Several years ago, a new trend emerged: First-time home buyers were walking into homes, condos and townhouses and purchasing them without representation. In some cases, home buyers who didn’t have agents also didn’t use real estate attorneys to draft up the paperwork or even a title or escrow company to help close the deal.
Some of the deals probably turned out fine. I tend to hear from those that turn into nightmares: Faulty contracts; buyers who wake up mad that nobody told them the land under their homes used to be a dump; buyers who discover their mechanical systems need to be replaced; sellers who allow the buyer to move in before closing only to discover that the buyer then refuses to hand over the cash.
With all of the potential problems home buyers and sellers can encounter in the purchase or sale of their single largest asset, having a knowledgeable agent or broker, mortgage lender, real estate attorney and home inspector on your side can only help make this maze-like transaction a little easier.
And yet, some “survivalist” home buyers are taking it a step farther.
Just before the end of the year, a reader wanted to know how she could protect herself. She and the seller, who is selling by-owner, had come to terms on an old house in the Atlanta metropolitan area. They had drawn up their own contract, and the seller offered seller financing. They drew up the mortgage agreement on their own as well.
The buyer went to the county courthouse and “researched” the title on the home. She said the title was clear because “nobody owned the home before the developer who built the house 50 years ago.”
But something bothered her. She had a deed and had been paying on the property for five months and wanted to make sure that she had protected her investment.
As it turned out, she had never “closed” on the home. She had never recorded her deed or her mortgage. Although the seller gave her a deed, the home was still in the seller’s name in the public records.
The buyer didn’t realize that she needed title insurance (“It’s so expensive, and I already did the research.”). She didn’t realize that someone else might have a legitimate claim to the property, which would have devastated her financially without an owner’s title policy.
She didn’t think she needed a professional home inspector because she looked over the house herself. They didn’t go to a real estate attorney because they just wrote up their own documents. Of course, the seller didn’t know to comply with state law that required him to disclose defects in the house. He also failed to deliver his federally-required lead-based paint disclosure form.
Buying and selling a home is complicated, and expensive. There is the commission (arguably the largest bite at 5 to 7 percent of the sales price of the home), transfer taxes, inspection reports, loan application fees, attorney fees and other niggling costs that go part and parcel with this transaction.
While you can pay just $10 to trade an unlimited amount of shares of stock on some websites, how many of us would blindly hit the “;enter” button on our computer for the purchase or sale of $200,000 shares of Intel, GE, IBM, or a company we really don’t know as well? Surely, if you’re going to make that kind of investment, you’d seek the advice of investment professionals who could guide you.
If the costs are too great to buy the home you want, then perhaps you need to set your sights a little lower so that the costs are affordable. Buy a condo or a townhouse instead of a single family home. Or, change neighborhoods.
There are ways to lower the costs associated with buying and selling. Savvy sellers know that if they’re willing to do some, or a great deal, of the work involved with selling a home, they can cut back on the commission they’ll owe. Buyers can get trade out of pocket expenses for a higher interest rate.
But some costs can’t be trimmed. Transfer taxes are typically based on the sales price of the home. Real estate taxes pay the bill for area community services. Title insurance is a necessity. And you absolutely should have a real estate attorney – someone whose livelihood doesn’t depend on whether or not you close on your deal – look at your contracts to make sure you’re protected.
Perhaps the biggest misconception “survivalist” home buyers have is that they’ll save money by going it alone. Many of these home buyers frequently pay more than they should, because they don’t have anyone around who can clue them into the realities of the local market.