Monday, July 25, 2011

Short sales, long waits: Buyers and sellers find process frustrating

DETROIT -- Short sales are among the most arduous real estate transactions, often taking six months or more to close -- if they get done at all.
  • Brian Pannebecker of Shelby Township, Mich. says it was much easier to undergo foreclosure than a  short sale.
    2009 file photo by Laura Segall, for USA TODAY
    Brian Pannebecker of Shelby Township, Mich. says it was much easier to undergo foreclosure than a short sale.
2009 file photo by Laura Segall, for USA TODAY
Brian Pannebecker of Shelby Township, Mich. says it was much easier to undergo foreclosure than a short sale.
They can be a life raft for distressed homeowners who owe more on their houses than what they're worth, but the experience depends on a variety of factors, such as the number of lenders involved and whether there's a hardship, mortgage insurance attached or whether the buyer has the patience to stay with the process.
A short sale occurs when a lender agrees to accept less than what the homeowner owes. The transaction requires that the homeowner has a financial hardship.
Homes with more than one mortgage and mortgage insurance tend to take the longest, said Ellen Mahoney, president of Complete Title Services' loss mitigation division in Birmingham, Mich. A growing reason short sale deals fall through or take longer is because of mortgage insurance purchased after the homeowner closes on the deal and the loan is later sold to other lenders and investors.
Unlike private mortgage insurance required for sellers who put less than 20 percent down, these lenders and investors buy insurance to minimize risk. It is known in the real estate industry as pool insurance because it covers a group of loans that have been purchased.
Premiums are paid by the lender or investor and the homeowner isn't aware of it.
When the loan defaults, such as in a short sale, the mortgage company may demand that the seller pay part of what is owed to minimize its losses.
"That's a mess. They are the worst," Mahoney said. "It is usually the lender mortgage insurance that nobody knew about, and it is usually on the second mortgage. It is real disruptive."
Often, the bank holding the first mortgage isn't made aware that the second mortgage had been insured until the end of the process, even if both loans are with the same lender. If the mortgage insurance company doesn't sign off on the deal, the process starts over again.
These kinds of delays mean buyers walk away because of the time and frustration involved.
Brian Pannebecker, 52, of Shelby Township, Mich., made an offer on a home in his neighborhood only to have the bank reject it.
"I would never ever look at a short sale. I would go right to a foreclosure, which I eventually did. It was much, much easier."
Instead of buying in Michigan, Pannebecker bought a two-bedroom condo in Ft. Myers, Fla., near where his father retired. He made an offer that was accepted within 24 hours during the holidays. The whole deal closed in six weeks.
Buyers don't typically ask to see short sales unless they have the luxury of waiting for an undetermined length of time to move, said Renee Reyer, a Realtor with Clients First Realtors in Canton, Mich.
Reyer does her homework on short sales. She checks the property history and finds how many mortgages the seller has to determine how difficult the deal might be to close. Based on that information, she works out the percentage of risk that the property won't close and presents that to her clients.
Banks say they've been working harder to make the short sale process easier, but they acknowledge the delays.
At Chase the average response is 30 days from request to approval, said spokeswoman Mary Kay Bean in Detroit. Chase has completed 120,000 short sales using its own process nationwide since June 2009 and is now averaging 5,000 a month.
Pitfalls abound
The federal government's program to streamline short sales -- know as the Home Affordable Foreclosure Alternatives Program -- has yet to gain traction because it doesn't allow the lender to collect on the home's deficiency.
The program was launched in April 2010, and through May of this year, only 8,541 short sales were completed nationally through the HAFA.
Klorinda Hibbert, a real estate agent at Re/Max in the Hills, has noticed changes in the past year -- and they aren't for the better.
"The banks are willing to go into foreclosure rather than do a short sale," Hibbert said. "They want to get paid in full."
One reason Hibbert said she thinks lenders are allowing short sales to go into foreclosure is that if the mortgage is insured, lenders and investors can submit a claim to recover some of the money.
In a short sale transaction where mortgage insurance is involved, the mortgage insurance company gets a say in the sale price of the home or asks the seller to agree to repay part of the loss over time, and that can create more delays.
"The mortgage insurance companies are making them almost impossible. That's a whole different animal," Hibbert said. "We can have the bank approval and then the mortgage insurance company stalls for two months, and they want more money."
Alan Goldberg, director of strategic loss mitigation activities for Genworth Financial, a Richmond, Va.-based company that specializes in mortgage insurance, said investors can buy additional coverage if their analysis of a pool of loans indicates more risk than they are comfortable with.
Short sale shy
Many Realtors avoid short sales because they can be so difficult, including Michelle Chappell, an agent with Real Living John Burt Realty in Oxford. She sold a home this spring that took eight months to complete. She represented the third offer.
"This was the last one I sold. I said no more. I won't do it," she said. "They are just heart-wrenching for these buyers."
Chappell said the buyers looked at 80 houses before seeing "the one."
"Whatever bad could happen in this deal, happened," Chappell said. "I don't see any change in short sales. I don't understand that. There should be some kind of general process that everyone goes through. It just differs from bank to bank. It's almost as if they are throwing curves in there."
Qualifying for a short sale
What you will need to qualify in terms of paperwork and forms can vary by lender. Here are three key things a homeowner would need to qualify for a short sale, according to the Certified Distressed Property Expert website:
Financial hardship: There is a situation causing you to have trouble affording your mortgage.
Monthly income shortfall: A lender will want to see that you cannot afford, or soon will not be able to afford, your mortgage.
Insolvency: The lender will want to see that you do not have significant liquid assets that would allow you to pay down your mortgage.

Real Estate Outlook: Existing-Home Sales Rise

Existing-home sales fell in June amidst contract cancellations, according to the National Association of Realtors®.

NAR President Ron Phipps, broker-president of Phipps Realty in Warwick, R.I., said home sales should be higher. "With record high housing affordability conditions thus far in 2011, we'd normally expect to see stronger home sales," he said. "Even with job creation below expectations, excessively tight loan standards are keeping many buyers from completing deals. Although proposals being considered in Washington could effectively put more restrictions on lending, some banking executives have hinted that credit may return to more normal, safe standards in the not-too-distant future, but the tardiness of this process is holding back the recovery."

Existing-home sales did rise marginally in the Midwest and South, but all regions are down from the same time last year. The Midwest is now a staggering 14.0 percent below June 2010. The South is down 5.6 percent.

The region that has the most ground the recover is the Northeast, which fell another 5.2 percent in June and is now down 17.0 percent from June 2010.

The West is the closest region to breaking even, down only 2.6 percent from year ago levels.
Lawrence Yun, NAR chief economist, said this is an uneven recovery. "Home sales had been trending up without a tax stimulus, but a variety of issues are weighing on the market including an unusual spike in contract cancellations in the past month," he said. "The underlying reason for elevated cancellations is unclear, but with problems including tight credit and low appraisals, 16 percent of NAR members report a sales contract was cancelled in June, up from 4 percent in May, which stands out in contrast with the pattern over the past year."

Yun also noted that the market may be fluctuating in response to economic concern, "Pending home sales were down in April but up in May, so we may be seeing some of that mix in closed sales for June. However, economic uncertainty and the federal budget debacle may be causing hesitation among some consumers or lenders."

Builder confidence is up, however, according to the National Association of Home Builders/Wells Fargo Housing Market Index (HMI).

"The improvement in builder confidence in July is a positive sign that the outlook perhaps isn't quite as bleak as was feared in June," said Bob Nielsen, chairman of the National Association of Home Builders (NAHB) and a home builder from Reno, Nev. "While builders continue to confront serious challenges with regard to competition from foreclosed properties that are priced below replacement cost, inaccurate appraisals of new homes, and a very restrictive lending environment for new home construction, select markets are showing gradual improvement as consumers begin to take advantage of very favorable buying conditions."

Going hand in hand with builder confidence, nationwide housing starts rose 14.6 percent in June, according to the U.S. Commerce Department.

"Today's numbers are an encouraging sign that builders are responding to improving consumer interest in new homes and apartments by gradually replenishing their extremely thin inventories in places where demand is evident," said Bob Nielsen, chairman of the National Association of Home Builders (NAHB) and a home builder from Reno, Nev. "That said, the lack of access to construction credit remains an impediment to starting new projects and getting building crews back to work in markets that are improving."

Regionally, starts activity rose across the board, with double digit gains in 3 of the 4 regions. The Northeast led the way at a 35.1 percent gain. The Midwest had a healthy 25.3 percent gain. The South was up 10.6 percent and the West had a 5.4 percent gain.

Thursday, July 21, 2011

Mortgage applications rose 15.5% last week as refinancing activity surges

Wednesday, July 20th, 2011, 7:39 am

Mortgage applications rose 15.5% last week as refinancing activity surged, according to a leading trade association.

The Mortgage Bankers Association said its market composite index on a seasonally adjusted basis for the week ended July 15 climbed 15.5% from the prior week, which included the July 4 holiday. The index rose 44% on an unadjusted basis.

The MBA said the refinance index increased 23.1% last week. Refinancings accounted for 70.1% of all mortgage applications up from 65.6% the previous week and at the second-highest level of the year, according to the MBA.

"Ongoing turmoil in the financial markets primarily due to the sovereign debt crisis in Europe has brought mortgage rates back to their lowest levels of the year," MBA Vice President of Research and Economics Michael Fratantoni said.

He said one factor contributing to higher level of refinancings is "borrowers potentially impacted by impending decreases in the conforming loan limit may be opting to lock in fixed-rate financing now."
The MBA said the average interest rate for a 30-year fixed mortgage inched down to 4.54% last week from 4.55% a week prior. The average rate for a 15-year fixed mortgage fell to 3.66% from 3.68%.

In four-week moving averages, the market index is up 0.3%, with the purchase index down 0.3% and the refinance index 0.5% higher.

Top Remodeling Projects

Remodeling Magazine's latest Cost Versus Value Report 2010-2011 has been released and it revealed that the recent declines in housing are having substantial effects on the remodeling market.

Unfortunately for homeowners, there has been a downward trend since 2006 in the cost-to-value ratio, though now this pace has quickened, falling 3.8 percent in the last year. While homeowners were once able to make upgrades and additions to their homes and recoup this value during resale, these same updates now mean less return. An unstable jobs market has purse strings tightened and remodeling markets are feeling the squeeze.

The report revealed, however, the top 10 remodeling projects in the last year. Leading the way in cost versus value are exterior replacements, with garage doors and entry-doors at the head of the class.

According to the report, "Replacement projects have always performed better in resale value than other types of remodeling projects, partly because they are among the least expensive projects in our report, and partly because they are non-discretionary improvements that contribute to curb appeal, which is a strong subjective factor among home buyers." Curb appeal is your home's first impression. This is why another project topping the list is wood deck additions. Outdoor space still reigns supreme, with these additions tying for fourth with minor kitchen remodels.

Minor kitchen remodels carry a higher price tag, but can be a sure-fire way to seal the deal in high-end markets. Kitchens are what "most prospective buyers [consider] most important room in the home," the report says. "Minor kitchen remodel may at first appear to buck the trend -- at $21,695 nationally, it is the highest price among projects under $25,000. But this project represents a relatively inexpensive "face-lift"."

Cost is at the forefront of homeowners' minds. With the unemployment rate near 9 percent and debt talks still looming over Congress, Americans are watching their dollars. They are keeping remodeling jobs small and inexpensive. Also making the top ten are attic bedroom and basement remodels. These projects use existing space and are cost-conscious.

Remodeling Magazine says, "Many homeowners have scaled back their remodeling plans. In some cases this means the projects are smaller in square footage ... in other cases, the work may be performed in phases to spread the cost over a longer period of time. Also, homeowners nowadays are selecting a wider range of quality than has been the case in the past. When choosing fixtures and finishes, they are trading the savings on lower-priced items for the ability to afford higher-priced items they deem more essential or more desirable. "

The top non-replacement projects reflect this mindset. These figures are a glance at the nation as whole, though. There are still regions experiencing higher cost-to-value rations, namely in the Pacific and Southern regions. The report notes, "A number of cities in this year's Report show cost recouped averages that are above 100% for some remodeling projects. In general, this indicates that, on average, those projects are worth more in resale value than the owner spent to construct them. This may seem impossible, particularly to homeowners in areas where property values are stalled or dropping, and it certainly is the exception to the rule. When it does occur, however, it is usually tied to a particularly hot real estate market or to specific projects that are either in high demand."

Increased market confidence, higher employment rates, and more even home prices could all be contributing factors. When people are confident that the market is on the mend and will rebound, they are more likely to enter the market. Increased buyer demand is just what an ailing market needs.

5 Questions to Ask Your Mortgage Professional

Everyone knows you’re supposed to be proactive and assertive when you take out a mortgage, carefully collecting and evaluating all sorts of information before you make the biggest deal of your life. But when the mortgage broker starts shooting sheaves of papers (OK, PDF documents) at you, it’s easy for your eyes to glaze over at the sight of so many zeroes, and tempting just to start signing whatever it takes to get that house!  

Here are 5 questions every smart buyer (or refi-er) should add to the list of issues to cover with your mortgage professional:
  1. Are you a bank, a broker, or both?  Generally speaking, mortgage lenders that are banks or have their own banking divisions (which many reputable brokerages do) have more control over the appraisal process, including the ability to submit your file to a pool of appraisers they know have some knowledge of your local neighborhood. Given the fact that non-local appraisers and the inability to communicate with appraisers under relatively new guidelines for brokerages are responsible for killing loads and loads of deals, working with a company that is or has a bank could be a deal-saving move, especially if the property is in an area that hasn’t had many recent sales or is otherwise challenging to appraise.

Also, some broker/banks that originate loans and sell them straight to Fannie Mae or Freddie Mac under the FHA loan programs offer the same benefits of an FHA loan - low down payment and moderate qualification guidelines - without the “overlays” imposed by some larger banks, which actually place a more restrictive set of guidelines on FHA loan programs. For example, FHA guidelines do not impose a minimum credit score, but many banks overlay their own 640 minimum FICO requirement. Broker/banks that sell straight to Fannie and Freddie often mirror the FHA minimum guidelines precisely.

Finally, brokerages with their own in-house bank and a large roster of lenders and programs provide the advantage of offering a wider range of fallback options than plain old banks or plain old brokerages - Plans A, B, C and D, if you will - which many borrowers need these days, in the (increasingly common) case your first choice bank or loan program doesn’t work out.
  1. Will you explain my Good Faith Estimate to me? May I also have a fee sheet or estimate of funds to close? The current, national standard Good Faith Estimate (GFE) is pretty clear, clarifying all sorts of deal points, from the broker’s commissions to the costs associated with the loan, but as a point of customer service, you should ask your mortgage pro to explain it to you (if they don’t do so under their own initiative).

The one shortfall of the the latest edition of the GFE is that, while it clearly shows the costs associated with a particular loan scenario, it does not always show so clearly the actual amount of funds you’ll need to close the transaction (which might be more or less than those costs)! So, ask your mortgage representative to prepare a fee sheet or an estimate of funds to close as early in the transaction as possible.
  1. How long will it take to close my loan? How much time will I need for loan and appraisal contingencies?  The time frames for closing your mortgage - which often drive the time frames for closing your home purchase - often vary widely depending on the type of loan and even the type of lender you work with.(Large bank loans originated by the bankers who sit inside the branch are notoriously slower to close, on average, than loans originated by brokers.) Similarly, the time it takes to get through the FHA loan appraisal and underwriting process might be much longer than it would take, all things being equal, to clear those hurdles and remove your loan and appraisal contingencies on a Conventional (i.e., non-FHA) mortgage.  

When you first meet with your prospective mortgage pro, talk with them about these time frames, so they can help you set realistic expectations and insert realistic time frames into your offer when you make it, to minimize the drama of a contingency clock that ticks way faster than your mortgage process.
  1. Are there any fees for the mortgage loan application/approval process? Some lenders charge for credit checks up front, and most require that you pay for your appraisal in advance (although the latter happens only after you find and get into contract on your property. One of the first questions you should ask, when you sit down with a new mortgage broker is how much cash you’ll have to come up with just for the privilege of having them run your application and take the first steps down the road to loan approval.

  1. How long have you been originating loans? And how long have you been with your company? Mortgage pros who have been around for a long time have the knowledge of advance troubleshooting, workarounds and backup plans, and the current underwriting practices it takes to get a loan closed in this restrictive mortgage market. If you found them in some way other than a referral, you can even ask for references from a few clients. Most mortgage pros who have been in business for awhile will be able to give you names and numbers of clients they’ve worked with on multiple purchases and/or refis: that’s a very good sign. You’ll rest a lot easier if you know that your loan is in the hands of a seasoned pro who others like you trust with their largest asset - and largest financial obligation.

Monday, July 18, 2011

Builders' outlook rises after hitting 2011 low

WASHINGTON (AP) — The outlook among U.S. homebuilders became a bit rosier in June but the future prospects for home construction are anything but promising.
  • A home is being built in Springfiled, Illinois, July 15, 2011.
    Seth Perlman, AP
    A home is being built in Springfiled, Illinois, July 15, 2011.
Seth Perlman, AP
A home is being built in Springfiled, Illinois, July 15, 2011.
An index of builders' outlook for their industry in June rose two points to 15, the National Association of Home Builders said Monday. Any reading below 50 indicates negative sentiment about the housing market. The index hasn't reached 50 since April 2006, the peak of the housing boom.
In May, builder sentiment hit its lowest level in nine months. It's still just seven points above the lowest reading on record, in January 2009.
Cash-strapped builders are struggling to compete with deeply discounted foreclosures and short sales, when lenders allow borrowers to sell homes for less than what is owed on their mortgages. Lower-than-expected home appraisals are scuttling deals. And loans are harder to come by, with requirements that borrowers put 20% of a home's cost as down payment.
"Basically, the market continues to bounce along the bottom, with conditions in some locations beginning to improve," said David Crowe, the trade group's chief economist.
Still, an index that gauges sales expectations over the next six months rose sharply, by seven points, returning to the level it reached in April. That's despite weak foot traffic by potential buyers, which held steady between May and June.
The builders' monthly index is calculated from a survey that characterizes sentiments about current and future sales as "good," "fair" or "poor."
Last year, the number of people who bought new homes hit its lowest level on records dating back nearly a half-century. This year is shaping up to be just as bad.
New-home sales fell in May to a seasonally adjusted annual rate of 319,000 homes, according to the Commerce Department. That's well below the 700,000 homes per year that economists say must be sold to sustain a healthy housing market.
Renting has become a preferred option for many Americans who lost their jobs in the recession and who were forced to leave their rapidly depreciating homes.
Fewer homes mean fewer jobs. Each new home built creates an average of three jobs for a year and generates about $90,000 in taxes, according to the builders' trade group.
The outlook among builders is uneven across the country. In the South and West, the index rose three points. In the Midwest, it rose one point. In the Northeast, it fell two points, reaching its lowest point in seven months.

Real Estate Outlook: Housing Market Struggles

While it might not be at the pace that economists would like, the economy is recovering. Federal Reserve Chairman, Ben Bernanke, reported last week to the Committee on Financial Services, that "the pace of the expansion so far this year has been modest."

The housing market, however, continues to struggle. Concerns over potential policy changes, namely a required 20 percent down payment, has sidelined potential buyers.

According to the National Association of Realtors' ninth housing pulse survey, 71 percent of Americans says this requirement would have a negative impact on the housing market. And 82 percent of Americans say having the money for closing costs and down payments is the largest obstacle to buying a home, making this purchase too expensive.

This is troubling news, considering housing is at a more affordable rate now than it has been in decades.

Federal Reserve Chairman, Ben Bernanke, reported to Congress' Committee on Financial Services, that residential construction activity is low. "The demand for homes has been depressed by many of the same factors that have held down consumer spending more generally, including the slowness of the recovery in jobs and income as well as poor consumer sentiment," he says.
"Mortgage interest rates are near record lows, but access to mortgage credit continues to be constrained. Also, many potential homebuyers remain concerned about buying into a falling market, as weak demand for homes, the substantial backlog of vacant properties for sale, and the high proportion of distressed sales are keeping downward pressure on house prices."

The NAR survey has found that unemployment is at the forefront of people's minds. Sixty-one percent of Americans have job security concerns, saying layoffs and unemployment "are a big problem in their area."

Another paramount concern is the abolition of the mortgage interest deduction. While eliminating this tax relief would benefit the country's overall budget, fifty-one percent of Americans oppose it and fear it would carry negative consequences for the housing market.

According to NAR, "The stalled economy continues to adversely affect the housing market. Confidence in job security is a top obstacle (80 percent say “huge” or “medium-size”) to home ownership, while job layoffs and unemployment are ranked as the top problem facing Americans."

Bernanke says, "In part, the recent weaker-than-expected economic performance appears to have been the result of several factors that are likely to be temporary. Notably, the run-up in prices of energy, especially gasoline, and food has reduced consumer purchasing power."

Despite this fact, 72 percent of those surveyed by the NAR still say buying a home is a good financial decision. And the majority of respondents think now is a good time to buy. Besides the long list of social benefits, such as stabilty, safety and long-term economic gains, interest rates are at historic lows and prices are at incredible rates of affordability in every region. Now is a great time to buy.

Mortgage Rates Fall After Weak Jobs Report

MCLEAN, Va.,  -- Freddie Mac (OTC: FMCC) today released the results of its Primary Mortgage Market Survey® (PMMS®), showing mortgage rates following long-term bond yields lower amid weaker than expected jobs gains and an increase in the unemployment rate.

30-year fixed-rate mortgage (FRM) averaged 4.51 percent with an average 0.7 point for the week ending July 14, 2011, down from last week when it averaged 4.60 percent. Last year at this time, the 30-year FRM averaged 4.57 percent.

15-year FRM this week averaged 3.65 percent with an average 0.6 point, down from last week when it averaged 3.75 percent. A year ago at this time, the 15-year FRM averaged 4.06 percent.
5-year Treasury-indexed hybrid adjustable-rate mortgage (ARM) averaged 3.29 percent this week, with an average 0.6 point, down from last week when it averaged 3.30 percent. A year ago, the 5-year ARM averaged 3.85 percent.

1-year Treasury-indexed ARM averaged 2.95 percent this week with an average 0.5 point, down from last week when it averaged 3.01 percent. At this time last year, the 1-year ARM averaged 3.74 percent.

Frank Nothaft, vice president and chief economist at Freddie Mac, reports, "Long-term bond yields and mortgage rates fell this week following a weak employment report. The economy added 18,000 jobs in June, well below the market consensus forecast, and the unemployment rate rose to 9.2 percent, the highest since December 2010. In addition, employee wages stagnated. These factors may lead to less consumer spending, which in turn, reduces the threat of inflation in the near term."

Single Women Focusing On Real Estate

In 2010, unmarried women made up 20 percent of all home buyers, according to the National Association of Realtors. That figure is higher than the 12 percent of single men who purchased homes during the same year.

It's unclear exactly why the discrepancy between single men and women. However, some experts contend that a home of their own and a sense of belonging are two important factors that cause single women to focus and buy real estate.

And those experts are right. The Joint Center for Housing Studies reports that the three main reasons that are driving single women to buy homes now are: relocation for job or family; a larger space; and to have a home of their own (nesting).

The new trend of female buyers is causing builders to add some extra features geared toward attracting single women. New home construction is featuring gourmet kitchens, more security features, and yards that require little or no maintenance.

Of course, the other compelling reason for anyone, including single women, to buy a home, is the historically low interest rates.

Experts understand that buyers are more educated than ever before. They've studied the market and generally have a good idea of the type of home and neighborhood they want.

So, what are single women buyers looking for? It's not solely location that seduces them. Single women buyers want a great location, good price, a property that's in good condition, and a home that is rentable. It doesn't have to be new, but it needs to have been given some TLC by the owner.

They want a good price. They're looking for a price that won't stop them from enjoying their single lifestyle. Experts recommend that a monthly mortgage should not exceed 28 percent of a borrower's pre-tax monthly income.

Another interesting point, is that single women buyers are from all different age groups and phases of life. Some are just out of college and pre-marriage, others are divorced, widowed, or never married, and still others have grown kids who've left the home (thus a downsize).

That causes this group of homebuyers to pay careful attention to things like rental properties in the neighborhood, proximity to retail and entertainment, and, the all-important concern, would the mortgage payment equal the monthly rent that could be collected on the home?

Single women buyers know that their circumstances may change so they want to be prepared. Making sure that the home can be rented out is often a key interest to this group.

Finally, even though single women are buying homes on their own doesn't mean that they'll shop alone. They may visit the property with friends, family members, colleagues, and of course, their agent. It's likely they're very savvy, so they'll be stopping by the home, not once, but probably several times and at different times of the day to get a feel for the home's exposure to the sun.
As single women focus on real estate, it's likely we'll see more builders and sellers catering to the needs of this buying group–and this group is all about getting exactly what they want.

5 Questions to Ask Your Home's Inspector

382213_1310512312763_o.jpgMost home buyers feel like they are bona fide real estate experts after all the studying up on loans and neighborhoods, online house hunting and open house visiting it takes just to get into contract on a home these days. But for all but the most handy of house hunters, getting into contract and starting the home inspection process only surfaces how little you actually know about the nuts and bolts and brick and mortar of the massive investment you’re about to make: a home!  

So, you hire a home inspector, but it seems like they’re speaking an entirely different language - riddled with terms like “serviceable condition” and “conducive to deterioration” - about your dream home!  Here are 5 questions you can use to decode your home inspector’s findings into knowledge you can use to make smart decisions as a homebuyer - and homeowner.

1.  How bad is it - really?  The best home inspectors are pretty even keeled, emotionally speaking.  They’re not alarmists that blow little things up into big ones, nor do they try to play down the importance of things.  They’re all about the facts.  But sometimes, that straightforwardness makes it hard for you, the home’s buyer, to understand what’s a big deal and what isn’t so much - the information you need to know whether to move forward with the deal, whether to renegotiate and what to plan ahead for.  

I’ve seen things categorized in home inspection reports under “Health and Safety Hazards” that cost less than $100 to fix, like replacing a faucet that has hot and cold reversed.  And I’ve seen one-liners in inspection reports, like “extensive earth-to-wood contact” result, after further inspection, in foundation repair bids pricier than the whole cost of the home!  

In many states, home inspectors are not legally able to provide you with a repair bid, but if you attend the inspection and simply ask them whether or not something they say needs fixing is a big deal, nine times out of ten they will verbally give you the information you need to understand the degree to which the issue is a serious problem (or not).

2.  Who should I have fix that?  I always ask this question of home inspectors, with dual motives.  First, very often, the inspector’s response is - “What do you mean?  You don’t need to pay someone to fix that.  Go down to Home Depot, pick up a ___fill in the blank__, and here’s how you pop it in.  Should cost you $15 - tops.”  And that’s useful information to know - it eliminates the horror of a laundry list of  repairs and maintenance items at the end of an inspection report to know that a number of them are really DIY-type maintenance items.  Even buyers who are really uncomfortable doing these things themselves then feel empowered to either (a) watch a few YouTube vids that show them how it’s done, or (b) hire a handyperson to do these small fixes, knowing they shouldn’t be too terribly costly.

And even on the larger repairs, your home inspector might be able to give you a few referrals to the plumbers, electricians or roofers you’ll need to get bids from during your contingency period, which you may be able to use to negotiate with your home’s seller, and to get the work done after you own the place.  Dropping the inspector’s name might get you an appointment booked with the urgency you need it order to get your repair bids and estimates in hand before your contingency or objection period expires.

And same goes for any further inspections they recommend - if neither you nor your agent knows a specialist, ask the general home inspector for a few referrals.

3.  If this was your house, what would you fix, and when?  Your home inspector’s job is to point out everything, within the scope of the inspection, that might need repair, replacement, maintenance or further inspection - or seems like it might be on its last leg.  But they also tend to be experienced enough with homes to know that no home is perfect.  Many times, I’ve asked this question about an item the inspector described as “at the end of its serviceable lifetime” and had them say, “I wouldn’t do a thing to it. Just know that it could break in the next 5 months, or in the next 5 years.  And keep your home warranty in effect, because that should cover it when it does break.” 

This question positions your home inspector to help you:
  • understand what does and doesn’t need to be repaired,
  • prioritize the work you plan to do to your home (and budget or negotiate with the seller accordingly),
  • get used to the constant maintenance that is part and parcel of homeownership, and
  • understand the importance of having a home warranty plan.

4.  Can you point that out to me? Often, when you attend the home inspection, you’ll be multi-tasking, taking pictures of the interior, measuring for drapes or furniture, even meeting the neighbors, or fielding several inspectors at a time.  Worst case scenario is to get home, open up the inspector’s report and have no clue whatsoever what he or she was referring to when they called out the wax ring that needs replacement or the temperature-pressure release valve that is improperly installed.  

Your best bet is to, at the end of the inspection and while you’re all still in the property, just ask the inspector to take 10 or 15 minutes and walk you through the place, pointing out all the items they’ve noted need repair, maintenance or further inspection.  When you get the report, then, you’ll know what and where the various items belong. (One more best practice is to choose an inspector who takes digital pictures and inserts them into their reports!)

5.  Can you show me how to work that? Many home inspectors are delighted to show you how to operate various mechanical or other systems in your home, and will walk you through the steps of operating everything from your thermostat, to your water heater, to your stove and dishwasher - and especially the emergency shutoffs for your gas, water and electrical utilities.  This one single item is such a time and stress saver it alone is worth the lost income of missing a day of work to attend your inspections.