Home Inspections

Lara Gordon, Coldwell Banker

Put Your Best Offer Forward & Get Pre-Approved Beforehand, Advise Local Experts

Well, it’s official now. With buyers back in droves, an abnormally low inventory of good properties, and bidding wars popping up all over the place, the Greater Boston real estate market has now made full circle into a seller’s market. As the Boston Globe recently wrote, the market is “desperately seeking sellers.”

images-11For prospective buyers in a seller’s market, the strategies to succeed and find your dream home are very different from just a year or two ago. To help you navigate these unfamiliar waters, I’ve asked Cambridge-Somerville Realtor, Lara Gordon of Coldwell Banker, and Brian Cavanaugh, Senior Mortgage Banker at RMS Mortgage, to join me in this “round-table” discussion about how buyers can succeed in a seller’s market. Lara and Brian were both featured in this month’s Boston Magazine Best Places to Live 2013.

Q: Laura, what are you seeing out there on the streets in terms of inventory, pricing, and respective bargaining power between buyers and sellers? Has the tide really shifted back to sellers?

A: (Lara Gordon) Yes—in a very big way. When sellers have 5-10 offers to choose from, which is typical for most listings in Cambridge & Somerville right now, they are really setting the terms, and some buyers are willing to accommodate just about any request they make, from waiving the inspection to offering a sale-and-lease-back if the seller needs time to find a new place. My listing at 27 Osgood Street, Unit 7 in Somerville (pictures to the right) is a good example — 6 bids.

Q:  Lara, I’m hearing about bidding wars on well-priced, good condition properties. What are you seeing out there, and what’s your best advice on getting that winning bid?

A: (Lara Gordon) I always tell my buyer clients this: if you know you’re going into a multiple offer situation, you should put your best foot forward from the start. Some people feel nervous about coming in high on their offer, thinking they need to leave some room to come up during negotiations, but that is a mistake. If a seller receives one offer that is significantly stronger than the others, they may well accept it without going back for a “best and final” round.

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And again, price is just one aspect of the offer, so have a good pre-approval from a respected lender, do the best you can with the downpayment, be willing to work with sellers’ preferred dates, and make sure your agent is “selling” you as a knowledgeable buyer, reasonable to deal with, and committed to seeing the transaction through.

Q:  What do buyers need to do in terms of making their best and most competitive offer? Are we back to buyer’s writing a personal appeal to sellers and that sort of thing? 

A: (Lara Gordon) Some buyers do write letters to sellers, but it’s the list agent’s job to keep them focused on the strengths of the respective offers, so an emotional appeal really only gets a buyer so far. Buyers really need to put their best foot forward. This starts with price, downpayment, a solid pre-approval from a respected lender, tight contingency dates and as much as possible accommodating the sellers’ preferred timeframe for closing. Beyond that, list agents and sellers are looking for a deal that will proceed smoothly and will “stick” through closing, so buyers’ agents really need to “sell” their clients as educated on the market, realistic about the home inspection and committed to seeing the deal through.

Q:  Brian, I hear that buyers are coming to you at all hours and weekends for pre-approvals. When buyers come to you for mortgage approval, what sort of documentation should they have ready to go and how quickly can you close loans these days?

ex-mlsA: (Cavanaugh). Well, I’ll start off by staying that the pendulum has definitely swung around. When the market favored buyers, you would go look for houses, get an offer accepted then go to your mortgage banker for an approval. Now it’s the other way around. You need a mortgager approval in hand when you are out looking for homes. And that means from the start you need a very firm grasp on exactly what you can afford, how much to put down, etc. You need to work with a mortgage banker with a strong grasp of Fannie and Freddie guidelines.

As for the paperwork, you need 2 years of tax return and W2’s, 30 days of pay-stubs, one year of bank statements, statements for your 401ks, IRAs, and investment accounts. A lot of first time buyers use gifts of downpayment from their parents, which are particularly tricky. I tell them to get those monies into your account ASAP. You will need a gift letter executed by all parties involved and verification of funds.

Currently, we can close a single family loan in 45 days, and a condo purchase in about 60 days, since condo mortgages require more extensive FNMA approval.

Q:  How much are sellers looking at buyers’ financing? Are cash buyers winning out over financed buyers? What are the ways to ensure a seller that a financed buyer is of no greater risk that a cash buyer?

A: (Lara Gordon) Cash is definitely an advantage in that it takes one element of risk out of the equation. For sellers in a rush to close, a cash deal is also appealing because it can close a lot faster than when a lender is involved. But if timing isn’t a big deal and there are good comps for the property, there’s no reason a seller shouldn’t consider a good offer from a buyer who will finance. Of course, the size of the downpayment has become increasingly important as bidding wars drive prices up and appraisals become a concern.

Q: How are you dealing with contingencies in a seller’s market? Are buyers waiving inspection or even financing?
A: (Lara Gordon) There are certainly buyers out there waiving both financing and inspection contingencies, but it’s not always a good idea. While it’s fine for buyers to waive the financing contingency if they’re prepared to pay cash, I personally, would never advise someone to forego a home inspection. The key is to approach it as educational and a way out in case of a major issue, and not as a tool for renegotiating the price.

A: (Vetstein) I’m going to weigh in on this topic as it deals with legal issues. I would STRONGLY advise a financed buyer to resist the temptation to waive the financing contingency in the hope that it will make an offer more attractive. In this day and age of strict underwriting and frequent delays, this is simply a recipe for losing your deposit. I don’t care if a handful of lenders have told you that your file is a slam dunk — you could get laid off a few weeks before close and you’d be DOA for the closing. Same goes for the inspection contingency. Sellers know that buyers want to check the home’s bones beforehand. Trust me, it will cost you a lot more money down the line if you wind up buying equivalent of the “Money Pit.” Tightening the deadlines, that’s fine. Waiving them, that’s just asinine.

A: (Cavanaugh) I would echo Rich’s sentiments. In this day and age of tight lending guidelines, I would hate to see a buyer lose his deposit because he was under the assumption that he could qualify for a mortgage he really couldn’t qualify for. Again, talk to your mortgage banker before you make the offer.

Q: Last question guys. I always recommend that my buyers use a Realtor. But please tell the readers exactly why having a Realtor can greatly increase your chances of succeeding in a seller’s market?

A: (Lara Gordon) I’m glad you asked this question, Rich, because some people think that they will do better if they go directly to the list agent, but given the nature of the market right now, it just doesn’t make sense to try to go it alone.

A: (Cavanaugh). When my borrower works with a Realtor, it always makes the transaction run smoothly. I operate under a “team” concept with the agents, so I’m used to constant contact with both the buyer and listing agent to ensure we get access for the appraisal and all the documentation in place for the loan commitment and closing. When there’s a team of professionals involved in a transaction, it’s a win-win for everyone.

A: (Vetstein) A low inventory/seller’s market is precisely why you want a Realtor who knows the market inside out and can be your salesperson/spokesperson on your side. In a market where perception is everything, I think it’s fair to say that a listing agent/seller will take you more seriously if you are working with a top notch Realtor, rather than sauntering solo into an open house in your Bean duck boots. Not to mention that the buyer does not typically pay an agent commission in Massachusetts. Also, selfishly, working with a client with a Realtor is less stressful for the attorney.

Q: Lara and Brian, any final words of wisdom as we head full bore into the busy spring market?

A: (Lara Gordon) I guess I’d just like to acknowledge that this is a tough market for buyers, and I totally understand the stress and frustration many people are feeling. In an ideal world, you’d find a great house, take some time to think things over, maybe visit a few times, then make a fair offer in a non-competitive situation, and you’d have a new home. But buyers need to accept the reality of the market we’re in: we’ve got low inventory and high demand, and you won’t necessarily get the first house you bid on. Maybe not even the second or third. But if you are qualified financially, have realistic expectations, are patient and persistent, and know how to play the game, you will ultimately find a home.

A: (Cavanaugh). I would urge would-be buyers to talk to a mortgage banker as early as possible in the process. We still have near all time mortgage interest rates. Affordability may never be as good as now, so hang in there in terms of bidding wars and a seller’s market. RMS Mortgage is well known brand and people either know me by reputation or have worked with me. So you have some instant credibility with the listing agent who can vouch for a smooth and successful transaction, and that’s very important in this seller’s market.

Thank you to Brian Cavanaugh and Lara Gordon for a great round-table discussion! Lara can be reached at lara.gordon@nemoves.com or 617-245-3939. Lara blogs at Cambridegville. Brian can be reached at brian.cavanaugh@rmsmortgage.com and 617-771-5021. Brian blogs at Smarterborrowing.com.

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With the economy and housing market on the upswing, builders are finally building again. I’ve seen a definite uptick in new construction purchases. Buying a new construction home, however, is very different and much more involved compared to buying a previously owned property. In this post, I want to cover the various aspects of purchasing a new construction home, from selecting a builder, financing, legal, through construction and to the closing. As the Beatles song goes, I also have a little help from my Realtor friends in this post who have graciously offered some of their expert guidance. Follow our advice, and hopefully you will avoid becoming Tom Hanks and Shelley Long in the hilarious movie, The Money Pit!

Selecting and Working with a Builder

Choosing the right builder is obviously critical. You can search for builder licenses and state disciplinary history at the Mass.gov site here. (Search under Construction Supervisor). If the builder is not a licensed Construction Supervisor, they may be licensed as a Home Improvement Contractor (HIC) which can be searched at the Office of Consumer Affairs website here. If they hold neither license type, that’s a red flag. Also, look up the builder’s name in the Mass. Land Records site, and check whether they have any mechanic’s liens filed against them. That is another red flag indicating they may be undercapitalized and don’t pay their subcontractors.

Get a list of the last 5 homes the builder has constructed, and try to talk to those homeowners. Don’t rely on the builder’s list of references as no intelligent builder would give out a bad reference.

Hire A Buyer’s Agent

Besides conducting a town-wide survey, one of the smartest things you can do is hire an independent buyer’s real estate agent, preferably one with lots of experience in new construction. While buyers today can do a lot of their own due diligence and research on prospective builders, an experienced Realtor knows all the local builders in town and knows who builds castles and who builds shanty-shacks. A buyer’s agent will also provide a much-needed buffer between the builder’s sales agents and listing agent, many of whom unfortunately engage in high-pressure sales tactics and fast-talking. As buyer agent, Marilyn Messenger advises,

“Many buyers don’t realize that if they visit a new construction site without a buyer agent, they run the risk of having to work directly with the builder’s agent whose job is to work in the best interest of the builder. A buyer’s agent will watch out for the buyer’s interests.”

Amenities, Allowances & Upgrades

The builder should provide you with a detailed specification sheet with a standard panel of features and options for flooring, appliances, paint, trims, HVAC, and lighting, etc. These will be built into the purchase price. Most builders also have allowances for things like additional recessed lighting, upgraded stainless steel appliances, decking, and fancy hardwood floors. As Cambridge area Realtor Lara Gordon notes, the buyers’ ability to select design elements is one of the major advantages of new construction.

It’s imperative that all allowances be spelled out in writing and attached to the purchase contract documents, which I will discuss later. Change orders are common during the construction process, and these too should be memorialized in writing. They will be added to the purchase price or paid in advance.

Contract Documents

New construction purchases in Massachusetts follow the same basic legal process as already-owned homes. The parties first execute an Offer to Purchase which spells out the very basics of the transaction: down payment and purchase price, closing date, and financing contingency. A lot of builders ask for more than the standard 5% deposit, but I would push back on that in this market.

After the offer is signed, the parties will sign the Purchase and Sale Agreement. As a buyer, the detailed specifications, amenities and agreed upon allowances must be incorporated into the contract, along with the floor and elevation plans, if any.

The proposed purchase and sale agreement will likely track the so-called “standard form,” but the builder will typically add a detailed rider, which is completely different than the usual seller rider seen in existing home contracts. The builder rider will have provisions dealing with how change orders are handled, that the builder is not responsible for cracking due to climatic changes, and may attempt to hold the buyer’s feet to the fire with respect to getting his financing in place. A lot of builders will try to limit the availability of holdbacks at closing. I would push back on this important item of leverage for buyers. Some of the large national builders such as Pulte will even claim that their contracts are “non-negotiable.” This is nonsense. Everything is negotiable these days.

Hiring an experienced real estate attorney will tip the balance back to the buyer, and the attorney should have a comprehensive buyer rider in place to protect you in case there are title issues or you suddenly lose your financing. Because there are often delays with new construction, one of the most important rider provisions for buyers is a clause which will give buyer’s protection in case they lose their rate lock due to a delay.

Mortgage Financing

Most new construction buyers in Massachusetts will take out a conventional mortgage loan, with the builder responsible for financing the actual construction through his own construction loan. Some builders, especially national ones, will have their own mortgage lending for their projects, but they often don’t offer the best rates and terms. Sometimes, buyers will finance the construction through a construction loan under which the borrower pays interest only through the construction process, and is then converted to a conventional mortgage once the home is completed. I would counsel buyers to avoid taking on the financial responsibility of a construction loan. As with all lending, shop around and compare apples to apples.

Inspections & Warranties

For new construction, home inspections must necessarily be delayed from the usual timeframe (7-10 days after accepted offer) where the home is not yet completed, and buyers should absolutely reserve their right to perform the usual comprehensive home inspection prior to closing. (If the home is already done, get in there with the home inspector). During the construction phase, builders don’t want buyers on the construction site, for obvious liability (and annoyance) reasons, so resist the urge to buy your own hard-hat and hang out with the construction guys. Metrowest area agent Heidi Zizza of mdm Realty retells a funny story about a Natick woman who literally broke a window trying to gain entry into her under-construction home.

Contrary to popular belief, Massachusetts law does not require a 1-year builder’s written warranty for new construction, however, most builders will provide one, albeit littered with exceptions to coverage. Fairly recent Massachusetts case law does impose a 3 year “implied warranty of habitability” for certain undiscovered construction defects. Again, selecting a reputable builder in the first place is “the ounce of prevention worth the pound of cure.”

Punch-Lists and Closing

There will inevitably be unfinished items right up to the closing. I’ve rarely seen a new construction transaction without a punch-list at closing. Some unfinished items will be serious enough to warrant an escrow holdback at closing (remember, I had said push back on this during P&S negotiations). Some lenders, however, will not allow a holdback, so the parties will have to negotiate and be creative at closing to ensure that all unfinished work is completed within a reasonable time after closing. If the home is part of a larger project/subdivision, this is usually not an issue. However, for “one-off” single site projects, getting the builder to come back and finish punch-list items after closing can be like pulling teeth. Again, having a real estate lawyer on your side and in control of the funds will give you leverage here.

Once papers are passed, the closing attorney will lastly ensure that there are no outstanding subcontractor liens on the property, which is one of most common hiccup at closings. For this reason and many others, it is imperative that buyers obtain their own owner’s title insurance policy, to ensure that title is clear, marketable and free of undiscovered defects and liens.

Buying new construction is often a long, drawn out, and stressful process for new buyers. Do your research. Be patient. And hire the best professionals on your side. Good luck!

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Richard D. Vetstein, Esq. is an experienced Massachusetts real estate attorney who often handles Massachusetts new construction home purchases. If you need assistance with a new construction purchase or sale, please contact him at 508-620-5352 or at rvetstein@vetsteinlawgroup.com.

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The home inspection is one of the most critical aspects of every Massachusetts real estate transaction. Virtually every buyer in a standard purchase transaction (meaning not a short sale, foreclosure, or bank-owned property) will opt to perform a home inspection, and for good reason. You need to know whether there are any serious structural, mechanical or other defective conditions in the home before you close.

As always, I’m going to focus on the legal aspects of the home inspection as it impacts the overall transaction.

Buyer Beware

Let’s start out with the legal framework for what, if anything, a seller and his real estate agent are required to disclose to a prospective buyer. Surprisingly to most buyers, a private seller has no legal duty in Massachusetts to disclose any type of information, good or bad, about the property (except for the presence of lead paint). This is called caveat emptor, or buyer beware. Real estate agents stand on a heightened legal footing. Under Massachusetts consumer protection regulations governing real estate brokers, a broker must disclose to a buyer “any fact, the disclosure of which may have influenced the buyer or prospective buyer not to enter into the transaction.”

Nevertheless, I always advise buyers not to rely or trust anything the seller or his/her agent says about the property. This is exactly the reason why most buyers will choose to get an independent home inspection.

Inspection Contingencies

The standard form Offer to Purchase (click for form) will include several inspection related contingencies: the general home inspection contingency, radon, lead paint, and pest contingencies. The buyer typically has between 5 and 10 days to complete these inspections. If the inspections reveals any problems requiring repair or remediation, the parties will negotiate repairs during this inspection period, and the agreement will be reflected in the standard purchase and sale agreement or sometimes a separate repair agreement which is signed around 14 days after the accepted offer. Typically, the Realtors do the heavy lifting on home inspection negotiations, and by the time it gets to the attorneys, there is an agreement in place.

The attorneys can craft the language for repairs. I always insist that repairs are performed by licensed contractors with evidence of completion provided prior to or at closing. Also, buyers should know that repairs provided in the purchase and sale agreement may trigger a second property inspection by the lender’s underwriters which could add another layer of oversight into the deal.

If the problems are so serious that the buyer wants to walk away from the deal, there is a mechanism for where the buyer provides notice to the seller and a copy of the inspection report. It’s very important to provide proper notice in order to get the buyer’s deposit returned. An attorney should be consulted for this situation.

Home Inspector License Requirements

Since 1999, Massachusetts has required that home inspectors be licensed by the state Board of Registration of Home Inspectors. You can search for home inspector licenses here: Massachusetts Home Inspector License Search.

Buyers should recognize the limits of the home inspection. The state regulations requires inspection of “readily accessible” components of a dwelling. Most modestly priced inspections are visual inspections of the property. The inspector is trained to identify defects in the systems of a house but cannot be expected to have x-ray vision. Moreover, property inspectors are not generally trained civil engineers. Structural defects and weaknesses may not be readily apparent, and may require follow up by a licensed structural engineer. In many cases, however, evidence of inappropriate settling or structural failure can be observed during a visual inspection. An experienced inspector will summarize the “big picture,” but inspectors are not required to identify the exact nature and extent of structural deficiencies. Regulations specifying the elements of a dwelling to be observed and reported on by the home inspector may be found here at 266 C.M.R. § 6.00.

Condominiums

When you buy a condo, you not only buy the unit, but the common areas such as the common roof, mechanical and HVAC systems, grounds, etc. Good home inspectors will ensure that the inspection of a condominium includes the common areas as well as the unit itself. The common area inspection may reveal deferred maintenance needs and inadequately performed repairs that may result in increased condominium fees and special assessments.

Radon

The Environmental Protection Agency (EPA) has established an “action level” of 4.0 pico-curies per liter (4.0 pCi/l) of radon present in indoor air. Although not established as an unsafe level, this figure has been established as the point at which protective measures are recommended. Prospective purchasers and home inspectors frequently use commercially available canisters to collect radon data. This method is cost-effective but may not give accurate results. The canisters are ordinarily placed for twenty-four to forty-eight hours in the basement and on the first floor of the dwelling. The canisters must be placed away from drafts and should not be disturbed. After the test period, the canisters are sealed and forwarded to a testing laboratory. Sometimes, the radon results are not ready by the time the purchase and sale agreement has to be signed. In this situation, the parties can either agree to extend the deadline or agree to a radon contingency.

If the radon results come back over 4.0 pCi/l, depending on the language of the radon contingency, the buyer can typically opt out of the deal altogether or require the seller to install a radon remediation system. Often the sellers will attempt to cap the cost of the system.

Pests

Most home inspectors are also qualified to perform inspections for wood-boring insects, such as termites, powder post beetles, and carpenter ants. All properties should be inspected for such pests. Properties financed by certain government-sponsored loan programs, such as the Federal Housing Authority, require a pest inspection as a condition of obtaining a loan. It’s a good idea to ask the sellers if they have an existing pest control contract that can be transferred to the new buyers.

Lead Paint

The Massachusetts Lead Law requires the buyer to be given the opportunity to inspect for lead paint. The seller or broker is required to provide potential purchasers of homes built before 1978 with the notification package prepared by the Massachusetts Department of Public Health.

Sellers and real estate agents are required by law to disclose any information about known lead paint hazards in their properties, and to provide copies of any documentation relating to the lead paint status of the properties (i.e., a lead inspection report or risk assessment report). The seller must grant a ten-day contingency period from the date the buyer receives the property transfer notification to conduct a lead paint inspection. If the buyer discovers lead paint in the dwelling during the inspection period, the contingency required by the statute permits the buyer to withdraw from the agreement without further obligation.

Although a seller is under no obligation to actually abate the lead paint, a lead-free house may be more valuable and marketable. This is particularly true for multi-family properties where tenants with children under six years of age may trigger the abatement requirements of the law. Sellers are required to provide any documentation they have of the estimated costs to abate the lead paint. Should a seller refuse to make a price concession based on the presence of a lead paint hazard, a buyer could argue that any subsequent buyer also should be made aware of the hazards and related costs. As a result, the availability of a lead paint inspection and cost estimate can become a powerful negotiating tool for the buyer.

Lead paint testing is typically not done as part of a standard home inspection, and must be separately arranged by a certified lead paint assessor.

Mold and Mildew

Mold and mildew are tricky subjects for home inspectors. The presence of excessive amounts of mold spores has been linked to asthma and other respiratory ailments and is claimed to cause permanent injuries. Mold grows in warm, moist environments and can be present behind walls and ceilings, in heating and cooling ducts, and in other difficult-to-inspect parts of a house or condominium building. As noted, although a building inspector cannot peer behind walls, a thorough inspection can detect water penetration, which is the precursor and necessary condition for a mold problem. Where mold is suspected, a buyer can always request that his home inspector be allowed to drill small exploratory holes to test for the presence of mold/mildew.

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Richard D. Vetstein, Esq. is an experienced Massachusetts real estate attorney. Please contact him if you need assistance with a home purchase or sale.

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