A Homebuyer’s Survival Guide
Buying a new home can be a joyous and exciting experience. With that joy and excitement come a large investment of time and money, and the assumption of certain risks. The details and risks of purchasing and moving into a new home can be overwhelming – and I am talking just about the risks and details of which you are aware. After more than 20 years of real estate practice, including many hundreds of residential transactions, I am convinced that the expression “simple house purchase” is an oxymoron.
So, what are some of the risks and details of which you should be aware? For convenience, I have divided them into the following general categories:
- Suitability – whether the design of the house, the neighborhood and location with respect to schools and other amenities make sense for you
- Physical Condition – whether there are things that will need to be altered, repaired or replaced; whether there are any building code violations; and whether there are adequate water, septic/sewer and utilities services available to the property
- Zoning and Land Use – for example, whether you can expand or change the existing improvements or build new improvements; whether you can subdivide the property; whether there are any issues regarding soil stability, steep slopes, wetlands, drainage, and the extent to which you can cut down trees
- Valuation – how the purchase price compares to market value (whether you are paying too much for the property)
- Financing – whether you can afford this property, and how you will pay for it – usually involving an institutional loan
- Condition of Title – whether there are any legal description problems, title defects, unexpected liens, easements or restrictive covenants that will limit or frustrate your intended use of the property, or that will make the property more expensive to own and/or more difficult to resell
- Survey Matters – whether the property boundaries are where you think they are; whether there is a legal means of access to the property; and whether there are encroachments of your improvements into neighboring properties, or vice-versa
- Hazardous Materials Issues – whether the property contains lead-based paints or asbestos; whether there have been any spills of hazardous materials (for example, gasoline or heating fuel oil) on the property; whether there are now (or were in the past) any underground storage tanks on the property; whether the condition of the property violates any environmental laws and/or requires clean-up
- Circumstances Unique to the Property – other unusual issues that you might need to address in order to fully use and enjoy the property (for example, obtaining a “view easement” or easements for additional roads or utilities)
The above areas of concern apply, to a greater or lesser extent, to almost every purchase of real estate. Yet, most purchasers are unaware of at least some of these matters. Others might know about these matters, but underestimate the importance of addressing them. And still others might assume that someone is addressing these issues, when that is not the case. As a result, many buyers, even experienced buyers, are taken by surprise when their Dream Home turns into Nightmare on Elm Street.
While not all risks are avoidable, all of the risks listed above can be greatly reduced or eliminated with the help of an appropriate professional or consultant. But, with so many “professionals” and “consultants” out there, to whom should you look, and for what types of advice? This, as you might imagine, is a controversial subject. In general (and with some exceptions), I recommend that buyers look to the following sources of help and advice:
- Mortgage Brokers. Talk to a reputable mortgage broker before you even begin your search for a home. A competent mortgage broker can save you an enormous amount of time and money by helping you determine what you can afford, shopping the mortgage market to find the best financing deal for you, getting you "pre-qualified" for a loan, and then expediting the loan approval process once you have found the property that you want to buy.
- Real Estate Agents. Look to “your" agent for help and advice regarding suitability and valuation. Your agent will probably also offer to prepare a “standard” real estate purchase and sale agreement, by filling in preprinted forms and addenda. But remember that no two real estate transactions are exactly alike. Nor do most of the preprinted forms adequately address the concerns of a prudent and sophisticated buyer. I strongly recommend that you have the proposed purchase and sale agreement reviewed by a real estate lawyer before you sign it.
- Building Inspection Contractors. Look to a building inspection contractor, or to a group of specialized inspection contractors, for advice regarding physical condition of the property, code compliance, and/or availability of water (including tests of existing wells on which you might rely), sewer/septic and other utilities.
- Architects, Land Planners and Land Use Attorneys. If you intend to build, subdivide, and/or cut down trees, start with an architect, and progress to the more specialized land planner and/or land use attorney (depending upon the nature and complexity of your plans for the property) to advise you regarding zoning compliance and your future development and/or subdivision requirements.
- Environmental Inspectors. Even residential property, especially “rural” properties with older structures on them, can be subject to problems with hazardous materials and violations of environmental laws. Asbestos insulation and ceiling treatments, lead-based paints and underground fuel storage tanks can all be potential sources of health and regulatory problems.
- Land Surveyors. In my opinion, reviewing a survey of the property is an essential element of due diligence when purchasing real estate. Sometimes a survey done in the recent past will suffice. In all cases, I recommend that the survey be reviewed by your real estate lawyer. For more information and recommendations about surveys, please see my article titled The Importance of Land Surveys.
- Title Insurance Companies. Most people seem to understand that title insurance is important, even if they do not completely understand the nature of title insurance or the exceptions contained in their policies. I recommend that you ask your real estate lawyer about the type of coverage that is best for you. I also strongly recommend that you have your real estate lawyer review the title insurance commitment and related documents during the title inspection period (described in your purchase and sale agreement) to determine whether there are any liens, easements, covenants or other title matters that will adversely affect your use and enjoyment of the property.
- Real Estate Lawyers. You knew this was coming, didn’t you? A real estate lawyer is the person to see: (a) to review and help you draft or modify the purchase and sale agreement (before you sign it) to suit your particular needs and situation, (b) to review title matters and the title insurance materials; (c) to review existing surveys or to recommend that you obtain a new one, (d) to help you identify and address legal requirements and concerns that are unique to the property that you are buying, or to your particular situation, (e) to recommend the other specialists with whom you should consult; and (f) to serve as your confidant, advocate and advisor throughout the transaction.
The above list of advisors is not exhaustive, nor are all of these advisors needed for every purchase. To help you identify the issues and needs of your particular transaction, I recommend that you talk to a real estate lawyer. If you would like a more detailed checklist of things that most homebuyers should do and be aware of, please call or email me.
Please remember that this article contains only the most basic information about its subject matter. I do not intend this article to contain legal advice specific to any particular person or situation. Again, before entering into any agreement concerning your property, I urge you to consult with a real estate lawyer and with your tax or estate planning advisor.
For a more complete description of the roles and duties of "seller's agents", "buyer's agents" and "dual agents", see RCW Chapter 18.86 (titled “Real Estate Brokerage Relationships”). See also my article titled "I Have a Real Estate Agent. Do I Also Need a Lawyer?"