My wife and I are starting negotiations to buy our retirement home. We are almost 70 years old and have not purchased real estate in over 30 years. It seems even more stressful now; the requirements and responsibilities have increased drastically. We have several questions (see below):
You are absolutely correct: buying a house is complex now-a-days. You have to deal with sellers, lenders, real estate brokers, attorneys, appraisers, and home inspectors, to name a few. But let’s try to answer your questions in an effort to smooth the process and relieve some of your stress.
Question: Can we demand that our house inspector be allowed to inspect the house during construction so that major flaws are identified and corrected before the house is completed and before we have to go to settlement?
Answer: Most new-home builders will not allow this, but it does not hurt to ask. From my point of view, it certainly makes sense, since it gives you — and the builder — a second pair of eyes to look at the house as it is being built. In fact, I have heard of several cases where the builder was thankful for having the inspector present, since the problems which the inspector found saved the builder a lot of money by not having to make corrections at a later date.
If the builder agrees with your request, you may be asked to make sure that your inspector carry adequate insurance in case he gets hurt while making his inspections.
Question: We are required to deposit $20,000 with the builder when he starts construction on our home. How can we insure that we will not lose our deposit if the house has major flaws when we go to final settlement?
Answer: As will be discussed below, you should have a real estate attorney work with you from the beginning (when you first sign the sales contract) to the day you go to settlement. There are laws in some states which require that these earnest money deposits be placed into an escrow account. Sometimes, the builder will agree to pay you interest on the deposit, but not always.
When you buy a new house, you have to rely on the reputation — and competence — of the builder. Even if you are unable to have your home inspector make periodic inspections during construction, at the very least the inspector should be permitted to go with you on the final walk-through before settlement. If there are mere punch-list items, get the builder to put them in writing and give you a date when the work will be completed. On the other hand, if the problems are serious, you should make sure that they are completed before you have to go to settlement. There should be something in your sales contract reflecting all this.
Question: In view of the housing market conditions, would you recommend that we not put our house on the market until our new house is almost completed? We do not want to experience lengthy delays before the new home is ready, as some of our friends had to do.
Answer: That’s a difficult question. Currently, the housing market is strong, and no one knows how long it will last. Can you sell the house and move into a temporary rental (on a month-to-month basis) until you can go to settlement? This way, you can get the best price for your house and put the sales proceeds into a savings account until you need the money to purchase your new home.
Another question: Do you need the cash from the sale of your present house in order to buy the new one? If so, then you have a potentially serious logistical hurdle: most contracts for new-home purchases allow the builder to give you a short period of time (15-30 days) from the date you receive written notice before you have to go to closing. This may not allow you the luxury to sell your house at a leisurely pace and hopefully get the best price.
Accordingly, unless you can amend the contract so as to give you more time (which generally will not be permitted) you really have no alternative but to sell your house now.
Question: How can we find a good settlement attorney who will represent us at the settlement table?
Answer: Ask your friends, neighbors for recommendations. Also, contact the local bar association in the jurisdiction where the new home will be built; most bar associations have legal referral programs so that you can obtain counsel who specializes in real estate law.
However, as suggested earlier, you need a lawyer from the very beginning — before you sign a real estate sales contract. Your attorney should be able to guide you through the entire process.
It is complicated and stressful, but you have no alternative. Just make sure that you do not sign any legal documents until your legal — and financial — advisors have been consulted.
Written by Benny L. Kass