First time home buyers without a clue as to how it all works.
February 27, 2011 8:51 PM   Subscribe

We are thinking about buying a home but have no idea how one goes about that sort of thing. What kinds of things should we be considering as first time buyers?

My wife & I are planning to move out of our apartment in the near future. We had been thinking of renting a house, but came across an ad for a house for sale that looks like a place we'd like to live and is cheap enough for us to buy outright. We have never bought a home and we are a little unsure of what to be on the lookout for as first time home buyers.

We currently live in Cleveland, OH, so houses are cheap right now to begin with but this is being sold for about 1/3-1/2 of what some similar houses in the neighborhood are going for. The neighborhood seems surprisingly free of foreclosures. There are currently lots of houses being listed for similarly cheap prices in other parts of the city. Part of why the owner says they are selling it so cheap is because they don't want to have to wait for financing and are willing to eat the loss in order to have the cash, are there any reasons for us to be concerned with someone looking to only sell for cash? The seller had also written the ad selling the house as a potential rental property.

We are going to look at the place tomorrow and the landlord says the place has fully functioning plumbing, electricity, hot water heater but needed a new toilet and only cosmetic repairs. It was built in 1926. Vinyl siding and windows. When walking through what kind of things should we look for? Who should we ask to take a look at it if it that sort of thing is needed, any help specific to the Cleveland area would be greatly appreciated.

We looked through the history of questions but didn't see anything regarding this small of an investment. We are planning on staying in the area for 3-5 years at least and maybe longer. We don't have children but we are thinking about it and that is part of the reason we are moving (lead windows at our current place, this place has had remediation). Also, I have relatives that work in construction would they be able to assess some of these things?
posted by drbalderas to Home & Garden (19 answers total) 9 users marked this as a favorite
Pay for a professional contractor to will help avoid getting burned by something HUGE down the road.
posted by AltReality at 8:59 PM on February 27, 2011

I'm not an expert, but I'm a homeowner...

1) Are you buying or mortgaging?
2) Cash - not a problem, as long as the rest of the paperwork is done properly. Change of ownership, registry, escrow, contract of sale - whatever your state requires and whatever you need to protect yourself from getting screwed. There is nothing fundamentally wrong with cash as long as there is a proper legal framework behind it set up to protect you. What if the owner isn't the owner? Due diligence is required.
2) Re: relatvies - yes, they would - ask them for advice! They won't mind.
3) Consider whether this is an investment or a home. It can be both - but generally people make the mistake of mixing the two up. Market value matters little if you plan to live there for a long time - but if you're into buying property as an investment, it may be better not to buy the house YOU want but buy the house that will be easy to sell (undervalued) - which may not be what you actually want to live in.
(eg: I bought my modest home because I plan to live here for the forseeable future. Someday my family, if Im' so lucky, will outgrow this place, and We'll have to move on to something bigger, or work may force my hand into moving, though not likely, but the fact that the current market value is somewhat below what I paid isn't really a worry - I'm not paying anyone interest (I bought the place out of savings) and if I have to relocate, I can rent it out, or sell it at a loss, depending on the situation an future outlook. I guess my point is I didn't buy it as an investment so much as a home, and in my situation is was better than renting, in a better location. If I make a profit off it some day, that's great. If I take a loss, i'ts a loss, but it will still have value.)

You are planning on living there 3-5 years - seek out good opinions on what the local market will be like in 3-5 years. Many say the market will be in recovery. Some very knowledgeable people also say the US economy may be in a real deflation in 3-5 years.... so do your research. (then again, if it's deflation, stuff is cheaper too, so selling the house for less dollars might still be a step up)

What the current owner says is not very relevant (unless he's pointing out flaws, which may be helpful). You need an independent, professional appraisal. If you were selling a house, would you be eager to tell the truth about any problems if you thought it could slip by? The guy might be honest, but given the probably amount of money involved for you, you want an impartial opinion from a professional on such things - not a gut feeling that you can trust the current owner.
posted by TravellingDen at 9:06 PM on February 27, 2011

Definitely get the house thoroughly inspected. It is worth the $300-$500 to know exactly what you are getting. Our inspection report was a 50-plus page document that pointed out everything - minor to potential large issues. But you really will not know what you are getting into until you get that inspection! Good luck!
posted by rainygrl716 at 9:10 PM on February 27, 2011

anyone know how much a professional inspection usually costs?
posted by drbalderas at 9:11 PM on February 27, 2011

An inspection by a licensed and bonded inspector will cost you from 3-800 dollars. Get one done and write the inspection(s) in as contingencies to the purchase. I'd go so far as to get two inspections independent of each other if you can and then order inspections for any specific issues those inspectors point out (electrical, waste, roof, etc).

It is totally worth the up front cost getting the inspections done.
posted by iamabot at 9:15 PM on February 27, 2011

"Doesn't want to wait for financing"?

"1/3-1/2 of what similar houses in the neighborhood are going for"?

First time home buyers without a real estate agent?

There's about a million alarms bells going off in my head right now. Maybe I'm not understanding the Cleveland housing market, but no sane person is willing to throw away tens (hundreds?) of thousands of dollars away because mortgages take too long to approve. There's something wrong with this place. There are laws that force the seller to disclose these things and at the very least, you need someone in your corner to make sure those laws are adhered to, ie an agent. In the best of circumstances, you are going to give up a third of your weekends to maintaining this 80 year old house, but if it's priced at half the value of it's neighbors, things could be much, much worse. Like you could lose all of your money and then some and not be able to inhabit the place worse.

I'm under the impression that a home inspection is required when purchasing property, but that might just be required by the mortgage company. Regardless you need one. Expect to pay something like 500 bucks, but it might be more if the inspector thinks you need some kind os specialist to come out and look at something, eg a plumber to scope the pipes, or a soil engineer to test the ground next to those toxic waste barrels (both of these things happened when I bought my hundred year old house --eventually the seller had to pay for the soil cleanup.)
posted by Slarty Bartfast at 9:31 PM on February 27, 2011 [3 favorites]

Depending on where you are in the Cleveland area, a municipal inspection may also be required. Cleveland Heights, for example, has mandatory point-of-sale inspections.
posted by Aaaugh! at 9:40 PM on February 27, 2011

First off, people buy house with cash all the time. It has become rather popular lately because of the frozen mortgage market. Nothing wrong with that.

But, in your case, I'd echo others and advise caution. The most telling thing you mentioned is that the house is under-price compare to the neighborhood; and the owner knew that, but is willing to take the loss for unconvincing reasons. 1/3 or 1/2 of the total price is a LOT. Perhaps you over-estimate the prices of comparable properties. That's a very distressed sale.

There are many factors that going into the value of the house. The art/science of determining that is called real-estate appraisal. There are also multiple ways to appraise the "value" of the house, each for different purpose. You may have "market value", which is what the house will sell in a timely manner. You may have "replacement value", which is what it cost to replace the house if it burns down. You may have "assessed value", which is what the government think it costs and will tax you accordingly. Factors that affect the value maybe something that you don't see at all: it can be the title of the house (how you can legally own it), it can be the liability that associate with it (toxic waste underground, or an earthquake fault across the foundation). Obviously, visible factors also matter.

So, before you spend the money, you should at least have an inspection (property, roof, pest; additionally: soil), an appraisal and a title report. If you were going to get a bank loan, they will definitely require these things. The bank is careful about their collateral. When you pay cash, you should be just as careful as the bank, perhaps more so.

But don't let my caution hold you back. Be willing to pay for those professional services; and be ready to be pleasantly surprised (or disappointed). The way to do this is to assess as much by yourself and put in an offer with contingency (the owner probably won't let you poke around until they have an offer). Once the inspection are done, you can use those to renegotiate the price down (if it shows you have offered too much). The good thing is that the owner can not raise the price if the appraisal came back in your favor, though if you don't finish the deal, you are out the inspection money.
posted by curiousZ at 10:19 PM on February 27, 2011

curiousZ said, "The bank is careful about their collateral. When you pay cash, you should be just as careful as the bank, perhaps more so." and I'm repeating for emphasis.

In addition to condition, assessed value and determination of clear title, you need to know about property tax, any kind of special tax assessments, and the cost of homeowner's insurance, including flood insurance if it is available (as I understand it, flood insurance is only provided by the government and if it is available it is recommended.) You also need to know about zoning ordinances.

I don't know your state laws but I'd add, get an agent because you are probably going to pay for one anyway--if you don't have your own, the seller's agent will probably offer or assume to act for you as well as the seller and earn both sides of the fee; if you have your own, they split the fee and you are entitled to ask a lot of questions and learn a lot about properties in the area. A good agent knows the local housing stock and the market and will help you find a good deal. They will also try to steer you away from a bad deal. There might be something out there that fits your needs even better than this property. Agents also know appraisers and inspectors and all the things you need for closing, etc.
posted by Anitanola at 11:53 PM on February 27, 2011

Nthing inspections. Do not stint on the inspections!

We've just been through the process for a house built in 1945 and we inspected first ourselves, with what we thought was a pretty ridiculous degree of thoroughness. We turned on every light switch and tap, opened and closed every window and door, tested all the appliances that were included (dishwasher), looked at skirting boards, ceilings and walls. Inside AND out. We found quite a lot of things that need maintenance and/or repair.

And then we had a structural engineer, pest inspector, licensed building inspector, electrician, and plumber through. We also had a licensed surveyor check that the boundaries match the title.

And they found so. much. stuff. that we missed: unsafe electrics, a pool fence that doesn't comply with local regulations and that is the vendor's responsibility to fix before sale, showers that weren't waterproofed when they were built, pipes from the roof that need diverting away from the foundations, live termites in the garden, air conditioning ducts that need replacing.

For us, these things are fine - they're well within our budget for repairs and the house is so amazing that it'd be cheap after doing twice that work. The point is, we know what we're up for and we can budget for it.

Equally importantly, they gave us a breakdown of what needs to be done stat, and what can be done over time, and reassured us that the house is structurally sound, in better than average condition for its age and basically gave it the stamp of approval as a good buy. So we have peace of mind, and a plan for maintenance and hopefully minimal nasty surprises after moving in.

So worth it.
posted by t0astie at 1:35 AM on February 28, 2011 [2 favorites]

One reason a vendor may ask for cash is that they are well aware of some fact that would cause a mortgage company to refuse finance on the property.

Where I live in the UK that's often because of "non-traditional construction", e.g. a concrete house, meaning the house is hard to value and repairs may be hard to price. However there could be much worse problems - for example, outstanding legal action over the title to the land, or over access to the land. Perhaps the owner doesn't own the drive to the house.

This might not cause you problems yourself in owning the property, but it could certainly cause you problems trying to sell it in the future.

Here these kinds of problems are usually discovered by the solicitor handling the conveyancing.
posted by emilyw at 2:59 AM on February 28, 2011

Nthing that you absolutely need a professional inspection, and that this offer smells fishy. The house you're considering was advertised. You were not the only person to read the ad. You know little about houses. It's probably safe to assume that people who know more about houses than you do have already passed over this supposedly great deal. Be extremely skeptical.
posted by jon1270 at 3:24 AM on February 28, 2011 [1 favorite]

Don't get caught up in descriptions of homes, go see them before you think they're perfect for you. Don't fall in love with a house: there is no such thing as the perfect house, there will always be another one, and if you let your emotions win you won't be able to negotiate with a clear head. Don't skip an inspection because you think they're too expensive or you can't afford it. If you can't afford an inspection, you can't afford the problems that will come up because you didn't have an inspection.

Get a realtor. You don't have to pay them up front, and they're used to helping first-time home buyers navigate their way around. Do you have any friends who have recently bought houses? Ask them for realtor recommendations and for ideas on what to expect in your particular market.
posted by cooker girl at 3:58 AM on February 28, 2011

Get thee to a first-time home buyer seminar. The FHA has programs in your area; otherwise, if you have to attend one held by a financial institution, go to the ones provided by credit unions.

Get an attorney who specializes in real estate transactions. A realtor's good to have as well, but the end-all be-all of buying a house is lots of legalese that the average layman can't parse without help.

Good luck!
posted by evoque at 6:11 AM on February 28, 2011 [2 favorites]

I don't know a lot about distressed sales, but this makes me uneasy, and I would definitely want a realtor in my corner. (Side note: My husband and I are both attorneys, who both periodically handle some real estate matters -- he litigates them when they go bad, I do FSBO closings -- and we have hired realtors both times. The first time because we were first timers; the second time because the market is tricky and while we get the legal side, we want some expertise navigating the current market. It is always worth your money to pay for expertise in large transactions.)

Here's what I learned: Be clear whether you're buying this as a starter home or a permanent home. I love my little starter home, but there are things about it that drive me CRAZY after living in it for five years. Neither entrance has an easy place to remove jackets and shoes. MUD ROOM PLZ? Master bath is not attached -- no biggie when it was just us, annoying now that there are kids. I'd like a more open kitchen. Etc. Anyway, buying a starter home, I'd think to myself, "I like this pretty well, it's in the right place, it's the right price, we will be able to resell it in five years, it doesn't need metric assloads of work to be livable and will accommodate all of our family needs for five-ish years." If it's a permanent home, you're going to want to investigate those things way more closely because while I can live with the lack of a counter next to my sink for five or ten years, if I'm growing old here, I WANT A FRAKKING COUNTER THERE.

I actually took my whole book club (seriously 8 women) to look at a "final contender" for our next house (that we ended up not buying because of timing and the yard) with me, on the theory that everyone has things that drive them crazy about their house that *I* wouldn't necessarily know to look for because it's not the case in my house. And indeed, the architect who's been renovating her own house pointed out some needed insulating work and guesstimated the cost and time. The girl with kids a little older than mine pointed out the things my pre-schoolers would, in two years, choose to brain themselves on that would be hard to childproof. Having a lot of different perspectives from current homeowners really helped me see what was right and wrong with the house, and what was easy to fix and what I'd have to live with. I definitely suggest not just getting inspections (GET INSPECTIONS) and talking to a realtor to find out what's up with distressed sale, but taking some home-owning friends or relatives along with you to offer opinions.
posted by Eyebrows McGee at 6:44 AM on February 28, 2011 [1 favorite]

YOU DO NOT NEED A REAL ESTATE AGENT. DO not listen to the people who say you do. ALl you need is a good real estate lawyer which you should have anyway .

Your best friend is your local mls website and the other agency websites. You can get an agent if you really really want BUT make sure they are a sellers agent. This way you do not have to PAY them.

I got my place without an agent. I found it on our local mls website. Went to the open house my self. MY lawyer helped me out

Also watch holmes on holmes and holmes inspections(sundays at 9pm) on hgtv. This will help you with what you should look for when buying a house. this way when you get your inspector before you sign the contract you will know most of the major problems already.

Looking at a house in the winter or in the rain is good. IT will show you any leaks in the roof or heat problems.

ALSO if you find a house you like and are thinking of putting in an offer. go to the local town or village. Ask them what the taxes are without STAR (if your state has it) . Also ask what the CO's are on the house. Ask what they show as the square footage of the house. You want to make sure that every addition is legal or your mortgage will fall through. This will also tell you what the real taxes on the house are. A lot of listings have them lower then what they are or list them with things like senior star or what the homeowner THINKS they are .
posted by majortom1981 at 9:03 AM on February 28, 2011

In addition to a professional inspection, you'd want to make sure a title search is run, and I'd suggest title insurance. The need for a quick, cash sale raises a red flag that there may be title issues (liens, back taxes, etc.) that could prevent a mortgage from being issued.
posted by zombiedance at 12:10 PM on February 28, 2011

My wife and I looked at 30 places before buying our first home. Don't get too caught up in this house being a extra-special deal that'll never come your way again. You are in a buyer's market, so take your time and don't get rushed into anything. A buyer's agent can't afford to have your best interests at heart. Their income is dependent on you making a purchase. Get a good lawyer. Think twice about any place with a lot of obvious small maintenance issues. Those things eat up a lot of your spare time and money.
posted by bonobothegreat at 12:14 PM on February 28, 2011

Go look at the place. I saw a lot of shit holes that looked like nice places in the ads.

Also, if your purchase is going to be as straightforward as it sounds, just get a Realtor and skip the Lawyer. Lawers cost more and might show up at closing for 5 minutes, but don't really do much in the way of showing houses.
posted by WeekendJen at 12:39 PM on February 28, 2011

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