Appraisals, Inspections and Due Diligence
Recently, I had the pleasure of doing an adult ed. home buyers class for the Marietta Community School. I have decided to take some of my outline notes and form the into a blog series for home buyers.
The content is geared a little more toward first time buyers but will still be very relevant for move up buyers as well. Also, this is based on my own knowledge and experience in our local market. All real estate is local, so if you are reading this in another part of the country then some of the ideas may not apply or at least they may apply differently.
Appraisals, Inspections and Due Diligence
In part 5 we discussed the "Due Diligence", inspection, and appraisal as part of the contract. Today we will discuss what is actually entailed in those items.
The appraisal is an opinion of the value of the home and it can only be performed by a licensed appraiser. If you are obtaining a mortgage then the bank will require that an appraisal be done in order to insure that the home is worth enough to secure the mortgage. The appraisal will be ordered by your mortgage lender. Very often they will ask the buyer to pay for the appraisal in advance. This is a closing cost, so if the seller has agreed to pay closing then you could be reimbursed for the expense at closing. The average cost for the appraisal is $3-400.
The appraisal is not a home inspection! The appraiser will look at the home much like you did when you were previewing it. They will make sure that the home is intact and in a condition that is livable, but that is all. They do not inspect the furnace, roof, attic, electrical or do any of the detailed physical and mechanical inspections that a home inspector will do.
If your contract to purchase the home does not include a separate appraisal contingency then you may be at risk if the appraisal comes in lower than your purchase price. As long as the appraisal is done within the due diligence period then you could cancel the contract without any risk, but if the appraisal is done after the due diligence period you would be obligated to purchase the home for more than the appraisal value. Further down I will discuss your options and risks to cancel a contract.
The home inspector does a thorough inspection of the condition of the home. There are no licensing requirements for home inspectors in Georgia so literally anybody could be a home inspector. To insure that you get a good quality home inspection I recommend that you find an inspector that is certified through ASHI, The American Society of Home Inspectors. That way you know the the inspector is properly trained and the inspection will meet certain standards.
If the home inspection is done within the due diligence period you can ask for repairs or an adjustment to the contract to compensate for the repairs. Yo would also have the option to walk away from the home and have your earnest money returned. However, you would still be out the money for the cost of the home inspection. Usually any inspection issues can be worked out but it can be stressful for both the buyer and the seller.
Very important! You should almost always do a home inspection, even if you are buying a brand new home. I have had new home inspections turn up improperly installed windows, improper drainage issues, and damaged roof trusses! These were all fairly serious issues that the builder could correct. However, if we didn't know to ask they would have posed problems in the future or turned up on the home inspection when my buyers went to sell. Then they would have been responsible for dealing with the issues!
Do your own "Due Diligence"
As a buyers agent I don't sell you a home. I will advise and try to help you make the best decision possible, but ultimately the decision is yours. Research the schools, check for child molesters, look at the commute and traffic patterns, or do any other research you may think is needed before you buy the home. All of this can be done during the allowable due diligence period after your offer is accepted. However, you should do as much research as possible before you even start your home search.
Canceling the contract -
If for some reason or another you decide not to purchase the home you could cancel the contract and get your earnest money back IF it is allowed under the terms of the contract. If you have a due diligence period and you are still inside that due diligence period you pretty much can cancel for any reason. The other common reasons that would be allowable to cancel are if you have a separate contingency to sell your current home, appraisal contingency, or financing contingency. There are hundreds of other possible contingencies that could be included but these are probably the most common. As long as you have a contingency to protect you, it is possible to cancel the contract and get your earnest back. You would still be responsible for the cost of any inspections or appraisals that you may have ordered.
What if you walk away from the purchase and are not protected by a contract contingency? At that point if you decided to cancel the contract you would almost definitely lose your earnest money and could even be sued for not performing on the contract. I have never seen anybody get sued for non performance on a residential contract but I would absolutely advise you that from a contractual standpoint it is a real possibility. This is why it is so important to have a buyers agent on your side. Remember, the agent with the sign in the yard represents the seller. They want the shortest possible inspection periods and the fewest possible contingencies. That is what is in the best interest of the seller.
Next time- Closing and beyond
Read Part 1, Here - Is it a good time to buy and should I buy?
Read Part 2, Here - Should you buy a home if you currently have a home to sell?
Read part 3, Here - Getting Credit Ready/ How much house can I afford?
Read Part 6, Here - Appraisal, Inspection, and Due Diligence
Read Part 7, Here - To the closing and beyond
Bob Southard, e-Pro, Realtor ®, Solid Source Realty, Inc. Buy a home, Sell a home, in Powder Springs, Marietta, Kennesaw, Acworth, Dallas, Hiram,and Cobb, Paulding, Douglas, North Fulton, South Cherokee, County, Ga
Visit my website www.AgentBobSells.com
Call me for all of your Real Estate needs
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