Is The Point of Sale Inspection Promoting Home Ownership or Rental Income?

By
Real Estate Agent with The Real Estate Corner

Jeffrey and Simone are out to buy their first home. Prices are low, mortgage rates are low, and they've saved up some money for an adequate down payment of between 10% and 15% depending on their purchase price. They stop in Cleveland Heights and take a look at a bank owned colonial for $40,000. To their eyes, it needs work but at $40,000 with some sweat equity and a little time, they can put together the funds and muster it themselves to repair the property all the while living in it as they go. Then their Realtor advises them. The City of Cleveland Heights has a Point of Sale inspection. A city inspector has to look at the property and give them a list of what they need to fix. The City also requires 125% of their estimate for specific violations to be put into escrow. That is in addition to whatever you pay to purchase the property. Jeffrey and Simone are disappointed. When the inspection report comes back, they see they have to put into escrow an additional $10,000 for the repairs.

"We don't have that kind of money just lying around and the bank won't loan us on that escrow amount." Simone says.

"Well" Mr. Realtor said, "If we go east about a mile there is South Euclid and there you have a much better opportunity to purchase property and fix it as you go."

Jeffrey and Simone purchased their first home in South Euclid and over the course of a year working together they fixed up their home with their own sweat equity and some extra dollars from their jobs. Who bought that property in Cleveland Heights? Well, it was an investment company from California who purchased it for $28,000 after it sat on the market for an additional 120 days. With $80,000 of expendable funds they could afford to purchase the property, afford the escrow, make the repairs, and then turn around and rent it out. When title seasons for a year they will refinance and obtain the cash from the property they initially invested while producing for themselves a steady rental income.

If local governments are really interested in producing neighborhoods with cleaner streets, fewer vacant houses, and a lot of city pride then now is the time to do it. The barrier to home ownership in cities such as Bedford, Maple Heights, Cleveland Heights, and Shaker Heights is high. Potential purchasers of property are often discouraged when they find out how much additional money they will have to come up for the escrow requirements. The results of these policies are not shocking, they are predictable. More vacant homes, higher crime, lower property values (read few people paying taxes), more renters and few owners. While I do not agree with the premise of a Point of Sale Inspection, I would be willing to make this concession if it is only a first step in the right direction.

 Remove the POS for owner occupied purchasers.

You want more homeowners? This is it. You want neighborhood stability? This is the ticket. How about city pride, personal pride and a lower crime rate? You got it with this proposal. More tax revenue? That goes without saying. I would encourage any local official reading these words to strongly consider enacting some form of legislation that would limit the scope of the Point of Sale inspection and allow homeowners an opportunity to purchase property in communities where they may have been unable to before. Without taking action, the neighborhood conversions from former owners to vacant property to rental property will continue.

If you are a local official and would like to discuss this further, call me. I'm open for dialogue and suggestions.

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Tags:
home ownership
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point of sale
owner occupied
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Anonymous
Patrick

I'm not an official, but I am interested in the vitality of the community.  I know the struggle people go through to both purchase and to maintain their homes... esp. these older ones.

Any case, a minor point to consider.. it has to do w/ taxes and this is a question I have that perhaps you can shed some light on.  As far as vacant homes... I figure someone still owns them, even if it's a bank.  Do you suppose that they do not pay taxes on the property?  Even if they go delinquent on them, I find it hard to believe the county would let that slip bye.  That's their livelihood.  Ever tried to get a property devaluation? 

Anyway, just food for thought.  I appreciate the idea behind the POS inspections program.  Can't say it always suggests the best action... just what the inspector sees as code violations.  And those generally aren't things you want to leave undone.

(ok, so they do get a little gung-ho over driveways, uneven/cracked/broken concrete, and roofs... all of which are beaten hard by the immense amount of wildelife and weather)

Take care,

Dec 03, 2010 07:01 AM #1
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Matthew P. Klein

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