Inspection Issues & Solutions

As an agent, I’ve attended hundreds of inspections and read through so many inspection reports —whole house, wood destroying insect, sewer scope, structural engineering, septic, you name it! All buyers have different different standards when it comes to issues that arise during home inspections, but almost all of them have the same questions. Does the seller have to fix that? How big of a deal is that? Would you buy this house?

One important thing to consider is that a seller is never obligated to bring a property up to current code (unless it’s new construction or an occupancy permit is pending), and they don’t need to agree to do any repairs before closing. True, refusing to make any repairs can make it difficult for a seller to find a buyer for their property, but they might opt to offer a credit at closing or payments to contractors instead of handling the repairs themselves for a variety of reasons. Not agreeing to repairs doesn’t necessarily mean that a seller is being difficult; some sellers are unable to afford repairs or they are simply afraid that a buyer could still walk even after they’ve sunk the money for repairs.

My top concerns

I always start by checking for major mechanical defects; in fact, those are really the only issues that most buyers and sellers in my area are supposed to be concerned with during the inspection contingency of the contract. I want to know the condition of the exterior of the home, including the roof, windows, doors, and foundation. Is the roof old? You might want to talk to your insurance agent about how that will affect its insurability. Are the windows original, single-paned, and barely operable? Let’s find out how that’s affecting the average monthly utility bill. Cracks in the foundation? Let’s get an expert to tell us how serious that is, how to fix it, and think about how the next buyer will feel about the issue when it’s your turn to sell.

Next, I’m interested in the major systems of the home: HVAC, electrical, plumbing, & sewer. Was it possible to test both heating and cooling, and did they function equally throughout the home? Does the electrical panel look like it was wired by a 9 year old or a pro? Is the hot water taking 15 minutes to get to the shower upstairs? Any roots or breaks in those sewer lines? All of these issues could lead to major expenses down the road, so it’s important to check as thoroughly as possible.

For some buyers, there are other issues that could prevent financing via FHA, VA, or USDA. Even though these wouldn’t normally be considered “major mechanical defects,” we have to consider these as important if you want to move forward with the purchase. Appraisers have a whole list of items to check on for these loan types, but the most common ones I see are missing or non-working GFCI outlets (these should usually be anywhere within 6’ of a water source, the garage, and exterior outlets). Missing handrails on stairs, peeling paint, lack of attic insulation, and deck railings that don’t meet code come up fairly often as well.

Specialized inspections and issues

It’s always a great idea to have a home inspected for wood destroying insects (WDI), which include termites, carpenter bees, and a host of other insects that can cause significant damage to a home over time without treatment. While sellers in Ohio and Kentucky are not required to pay for treatment, it’s a common and reasonable request since most buyers would prefer that any potential damage be minimized sooner rather than later.

Radon inspections have become quite common in our area, thanks to an abundance of this naturally occurring gas in our soil. The test involves taking hourly readings of radon content in the air over the course of two or three days, and mitigation (recommended only if the average reading is above EPA guidelines) involves installing a ventilation system to carry the gas to the exterior of the home where it can be dispersed into the air. Since prolonged exposure to radon gas has been linked to various forms of cancer, it’s not unreasonable to ask a seller to cover the cost of installing a mitigation system, but I have seen several cases of a seller pushing back, either because they don’t agree that radon is a serious issue or because the level was so close to the EPA limit that the test could have been flawed.

Weird, Unusual, & Unfortunate

Most of the time, I can prepare my buyers and sellers in advance for potential inspection issues and both parties are able to come to an agreement. But sometimes there are surprises during inspections that cause a buyer to walk away, or a seller refuses to cover an expense that a buyer simply can’t afford. Here are a few examples over the years of issues that I definitely thought would tank a deal (and sometimes they did):

• The sewer scope revealed a serious break in the sewer line between the house and the sewer main, and the estimate to fix it was over $30,000.

• A septic inspection revealed that while the system had been passed by the county multiple times, it was in fact discharging into a nearby creek which meant an entirely new system needed to be installed at a cost of around $40,000.

• An attic was covered in mold due to a small but ongoing leak and a lack of ventilation, and remediation was estimated at $10,000.

• A home had been wired with aluminum wiring, which is no longer used due to fire safety concerns; remediating every outlet, switch, and fixture cost around $6,000.

• The rear wall of a home was riddled with termites and termite damage, requiring complete reconstruction at a cost of about $20,000.

Would it surprise you to learn that only ONE of these issues resulted in a cancelled contract? It’s an important reminder that many contracts fall apart during inspections for much smaller issues, because each situation has its own complexities, but if both parties are committed to the same goal it is often possible to find a way through any situation. Be sure to discuss any concerns with your inspector, your agent, and any other experts to make sure you know how you’d like to handle inspection issues and negotiations.

What to Consider When Buying Your First Home

Are you ready to buy your first home? First off — in case no one has told you already — I’m so proud of you! Purchasing a home is a sign that you’ve reached a level of financial stability that some people never do, so give yourself a quick pat on the back. Then sit down and get ready to take some notes, because this is serious business and the more you know…well, you get the idea.

Buyers today have their fair share of struggles — rents are high, but so are home prices. Salaries aren’t growing at the same rate as inflation, interest rates have risen a lot over the past few years, and many are having to wait longer to purchase their first home than their parents did. But if you’re confident that you’ll be living in the same area for the next 2-5 years, owning a home is the most common and effective way to build wealth. I’m not just saying that because it’s my business: the gap in wealth between homeowners and renters has always been significant, but has been growing steadily over the past 30 years.

Step one should always be evaluating your financial position: How is your credit? How much of a mortgage can you qualify for? What kind of monthly payment are you comfortable with? How much money do you have saved for a down payment? What types of loan options are available to you? Do you qualify for any down payment assistance or grants to help with closing costs? A good real estate agent can put you in touch with local lenders who will be happy to discuss all of the options available to you, so you can determine your desired budget and get a better idea of how much money you’ll need to have on hand. They can even help you if you’re not ready: many lenders offer advice on debt reduction and improving your credit score to make sure you’re as qualified as possible when the time comes.

Next up, interview some buyer agents if you don’t already know one that you trust. Have an honest conversation about what to expect in the current market in terms of competition, pricing, and seller concessions. Find out if they only work in specific areas or price ranges, if they have scheduling conflicts that will make it difficult to meet up for showings, and if they understand your needs and wants. How much do they expect you to pay in commission, and will they negotiate to have that and/or other costs paid by the seller? Are they knowledgable enough to help identify red flags during showings, and make sure you don’t overpay?

Finally, decide whether you’re going to have anyone else help you in this process, such as an attorney, an aunt who’s a broker in another state, your bestie who bought a home last year, or your parents who have offered to gift you money to move out of their basement (or just because they love you). Whose advice do you value? Let your agent know that they’ll be helping you make smart decisions and they should be welcomed with open arms; after all, we like meeting new people! Getting opinions from someone who’s not making money from your purchase isn’t a bad idea, and it should give your agent more peace of mind that you’re going to be happy about your decision for years to come.

Crash Course in Closing Costs

Chances are you have heard the term “closing costs” even if you’ve never purchased a home before, but if you have paid them in the past, did you really understand what they are and how to know if you’re getting a good deal? Thanks to laws passed over the last decade or so, mortgage lenders are required to provide you with a Good Faith Estimate (GFE) detailing all of the potential costs of a mortgage, so it’s easier than ever to compare estimates from multiple lenders. But let’s start with understanding what they are in the first place: closing costs are everything you need to pay, above and beyond your down payment, in order to purchase a home.

• Loan Charges: Lenders charge certain fees to process your loan. These services often include pulling your credit report, getting a flood certification for the property, processing your application, underwriting the loan, paying the appraiser (sometimes you pay for the appraisal when it’s ordered rather than at closing), and recording the mortgage. Other loan charges that are more common now are “points,” essentially pre-paid interest to lower the interest rate for the overall term of the mortgage.

• Impounds: These costs are directly related to setting up your escrow account — that’s the portion of your mortgage payment that goes toward taxes and insurance. I usually see my clients pay at closing three months of their annual homeowner’s insurance, one to six months of property taxes depending on the time of year the closing takes place, and about three months of mortgage insurance if applicable. These amounts may be adjusted if the total impound amount is above the lender’s threshold, noted as an “aggregate adjustment” on the GFE, closing disclosure (CD) and/or settlement statement.

• Title & Settlement Charges: In Ohio and Kentucky, most real estate closings are handled via third party companies called title agencies. They charge fees to both buyers and sellers for guaranteeing the property is transferred with a clean title and that the monies are disbursed appropriately. Buyers usually pay for a portion of the settlement fee, closing protection coverage for the lender, a lender’s policy of title insurance or a title commitment, sometimes an attorney fee, certain endorsements that your lender requests, and an owner’s policy of title insurance if you choose to purchase one. Also, if you can’t be present for the closing, the title company may send you a mobile notary and there will usually be a fee for that service.

• Commission: Depending on your buyer agency agreement and the terms of your purchase contract, you might pay commission to the broker who represented you. Some brokers also charge administration fees that are separate from commission, and if you purchase homes from certain corporate sellers you might have to pay a “buyer premium” or “technology fee”. You should always verify that the amount of commission paid, whether by you or by the seller, matches the buyer agency agreement you have signed: if it’s higher, that is prohibited by law, and if it’s lower, you might be responsible for paying the balance outside of closing.

• Government Recording and Transfer Charges: In Ohio and Kentucky, the buyer is traditionally responsible for the cost of recording the mortgage and the new deed with the county in which the property is located. This fee varies by county but is usually dependent on the number of pages recorded. Some lenders have a standard mortgage on file in some counties to minimize the number of pages that need to be recorded for individual transactions.

• Homeowner’s Insurance Premium: If you didn’t already pay your first year of homeowner’s insurance when you ordered the policy, this will be included in your closing costs.

Depending on the lender, local and state regulations and customs, and your specific situation, your closing costs can vary quite a bit which is why it’s so important to ask about them when you are evaluating which lender to use. You can offset these costs in a few ways: gift funds from a family member or friend, local grants, or contributions from the seller. Knowing your financial needs and limitations up front will help you and your real estate agent negotiate the best terms possible, and help you avoid an unpleasant surprise when it comes time to close the deal.

What Happened to Affordable Homes?

If you’ve been paying attention to home prices in greater Cincinnati over the past few years, you’ve probably noticed a trend: homes that were selling for around $150,000 in 2018 are now selling for well over $200,000. In fact, in many areas it is nearly impossible to find a move-in ready home for under $200,000. So, what happened?

The short answer is that we have been dealing with a shortage of homes for sale since 2012 or so. Remember that mortgage crisis circa 2008 - 2011? Many builders didn’t survive the sudden influx of foreclosed homes for sale, and others became much more conservative about building on spec (i.e. without a ready buyer) and financing terms.

As you can see in the chart above, newly completed single family homes haven’t even returned to half of the levels we were seeing in 2005. Think about it this way: over the past 18 years of population growth, not to mention the normal major life events that usually result in a move, builders in the Midwest have not built even half of the number of homes they had built prior to that. Could this have just been a market correction, though? Were builders in 2005 building way too many homes?

Nope. Over the same 20 year period, new household formation in the USA shows an obvious and steady increase (I’m very curious to know what that spike in 2020 was…maybe in a later post!). So, we saw an increase in demand for housing that was not compatible with supply levels that were not growing at the same rate. This led to increasing home prices in many markets, which was great for existing homeowners, many of whom had built more equity than they expected and continue to do so. For first time buyers the situation was a little more complex, but that’s a whole other post.

At the same time, many older homeowners were facing tough decisions about their long-term housing needs in the face of a struggling stock market and increasing long-term care costs. Some chose to age in place, so they opted to improve or adapt their homes to their changing needs. First floor bedroom suite additions, elevators, in-home caregivers, and inviting extended family to move in were all strategies for retirees who felt they had no great options. More recently, we’ve seen them reconsider moving because they don’t want to give up their attractive mortgage interest rates (assuming they refinanced within the past 4-5 years). This has further affected the number of homes available for sale.

The moral of the story is this: don’t wait for home prices to go down if you need to move. There is no reason for prices to drop until our supply issue is resolved, and that will take years (construction takes time, and good quality construction takes even more time). Interest rates will probably decrease over time, but I also wouldn’t recommend waiting around for those sub-3% rates we were seeing during the height of the pandemic. Focus on your needs today instead: if you need to buy, sell, or both, work with a professional to determine what your options are.