Your offer has been accepted! Congratulations! Now what?
For some, the initial high varies from a few minutes to many hours, but now the fun begins! Well, fun might not be the description that most would use, but now is the time to dive into the property and investigate all aspects of it. You are about to embark on an exciting journey and, in all likelihood, make one of the largest financial investments you will make in a lifetime. This month, we will share our insight on what areas should be thoroughly examined during the buyer’s 17-day investigation or due diligence period. The duration of this period is negotiable, so when submitting your offer, be sure to have a clear understanding of the number of days specified in your contract for this important sale contingency. In a competitive situation, where a property has received multiple offers, this time frame may be shortened to show the seller that, as a buyer, you mean business and will take immediate action and not drag your feet. Your real estate professional can help guide you during this process.
Step 1: Choose a licensed physical inspector from the area that knows the homes, neighborhoods, and common building materials. Inspectors are third-party individuals that have been hired by the buyer to perform a complete checklist on the property. Most inspections can range from $300-$1,000 in cost depending on size of home and features. Refer to your real estate professional or online reviews/recommendations to locate a knowledgeable inspector in your area. It’s also important to work with an inspector that will produce a thorough report that includes photos and clear descriptions.
Here are the top five “big ticket” items that should be examined and reviewed by your inspector: Foundation, Electrical, Plumbing, Appliances, and Roof.
To be clear, an inspector is not a specialist in any one of these areas, but more of a generalist that has the training to inspect and identify possible defects and safety concerns. A general inspector will most likely recommend that a buyer seek out a specialist (i.e. plumber, roofer, foundation contractor, electrician, etc.) to inspect areas of concern in order to get an idea of costs and scope of work associated with any repairs. Inspectors are not able to inspect or give an opinion on inaccessible areas. One of the most commonly overlooked areas is the sewer or waste line, which can be extremely expensive to repair or replace. With this in mind, we highly recommend hiring a plumber to conduct a waste line inspection in addition to a physical inspection, especially in areas like San Pedro where there are many tree-lined sidewalks that cause root intrusion and are oftentimes the source of a damaged waste line.
Step 2: During the inspection period, a buyer will receive a title report and seller disclosures. The title report is a legal document that outlines the legal status of a property and related information on its ownership. Easements and encroachments, liens and judgments against the property are items that would be identified in a title report. Dimensions and location of a parcel and plat map are also included in this report. A number of seller disclosures should also be provided to the buyer. These disclosures should clearly identify any defects, repairs and improvements known to the current owner.
Step 3: Your investigations have been completed and you now should have a much better understanding of the home that you are purchasing. It’s possible that items may have come up that were not visible to a buyer when the offer was submitted, and that is the purpose of the inspection contingency in a contract. Common real estate contracts give a buyer the option to cancel an agreement, with no loss of deposit, if they do not agree with the condition of the property or they may negotiate repairs, repair credits, or a price reduction with the seller. Having a savvy real estate professional to guide you through this complex process is imperative and can save thousands of dollars and headaches in the process.
The inspection or due diligence stage of the home purchasing process has been completed and now you’ll proceed with financing. In our next column, we will cover the loan and appraisal steps in the sale process. spt