By PETER ROSENTHAL, President
V.I.P. Trust Deed Company
One of my customers asked me to devote a column to “first time home buyers” and what to expect—well, here goes.
This is not intended to be a financing article. There are all sorts of “deals” for first time home buyers. Check with your local bank or mortgage broker to get some idea of standard financing and the differences in the first time home buyer loan programs. This article is intended to be a “hold your hand” article while you walk through the maze of your first purchase.
Is your first purchase a new home or condominium in a subdivision, or is it, in fact, a resale of a existing home? If this home is existing construction, i.e. the resale of an existing house, DO NOT expect this house to be perfect. This is not a new car under dealer’s warranty “bumper to bumper, 3 years or 36,000 miles.” This is a 2, 10, 30 or 60 year old home that has some problems, regardless of whether or not this house has been immaculately maintained.
Homeowner’s Inspection
When you enter into a contract to buy this home, make certain that you get a home owner’s inspection which will itemize the most obvious home faults. Do NOT expect the seller to fix every picayune problem on that list of defects. A good home inspection company will find minor defects all over the house. It is the major defects that you are looking for, like cracked heater core, evidence of water leakage in the attic, pluming or wiring not up to code, etc. In many cases, the inspection company will advise you to seek the services of a heating company, plumber or roofer to further advise on major defects. Though most buyers use this extensive list as a “renegotiating ploy,” the purpose of this inspection is to point out both major and minor defects to the home. Asking for EVERY minor item to be fixed may very well backfire, depending on the purchase contract and how it is written.
Transfer Disclosure Statement
Whether or not this property is being sold through a real estate broker, it is mandatory that the seller provide you with a state-mandated TRANSFER DISCLOSURE STATEMENT. This is an extremely detailed multi-page document in which the seller answers questions about all mechanical systems, neighborhood disturbances, property disputes, lawsuits, encroachments, etc. As I said, this is extremely detailed, and covers almost every area you would ever imagine. This Disclosure Statement, however, is not—Not—NOT—a warranty of any sort. This is merely a statement by the seller explaining his or her KNOWLEDGE of any defects. The questions are basically (for example), “Are you aware of any defects in the electrical system—Yes or No?” Perhaps there IS a defect that the seller is truly unaware of and a defect that the warranty service missed. Remember, this Disclosure Statement is the seller’s knowledge. Certainly if the seller is aware of a defect and answers “No” to the appropriate question, the seller would be really out on a limb if you could prove the seller was aware of the defect. The seller may state “No problem” in the septic system. You might then have a septic problem and call a local plumber, only to find that the plumber had been called every month or two to work on or pump the cesspool. Most sellers, even if slightly dishonest, are very reluctant to sign their name to the Transfer Disclosure Statement knowingly hiding a defect. The repercussions are just too expensive.
Homeowner’s Warranty
Some first time home buyers have extensive construction experience through their job or helping their parents with the family home. If you do have extensive experience with homes you, perhaps, do not need a home warranty available from various home warranty companies. In most cases, this is a negotiation item and is customarily “asked for” in the offer. In many cases the seller will provide it at their expense. The cost generally runs between $300 and $450, depending on any extra coverage requested. If you are not familiar with home construction, definitely request this coverage in your offer (paid for by the seller). If the seller refuses, I STRONGLY recommend that you buy this coverage anyway. Though this coverage generally has a “per call” fee, a contract will certainly give you peace of mind for the typical home owner woes, i.e. plumbing problems, leaks, heating problems, problems with water heater, electrical system, etc. Please realize that this coverage, if included in the purchase price, will be FINANCED by your lender. If, for instance, the seller refuses to pay for it, you can INCREASE the sales price to cover that item. Your lender will then finance 80-90% or whatever of that premium.
New Construction
I have decided to end this article here, as builders’ warranties for new construction are fairly complex, including many California Civil Codes that cover one year warranty for manufactured homes and 10 year warranty on most contractor and building professionals’ “latent defects.” Let it suffice for this article to cover existing resales.
Peter Rosenthal
VIP Trust Deed Company