The following is a guest post from Coldwell Banker Vanguard Realty agent, Cara Ameer, in Ponte Vedra Beach, Florida.
Real estate is complicated – from inspections to title searches, property lines and issues affecting appraisals, there are potential “gotchas” looming at every turn in a real estate transaction. Here are five issues that can potentially derail a home sale and preventative steps you can take to ensure a smooth transaction.
As a seller, you are standing behind the most expensive item you will likely ever sell. A home purchase is the single largest transaction a buyer will probably ever make, so of course they want what they are purchasing to be in good condition. An inspection can potentially through a transaction off course, but it doesn’t have to. Rather than be at the mercy of a buyer’s inspector, shift the power to you as the seller by having a prelisting inspection done. Would you rather find out what areas of your home need attention with an inspector that you have hired vs. an inspector that the buyer brings in that you don’t know?
Yes, the buyer is still going to get the house inspected, BUT by hiring your own inspector, you will have a report that can serve as a baseline as well as another expert that you can consult. Many sellers fear inspections because of what might be found, but these issues are going to be found no matter what, so best to do it on your time and BEFORE you put the home on the market. I am continually amazed at how many sellers take a “kick the can down the road” approach and simply want to leave items unaddressed for the next owner. Keep in mind that certain things like the age of a roof, plumbing or old electrical wiring can affect the insurability of the property. Insurance is becoming more difficult to obtain because insurance companies are increasingly requiring four point inspections in order to bind insurance on a property.
You don’t want to be in the middle of a home sale dealing with a roof that needs to be replaced before closing because the buyer can’t get insurance.
The survey is not typically ordered until a week or so prior to closing and usually the buyer does not see the survey for the first time until they are at the closing table. You don’t want any potential issues to come up right before closing that could potentially throw a wrench in your deal.
Do you have the survey from when you last purchased your home? How old is that document? If you don’t have one, you may be able to contact the title company or attorney’s office that handled your closing to see if they can pull it from their archives. Since you have owned your home, have any changes been made to your property or to the neighboring properties on either side or behind you such as fences, pools, property additions, docks, bulkheads, etc.? If you have any concerns about improvements that could affect your property lines, order a survey BEFORE putting your home on the market – the cost generally runs around $300 for a typical size lot – something larger or more involved will be more.
You can use this survey when you close on your property so long as there are no encroachments or issues that arise that may need to be resolved. The survey document will verify your lot size and define what the boundaries of the property are. This way you can market your home with confidence as to your lot’s dimensions. There is nothing worse than noting that your property is a certain size, only for the survey to reveal it is smaller and the buyer wanting to renegotiate the purchase price of the home or possibly not want to move forward.
If your property is located on a body of water, a survey can also be extremely helpful to verify if any of your property rights extend into the water (also known as riparian rights).
Fences can be another potential issue. Fence companies require a copy of a survey before they will install one, but if a fence was put up by a handyman type and a survey was not used, there could be issues if the survey reveals that your fence or the neighbor’s is encroaching and not within the boundaries of the property it belongs to. Again, you don’t want to find all of this out on the day of closing as some of these issues do not have a quick fix.
A home’s lot size can easily be misrepresented by fences that do not conform to property lines. In visually looking at a lot, sometimes property lines appear as if they extend beyond the fence line or the yard has been fenced to include an area that is legally not part of the property (preserve areas, easements, etc.). A survey is the only way to verify what a true picture of the property lines are.
Even worse, when a permanent type of structure has been erected that sits on a neighboring property line.
On one of the first transactions that I was involved with, the house my customer was attempting to purchase had the garage unknowingly expanded onto a city easement between their soon to be house and the next door neighbor’s property. The garage would have had to have been chopped to bring it within the home’s property lines. A big part of the reason the buyer was buying the home was for the garage – needless to say this purchase did not happen!
3) TITLE ISSUES
Title searches go on behind the scenes and are something that a buyer or seller would never think about, however you need to. If a property is being sold and there is more than one person involved with ownership, you need to make sure you have whatever legal documentation to provide to the title company or closing attorney’s office in regards to that –
if you are selling your deceased Aunt’s home, make sure you have documentation that shows that you have the legal authority to do so.
In a situation where a property is being sold on behalf of a seller by their legal representatives, you also need to find out who is able to sign the documents on behalf of the seller. If there are multiple people involved- siblings, nieces, nephews – find all of this out ahead of time. The same applies with changes in marital status- need to check with your attorney to ensure a smooth transaction with respect to who is required to sign when buying and/or selling – will one or both spouse’s signatures be required?
Issues can also arise from errors made on mortgages and deeds that are prepared in which the property address was not correct. It is not uncommon to encounter a mortgage note that was erroneously recorded to the wrong property or an incorrect address that was typed on a deed. Although these mistakes are clerical in nature, one wrong address number can throw a wrench in things.
I recently encountered a situation where I was handling the sale of a condominium that was owned by one person and another set of owners turned up on the title search as owning the unit! The seller was just as shocked as I was. It turns out another property owner in the same complex had the unit number of the condominium I was selling typed on their deed! Simple enough correction, right? Not so fast. In this situation, the additional parties have to be tracked down in order to sign release documentation. This may not be easy as the owners in question have to be located and contacted. This can easily cause unanticipated delays in the closing process.
Two preventative steps a seller can take:
- Check the documents pertaining to your home purchase in the appropriate county or local government office that handles the recording of deeds and mortgages. In some states, this is the clerk of the court in the county or town where the property is located. Many municipalities have made this information accessible online, but in some cases you may need to call or visit the office in person. Check the names and addresses on the loan documents
- Consider having a title search run by a title company or closing attorney’s office. The cost is around $85 and is well worth it to confirm all information. You won’t be able to determine if your property has been erroneously recorded to another person by checking public records on your own, but a title search can help in this regard.
This is a big concern that agents, buyers and sellers are sweating out these days. If there is a mortgage involved, this can make or break a deal depending on the outcome. A home’s value is of course influenced by what has transpired around it. If a property appraises for less than what a buyer is paying, then that can trigger a renegotiation or ultimately everyone walking away. As a result in declining home values, a seller may not be in a position to sell the property for a lower appraised value if there is a mortgage to payoff in addition to their closing costs.
On the size of the home, you may be representing that your home is a certain amount of square feet, but in reality it could be less. If you are relying on incorrect information for that – your own measurements, tax records, etc. there could be some issues here. This can come into play when there has been an unpermitted addition or bathroom ,etc. to a home. In some cases, the addition is not heated and cooled. Appraisers only count heated and cooled square footage and a permit for the structure being filed with the county property appraiser’s office would trigger validation/recognition of the additional space. You don’t want a buyer to discover through the course of their appraisal that the home is actually smaller than what was initially represented to them and they may want to readdress the price they are paying because of it.
If you are in a neighborhood where values are all over the place or have had quite a bit of short sale and/or foreclosure activity, etc. consider getting an appraisal before you put your home on the market. It will help give you a baseline from which to work from. Consulting with a highly knowledgeable real estate agent is also important on comparables and they can recommend reputable appraisers that work in your area. Give the appraiser a detailed list of all of the upgrades and improvements you have made to your property but keep in mind that you are never going to get a dollar for dollar return on those items, and some things simply may be nice for a buyer to have with your home but they are not going to constitute a ton of value, if any. Pools for example cost much more to install (around $50K to start) vs. the return you in an appraisal (an appraiser may only give $15K in value).
Although you will not be able to have a buyer use your appraisal if they are obtaining a mortgage as their lender is going to order one for their benefit, it can help give you some concrete information to work from. You will also have updated measurements of your home’s square footage that you can use in the selling process.
Get PRE-APPROVED BEFORE you go property shopping. Know exactly what you are comfortable spending and how much cash you will need to bring to closing with respect to a down payment and closing costs and prepaids.
Consult with your real estate agent to find out what type of properties match the financing you are doing. For example, condominiums often require a higher down payment (20% – 30%) vs. purchasing a townhome or single family property. In some cases, certain condominium complexes are not financeable at all or must be approved by Fannie Mae, FHA or VA, depending on the type of loan you are doing.
If you want to buy a property that needs work, you may have to use a renovation type of loan product that will allow improvements to be done after closing vs. before.
In other words, don’t assume that you can buy a property that you see with the type of loan you are qualified for. Consulting with a highly knowledgeable agent once you know what kind of loan you qualify for can start your search on the right foot.
Knowledge is power and information is priceless. Surprise is NEVER a good thing in real estate. Fear results from what we don’t know. Remove the unknown from the equation and function from a position of strength knowing that you are positioning your transaction on solid footing before you go under contract.