home is the largest financial investment we will ever make. In this series of blog posts, we'll focus on three important topics: 1) building a home purchase “buy box,” 2) gathering the information required to make an informed decision, and 3) applying effective decision-making frameworks to the homebuying process.
When you first start looking for that “perfect” house, you probably start the way most people do – by focusing on all the great features that you want in a home. When you go to your first open house, you admire the cute breakfast nook, the bright sunroom, and the space for the dog to play in the backyard. You dream of the summer dinners you’ll enjoy on the back deck. The goal of finding the perfect home for you and your family is within reach.
In our daily work at Landed, we make dreams come true, but we also spend a fair bit of time removing people’s rose-colored glasses. What you probably aren't thinking about when you’re dreaming of those summer dinners on the deck is the possible mold in the attic, the crack in the foundation, or the wildfire that burned through town 10 years ago. The relevant information disclosures you’ll get from a seller can easily number in the hundreds of pages; at Landed, we recognize that this is overwhelming for most people. We provide our homebuyers with actionable feedback and highlights based on the disclosures we review.
How to gather the right information
In this post, I’ll discuss how you might gather and evaluate an abundance of information about each property. One of the key challenges when it comes to selecting a home is that each property is fundamentally unique. Once you’ve filtered for the properties you may want, how do you make your assessment of a specific property?
In order to make good decisions, you need good information. For most people, the first place they’ll start gathering information is some form of real estate advertisement – maybe a Multiple Listing Service (MLS) page, Zillow, or Redfin. There is valuable information there, but it’s just a start.
First, the boilerplate disclosures
Each city and state has its own set of standard information disclosures that a seller is required to provide. These might include long explanations about risks, including lead-based paint or other hazards. Many of these disclosures are standard forms that the seller simply needs to provide but not fill out.
Some of the forms the seller is required to provide are not boilerplate; they are unique informational disclosures about the specific home you’re considering. Below, we’ll go over the more unique disclosures and other reports you should consider.
One of the most important forms is the “seller’s questionnaire” (it might go by another name depending on where you live). In most parts of the country, this is a standard form, and it can be a very useful document. When a realtor is hired to list a home, they should request that the seller fill one out prior to listing. The questionnaire covers a list of things that the seller knows (or doesn’t know) about the home and property. It highlights almost everything there is to know about the place from an owner’s perspective.
Homeowners Association (HOA) documents
An HOA may have significant control over your property – so make sure you understand what you’re buying into.
There are at least three important documents you should review from the HOA. The first is a subdivision map showing each property’s boundaries and dimensions, as well as the common areas for the project. The second document is a declaration of covenants, conditions, and restrictions, more commonly known as “CC&Rs.” The third is known as a “reserve study,” which is a document reviewing the budget of the HOA and assessing whether the HOA is adequately funded.
The monthly charges of the HOA can be quite costly. If the monthly charges are not sufficient to cover the HOA’s costs, it might charge an assessment (or special fee) to all homeowners. We come across underfunded HOAs all the time at Landed. Keep an eye out for this in the reserve study if one is available.
Pay attention to what you as unit owners are responsible for versus what the HOA will pay for. For example, sometimes you are responsible for paying for all structural repairs inside your unit, while external or structural upkeep is shared by the HOA.
There may also be other special rules that are relevant to you, such as aesthetic rules, parking limitations, pet restrictions, and shared facility use rules. Most often, these can be found in the CC&Rs.
Natural hazard disclosure
A natural hazard disclosure is a document that informs the buyer if the property they’re considering is located in an area that is prone to natural disasters, such as earthquakes, floods, hurricanes, tornadoes, and wildfires. It’s designed to help the buyer make an informed decision regarding the likelihood of one of these disasters affecting their new home. While there is no federal requirement for this disclosure, many states require it.
Property inspection report
In a property inspection report, you should look for foregone maintenance or repairs that the seller has not taken care of yet. The inspection report may also list items requiring further investigation by a specialist. For the most part, the inspector will not go too in-depth, and you’ll find the information provided is pretty surface-level.
Many property inspection reports have a legend or explanation of their rating system, such as:
- Dangerous or warning
- Serious or needs upgrading
- Mild issue or a “heads up” maintenance
Sometimes you can negotiate with the sellers to repair certain issues prior to you purchasing the home. Alternatively, you might be able to negotiate a lower home price in light of the issues.
Note: Most reputable property inspectors belong to a trade association such as American Society of Home Inspectors (ASHI).
A pest inspection (also known as a wood-destroying organism report) contains a lot of useful information and is usually broken down into sections:
“Section 1 items” are noted in a pest inspection report as an active infestation, infection, or conditions that have resulted in/from infestation or infection. These issues can include pests, fungus, or dry rot. These issues should be remediated ASAP or they will get worse. Sometimes the inspector will quote an estimate for how much they think it will cost to repair.
“Section 2 items” are noted in a pest inspection report and are deemed likely to lead to infestation or infection; there is no visible evidence of infestation or infection at this time.
The findings in a pest inspection report should not be ignored. Small issues can become big issues before you know it.
A roof is often inspected by the same contractor who performs the general home inspection, but sometimes it’s explicitly excluded from the general inspection. Roof issues can be expensive to repair – and can lead to water damage inside the property.
The inspector will look at shingles, paneling, vents, chimneys, skylights, and every other part or attachment to the roof. Often, the inspector will be able to calculate the useful life of the roof and determine the probability of leaks or other issues.
A structural engineer is an expert in the design and function of buildings. Most people don’t have a structural engineer look at a home unless they have a specific concern. When you have one of these specialists inspect a home, they will be looking at things such as the foundation and load-bearing walls, the structural components (such as ceiling beams and rafters), and other aspects related to the structural integrity of the home. The engineer can examine how a house is settling, determine if a crack in the wall is serious or cosmetic, and make repair recommendations.
Below are a list of other reports that are worth considering:
- Sewer or septic tank inspection – highly recommended if there is a septic tank
- Mold report – highly recommended if another inspector spots possible mold
- Electrician’s report – highly recommended for older properties with old wiring
- Plumber’s report – highly recommended if leaks are found, or if the connection to the sewer system is the homeowner’s responsibility