When people say they hate surprises, it’s a little bit like when someone says they don’t like change. Most people actually love change and surprises – so long as the changes are pleasant or they perceive the surprises to be in their favor. It’s really only unpleasant surprises that agitate, irritate and frustrate the average person.
This is true in life – and it’s certainly true in home buying.
If your agent surprises you with dozens of homes that have amenities far beyond your wish list for $50,000 below your budget, I’m sure you’ll find a way to make peace with that. But if you get a call from your mortgage broker the day before you have to bring in an extra $3,000 more than you expected, chances are good you’ll be disgruntled, at a minimum.
Fortunately, that means that there is actually a pretty short list of unpleasant surprises which threaten to sour your home buying experience. If you can take a core set of actions to minimize the likelihood of this short list occuring, you’ll protect yourself against 90% of the unpleasant surprises and set your home buying experience up for success. Here are a few of those key surprise-prevention tactics that can take your fear of the unknown, unpleasant surprise down dozens of notches.
1. Read everything. It sounds basic – even obvious – to advise a home buyer to read their paperwork. It sounds basic, that is, until you’re in the midst of the process and are presented with literally hundreds of pages of documents to sign, sometimes over and over, and sometimes with a high sense of urgency. For example, if you are in a hot market, you might have to make offers on 5, 10 or 15 homes before you get one that works for you. After the first few, it’s tempting to just start clicking away to sign the offer documents you’ve seen so many times before, without really reading the critical fine print before you send it back to your agent.
You wouldn’t believe the number of times I’ve seen buyers themselves spot issues or ask questions that illuminated a calculation problem or discrepancy between their good faith estimates and loan documents at closing – before their professionals even had a chance to review the documents themselves! That’s the kind of buyer you want to be: don’t wait until you get a surprising mortgage statement in the mail two months after closing to spot errors, issues and miscalculations. While it is socially uncomfortable to feel like people are sitting across the table waiting for you to read things before you sign them, your agent, mortgage broker and escrow officer really and truly do not mind. (And if they do mind, that’s really not your concern – read away anyway.)
Many buyers also neglect to read their HOA disclosures, detailed property inspection reports and natural hazard disclosure reports: all things which, if read, can prevent many major later surprises.
And while I’m calling out commonly un-read documents, I’d be remiss not to mention home warranty policies. Most smart buyers these days know they need a home warranty policy. But without reading what is and isn’t covered, you do yourself a disservice. Many policies offer optional extra coverage for a small fee of items like appliances, pools and air conditioners – which would normally be excluded under a standard policy. As well, most policies require that you call the home warranty provider before any other service contractor if you hope to have repairs covered. Reading your policy before you finalize it empowers you to avoid voiding your coverage by inadvertently calling another contractor first. It also allows you to max out the coverage on the items that matter to you – minimizing the chances you’ll be surprised by lack of coverage if and when the item later breaks down.
2. Buy yourself time. Home buying in America in 2013 places buyers under a series of very tight timelines, deadlines and due-diligence-and-decision-making time frames. You might only have 10 days from the time the seller accepts your offer to make a final decision about whether to do the deal, 30 days to close escrow and an hour at the closing table to review your loan documents and commit to what might be the largest financial decision you’ll ever make.
These time pressures can lead to costly shortcuts and errors. It’s easy to under- (or over-) estimate what all the items in your home inspection report will actually cost to repair. Of course, if you overestimate, you won’t have a later unpleasant surprise – but you might endanger your decision-making in other ways.
So, buy yourself some time. Get out ahead of your inspection and document review contingencies by working with your agent to get them scheduled for ASAP after you get into contract. That will give you maximum time to schedule follow-up inspections with specialists like electricians, plumbers and other contractors if your home inspector calls out repairs you need to collect estimates and bids on.
If you blow through your inspection or loan timelines despite your most aggressive inspection scheduling and responsiveness to lender requests, don’t assume your only choices are to back out of the deal or plow ahead and take the risk of a later surprise loan problem or post-closing money pit. Talk to your agent about whether you might be able to literally buy yourself an extension of time on your loan or inspection contingencies. First, simply ask the seller nicely for more time. But if necessary, consider offering to release a small amount of your earnest money deposit to them in return for an extension of time. Releasing $1000 of your deposit to the seller to get more time is a much smaller, more sensible risk than the risk of removing contingencies now and forfeiting your entire deposit if your loan doesn’t come through later on.
You can and should also buy yourself more time to review the critical paperwork that will come your way during your home purchase. Ask your mortgage broker and agent to make sure you get any revised good faith estimates of your loan rates, terms and payments at least one day before you need to remove your loan contingencies – and let them know early and often that you’d like to see your mortgage closing documents at least one day before your appointment to sign them.
3. Show up. Home inspections have come a long way, baby. It’s not at all unusual for them to be reported out in pdf form, and sent to the buyer via email within hours of the inspector’s site visit. Today’s home inspection reports often include color pictures and easy-to-read, color-coded action item lists that pull out all the repairs and suggestions for further inspections into one handy list to help organize your contractor calls and home improvement store shopping lists.
But no matter how detailed, no matter how thorough your home inspection report is, a report can never replace the informational richness and nuances you’ll get if you actually attend the inspection in person. Most inspectors will welcome you, give you a briefing and explanation of what they will be looking at, and what’s excluded from the inspection at the outset, and then check in with you throughout. Many will point out to you issues and problems they find, so you can see them with your own eyes.
And they will also often do the invaluable service of showing you how to operate some home appliances and pointing out where you’ll find your emergency shutoffs for gas, water and electricity.
In addition to these need-to-knows, the human touch you’ll get if you show up to your inspection can help you and your agent evaluate, organize and prioritize any repairs or upgrades the inspector deems worth doing, including which repairs (if any):
- you should ask the sellers to do
- you should have your own professional do (i.e., so you can select your own materials, finishes, etc.)
- you should request a repair credit or price reduction for
- are very inexpensive or otherwise minor
- you can do yourself
- pose an actual health hazard or other danger
- can wait until you have time and money to do them, and
- which items you should have a professional handle, lickety split.
4. Do your own math, diligence and following-up. Your agent and mortgage broker might very well be the highest-paid professional advisors you’ll ever have. And, contrary to what some would have you believe, the vast majority of them put in serious work to earn their keep. Closing a real estate transaction requires a vast and varied array of skills. But one skill most agents and brokers lack is this: mind-reading. They have no way to know:
- what numbers you’ve missed
- whether your personal mortgage budgeting appropriately calculated for your children’s tuition, your retirement saving and your charitable giving
- that you have a serious sensitivity to nighttime noise.
The home you are buying is your home, and the transaction is yours, too. It’s essential that you approach the purchase process with a commitment to delegating tasks versus abdicating all responsibility. Buyers who abdicate responsibility for reading documents, planning their own personal finances, reading reports and making sure all the follow-up inspections get scheduled and questions get answered often end up experiencing unpleasant surprises after contingencies are removed, at closing or even years into home ownership. They often express outrage that someone didn’t tell them X, point Y out or repeatedly emphasize Z.
The fact is, there are only so many things your agent can point out and warn you about, and these will generally be the things they know from experience to be important to the average home buyer. So if something is uber-important to you, you need to let them know it and take every measure you can to protect your own interests. And there’s lots you can do. Show up at inspections, read documents before you sign them, do the math and then ask every single question and follow up every single qualm you have, until your concerns are satisfied.
Buyers: What surprises did you encounter, pleasant or otherwise, in your most recent home-buying experience?