Congratulations on deciding to buy a home!
The process of looking for and deciding upon the right house can be exciting and a bit overwhelming. For many people, buying a home is a byproduct of achieving an important milestone such as a new job, a move to a new city, an expanding family or perhaps increased economic success and stability.
It is also a complex transaction that represents a financial commitment that far outpaces any other purchase. Home buying can become overly emotional, once you’ve found the “perfect” neighborhood or your “dream home”, making it difficult to be alert to potential red flags that can turn your real estate dreams into expensive nightmares.
Here are 8 red flags to look out for before buying a home.
Are You Buying Housing or Real Estate?
No matter if this is your first home purchase or your tenth, buying a home represents one of the most significant financial commitments you will make.
It is important to approach it by making the distinction between simply buying a place to live versus a real estate transaction, not because you can expect to make loads of money on your purchase over the years (although that may happen), but because you are making a huge financial, social and family commitment. Buying real estate instead of buying housing means you are going to make every effort to protect the amount of money you are using for your down payment and the funds you are borrowing.
One way to protect your financial commitment is to consider what happens when you choose to sell the home you are thinking about buying. Crazy, right? You don’t even own it yet, and we are talking about selling!
Often, we make a home purchase thinking this is a “forever home,” however, life often doles out surprises, including positive reasons to relocate, or perhaps the need to move closer to an aging parent. Whatever the future holds, chances are you will need to resell your home, probably sooner than you think and maybe before you’ve completed all the updates and renovations you envisioned when you first purchased the home.
Good real estate is always superior to excellent housing!
You can have a house with a beautiful interior and a well-manicured lawn, but if it’s in a poor school district or a distressed neighborhood, on a busy street, then it’s not good real estate and you may not be making the best decision.
A professional real estate agent is often a great resource in helping buyers evaluate the pluses and minuses of housing vs. real estate, but it will be up to you to initiate that type of conversation.
Is the Home a Money Pit?
During your home search, be aware that there are many hidden areas that may not function well or may need complete replacement. These systems issues can be difficult to correct, especially if they have been degrading over time.
Although most states require that the seller disclose any known issues in writing, you will not get a real picture of the situation unless a professional home inspection is conducted.
This is an important step once you’ve decided to put an offer in on a home, and you can make your offer contingent on the results of the home inspection, including negotiating the costs of repairs or even walking away from the transaction if the inspection reveals more issues than you want to take on.
While we are on the topic of home inspection, this is where you want a thorough professional, not someone who provides you with a simple checklist. You should be on-site when the inspection is conducted, and the resultant report should include photos of areas of concern as well as recommendations. This will not only help you avoid potential financial surprises, but it will be a valuable tool in negotiating price concessions based on the report.
It's important to remember that structural repairs and systems replacements cost way more than the average home buyer hears about when watching Fixer Upper and Property Brothers. These are also the types of repairs that are best performed by professionals, not your father-in-law or local handyman, and should be included in your home-buying budget.
Unless you have plenty of financial cushion, access to terrific tradesmen and contractors, as well as a rock-solid marriage that will take the stress, steer clear of these types of problems unless you can fully protect your financial commitment by reducing the price of the home by the cost of both the repair and the aggravation.
Are There Candles and Air Fresheners Throughout?
During your home tour, be alert to the use of candles and air fresheners to disguise smells.
Look at the outlets for discrete plug-ins! Sellers work hard to hide issues such as leaks, mold and even animal infestations by covering up odors. Look under sinks, check the ceilings, look on basement walls and floors for water stains and check out the carpet and flooring for evidence of water damage.
Be wary if there is incomplete use of fresh paint, such as one wall painted in a room or fresh paint, just the ceiling and not the walls. This can be an attempt to temporarily cover up water stains or damage from leaks.
If you remain interested in a property with these warning signs, be diligent about reviewing the work done by the home inspector once you’ve placed an offer on the property. If the home, yard or geography seem to warrant it, consider adding a pest control inspection to your contingencies.
Are There Signs the Sale Process will be Complicated?
Most home buyers will need to secure a mortgage in order to proceed with the purchase. This can be a rather daunting process, and while it is facilitated by being pre-approved, getting everything done during the required time frame can be a workout.
However, if your home purchase also involves a few complicating factors, getting to the finish line can be a bumpy ride. A few more difficult transactions include sales that are listed “As Is”, sales necessitated due to divorce or death of original owners, and “For Sale by Owner” properties.
“As Is” sales mean that the seller is NOT going to pay for any repairs or remediations identified on the home inspection.
This is, of course, good to know going in, but it can mean that the seller is aware that there are some very expensive areas that need to be addressed, and by listing the property “as is” the seller’s liability for complete disclosure is limited.
Divorce sales can be cumbersome because your offer and negotiation may require parties who have opposing interests to agree. It is not always evident that a sale is due to divorce, but sometimes there are clues such as half the furniture is missing, or it’s a family-sized home and half the closet space is empty.
Estate sales may involve multiple adult children who reside in different locations, who may have different expectations as to the amount of inheritance involved in the transaction. Getting everyone to agree to your price and contingencies might be more difficult.
For Sale by Owner properties may mean the seller is simply testing the market to see if there is interest in the property, and therefore, not serious about a sale. In addition, by trying to avoid paying a full sales commission, this may be a sign that the seller has very little wiggle room in the sales price.
Other slightly complicated transactions could include properties that have been on the market for a long time. This could be an indication that the seller has an unrealistic impression of the property value, or that previous buyers have found issues upon inspection that motivated them to back out of the deal. If the property has been on the market for a long time without any price decreases, it may indicate that getting a lower-priced offer accepted could be difficult.
If the property is “Back on Market,” it may be because previous buyers’ financing did not get approved, but it can also mean that the home did not meet the lender’s appraisal criteria, and it is over-priced.
You may be looking at a property that is currently rented out. Your real estate agent should be able to guide you regarding local tenant protection rules that may dictate whether the lease must be kept in place or if it is possible to take possession upon closing. If you are not allowed to evict the tenants upon closing, this could possibly impact the interest rate your bank charges because the home would not be “owner-occupied.”
You might also be interested in: 5 Ways to Reduce Your Monthly Housing Costs
How Old is the HVAC?
Your home inspection will provide vital information about the age of the heating and air conditioning systems, however, visually checking the furnace and air conditioner upon your visit to the home is an important indicator of age, and sometimes, condition.
If the unit is close to the end of its useful life, consider the cost of heating and air conditioning system replacement when you calculate your purchase offer. Even better, plan on asking the seller to purchase a home warranty so that you are protected or purchase a warranty yourself immediately upon closing on the property.
Is there a lot of DIY?
Make sure you look at any extensive DIY projects that have been done by previous owners, such as additions and remodeled baths or kitchens.
Anything that was inexpertly executed, or completed without required permits and inspections, can cost you big bucks down the line. A few clues to sub-standard work such as doors that don’t close completely, cracked caulking around moldings and door frames, uneven tile work, evidence of recent patches or foundation cracks more than a ½ inch wide should alert you to future problems. If there are amateurish repairs and sloppy remodeling, it may mean that shortcuts were taken that will cost you money down the road.
If the house you are considering is a “flip” be especially careful about the quality of workmanship and materials utilized.
This type of seller has attempted to renovate and update the home solely for a profit, which is increased by completing the work as quickly as possible at the lowest possible cost, usually with the most current finishes and décor style. You can make an educated guess whether the house was renovated by flippers by checking the sales history. If the home was purchased less than six months ago at a price significantly less than its current sales price, and it has very recent updates and renovations, chances are it’s a “flip.”
Do you Need to Remodel the Kitchen or Bathroom?
If you are envisioning installing a beautifully updated kitchen or bathroom, make sure you are calculating realistic cost estimates for this work.
If you are new to the area, finding reputable and reliable contractors you can trust can be tricky, and sometimes your realtor is a great source of recommendations. Being available on-site to assure proper contractor performance is another consideration. Consider whether you will do these renovations before you have moved into the home, or if you will attempt to do them while you are living in the house.
These remodels can add value to your new home purchase, but they will cost more, take more time and be more of a pain than anyone will tell you.
Is the Neighborhood Declining?
Take a thorough tour of the neighborhood you are considering. If there are many homes for sale in the area, it may indicate quality of life issues such as concerns about the school district or increasing crime.
Check the local news outlets, including neighborhood weekly newspapers for information about your neighborhood in order to get a feel for its culture. If you have access to social media such as Twitter, Facebook or Next Door that focuses on the neighborhood or local businesses, that is worth reviewing.
Determine whether the homes and yards appear well cared for or if there is evidence of trash, unkempt lawns and overgrown bushes. Look at the vehicles you see at neighboring homes. If you don’t like noise and the neighbor across the street has a couple of motorcycles out front, that might be a problem for you. If your neighbors are working on cars in their front driveway, you may find that unpleasant.
In most communities, rules that govern the neighborhood condition and upkeep are ordinances, not laws, which means that if your neighbor doesn’t cut their grass, the penalty is a fine, not a police action! If the surrounding homes are rented out, renters may not comply with these ordinances and landlords may opt to pay a fine rather than maintain the property in top condition.
Next Steps for Homebuyers
As you consider a home purchase, orient your thinking away from housing specifics such as number of bedrooms and baths and square footage, and instead, evaluate the true cost of ownership in order to protect your financial commitment.
Focus on the real estate value of your purchase by objectively looking at the factors outside of the home that will impact your quality of life in the neighborhood. Work with a professional realtor to obtain access to a wide variety of properties and leverage their expertise.
Updating a home due to age and condition of systems can be costly, and the timing of the need for this expense will never be convenient or completely predictable. Manage your exposure and risk by using a professional home inspection and obtaining realistic cost estimates before closing on your transaction, including having a contractor tour the potential property if you are considering remodeling.
While the home may seem perfect for you, do not get emotionally attached during your searching and buying phase, as it may blind you to some harsh realities that you need to be aware of in order to protect yourself, your family and your finances.
You might also be interested in reading: The Definitive Guide to Mortgage Refinancing