About Real Estate: Inspection contingency gives buyers leverage for needed repairs
Making a proposed purchase subject to a satisfactory inspection report provides a buyer with several options if the inspector then finds undisclosed problems.Q. We made an offer to purchase a house last month, and we followed your advice to make the offer contingent on getting a satisfactory report from a professional home inspector. The inspector says the house is structurally sound, but that the plumbing system is starting to rot and would be very costly to replace. The seller refuses to pay for the repairs, and he won#146;t reduce the selling price to compensate us for making the repairs ourselves. What can we do now?
A. You have several options because you wisely made your purchase offer contingent on a satisfactory inspection.
A standard inspection contingency doesn#146;t require a seller to pay for any repairs that the inspector may find. But it does allow potential buyers to cancel the transaction without penalty if the report uncovers previously undetected problems, such as major plumbing, roofing or electrical issues.
Buyers typically have four basic choices when such troubles are discovered:
Ÿ Renegotiate the deal so the seller is required to make suitable repairs himself, pay to have a professional do the work, or approve a #147;closing credit#148; that will provide the buyer with the money needed to pay for the job when the sale transaction is completed. If you choose this option, first get bids on the work from at least two or three contractors to get a realistic opinion of what it would cost.
Ÿ Lower the offering price by an amount that#146;s equal to the amount that will be needed to make the necessary repairs. This can be a good alternative if it will lower the amount of cash you require to close the deal, but it#146;s not so great if the needed money will have to be financed (with interest) over several months or even years.
Ÿ Take the property #147;as-is.#148; That#146;s usually a poor choice for buyers because it makes them responsible for paying for the repairs that their inspector has uncovered. But in some cases, it can be worth the gamble: If a plumbing or roofing problem would cost $4,000 to solve but the price you originally agreed to pay is $10,000 below market value, you still instantly will have $6,000 more in equity and thus fatten your eventual resale profit.
Ÿ Cancel the sale. A standard inspection contingency allows a buyer to nix the deal and get the good-faith deposit back if an acceptable compromise to pay for repairs cannot be reached. Many buyers choose this route, in part because it lets them walk away without losing their deposit and begin looking for a home that#146;s offered by a seller who is more reasonable.
Talk to a real estate agent or lawyer to discuss these and other possible options.
Q. When my husband and I recently applied to rent an apartment and told the landlord we are both self-employed, the landlord said we would have to include a copy of our last two tax returns with our application. Is this legal? It seems like it#146;s an invasion of our privacy!
A. #147;Invasion#148; or not, it#146;s perfectly legal in most areas for a landlord or property manager to insist that rental applicants provide copies of their recent income-tax returns #8212; especially if the would-be renter is self-employed.
If you instead had a salaried job with an outside employer, the landlord might settle for copies of some recent pay stubs to show you earn enough to cover the monthly rent. But since you and your husband are self-employed, the only practical way the landlord can verify your income is to either review your tax returns or ask for a recent profit-and-loss statement for your self-owned businesses.
Q. Is there a difference between getting #147;prequalified#148; for a mortgage and getting #147;preapproved#148; for one?
A. Yes, and it#146;s a big one.
A loan prequalification is merely a rough estimate of the amount of money that a lender, real estate agent or Internet site suggests you can borrow to purchase a home. There typically is little or no paperwork involved, but the estimate is only a ballpark figure that #8212; even if it#146;s issued by a bank #8212; doesn#146;t mean you#146;ll be able to actually borrow anywhere near that amount.
Savvy buyers instead get preapproved for a loan before they start shopping for a house or condominium. Gaining preapproval requires you to complete a formal loan application, provide recent tax returns and related documents, and (often) pay some upfront fees to get the loan process started.
Although getting preapproved takes extra work and sometimes some cash, it provides some benefits that a free loan prequalification does not. For starters, the preapproval process will give you a much more accurate estimate of how much you realistically can borrow based on your income, debts, credit score and other factors. As a result, you won#146;t waste time looking at properties you simply cannot afford.
Equally important, the lender you choose also will give you a letter or card that states how much you have been preapproved to borrow. The document can then be included when you make an offer on the property you hope to buy, which should make the sellers more receptive to the proposal because they#146;ll know you will likely have a better chance of getting the loan needed to complete the transaction than another bidder who has merely prequalified for a mortgage.
Ÿ For the booklets #147;Straight Talk About Living Trusts#148; and #147;Choosing a Reverse Mortgage That#146;s Right for You,#148; send $4 for each and a self-addressed, stamped envelope to David Myers/Trust, P.O. Box 2960, Culver City, CA 90231-2960.
© 2011, Cowles Syndicate Inc.