Monday, August 18, 2014

Don't Blow Off the Home Inspection

When you buy a house, a home inspection can be one of those things everybody hates. For buyers, it's one more impediment, and who has to pay for repairs, anyway? For sellers, it's one more impediment, and who has to pay for repairs, anyway?

A home inspection report is like a certified letter: It seldom bears good news. The hard part for buyers is sorting out if the bad news is a little-bit-bad or a-lot-bad. Unfortunately, no one is there to help. While no news may be good news, bad news may be worse news, so do not forego the inspection, even if your Realtor tells you that competing offers waived the inspection contingency.

There are some common problems with home inspections. First, they seldom uncover serious construction defects, which can only be discovered with an invasive inspection (and which most home inspectors aren't qualified to perform anyway). A home could pass inspection but still be full of dry rot. Second, some inspectors don't properly prioritize areas needing attention. A furnace needing cleaning and a new filter is far less serious than water damage under a sink. Third, some inspectors are either inattentive or just plain not good. I recall one instance when my client's inspector failed to note instances of open wiring--a deal killer on an FHA loan (and yes, I pointed it out to the inspector).

Some states regulate home inspectors. Others don't. In Oregon, where I practiced, the state regulates them, but a license means they took the course work and passed the test. That's often not enough. In Colorado, my home inspector--a great guy, by the way--included a bid to do the work his inspection discovered. Hmmm.

Buyers often rely on their Realtors' recommendation for a home inspector. That's a good place to start, but it's not enough. In the instance cited above of the inspector not noticing open wiring, I had used the recommendation of a colleague because my own inspector was unavailable. That means my colleague had to have recommended the bad inspector to clients prior to my alert.

Whether or not your state licenses these individuals, choose an inspector who's experienced at doing this kind of work, and if you can find one who's done a lot of houses in your chosen neighborhood, so much the better. Some inspectors will disagree, but choose one who's worked in the construction trades. Former skilled workers and contractors seem to have a better sense of how the house goes together and can prioritize reapirs. In my experience, they also will note potential detects not on the standard checklist. And ask for the printed report along with recommendations for annual maintenance.

For lay people, a problem with home inspections is that too much of it is about risk management. Brokerages recommend them because inspections are a defense in case there's a lawsuit, and inspectors sometimes exaggerate certain repair items for the same reason. If you're buying (or selling) a home, the only risk you want managed is yours, thank you very much.

Who pays for repairs? Buyers don't want a pig in that poke they just bought, nor do they want that shiny new paint and carpet to be lipstick on the pig. Lender-required repairs really aren't negotiable--they have to be done before the loan closes--and the others depend on the type of sale (traditional or distressed) and the tolerance of the parties.

Any financial transaction has to be analyzed for upside-downside, and a home inspection is crucial in mitigating downside risk for buyers. Don't pass on one.

Monday, August 4, 2014

What Buyers and Sellers Totally Get. Will Brokers?

"People will still come to us because of our better service, and  if we don't have what they want, we can special order it!" That's what independent booksellers claimed when Borders and Barnes and Noble outgunned everyone else in the world of books.

"People still need us because of our superior service in selling or buying a home," says the cacophony of real estate agent voices on hearing the news of the merger of real estate tech giants Zillow and Trulia. Real estate journalist Brad Inman predicted it means the end of brokers and brokerages.

Ouch!

Brokers point out that Zillow's data is inaccurate. Many listings are out of date and the "zestimates" are from la-la land. One even noted that Zillow is just "one nerdy guy in a hoodie away from being Myspaced." Funny guy.

Okay, that last part possibly has some legs. After all, the train to nowhere of AOL, Myspace, Napster, Webvan, Lycos, and many others hasn't completely left the station. Besides, didn't Barnes and Noble and Borders pretty well get Amazoned?

But the other part about Zillow's property inaccuracies is off the mark, because guess what, brokers? Consumers don't care. I'm reminded of my own house hunt on moving to Denver Metro, when my wife kept saying, "But Zillow says...," despite my years of talking about the bad information. If a broker's wife doesn't care, who does?

The fact is, Zillow and Trulia (shall we call it Trillow? Zillia? Godzillow?) are established brands with bottom-up trust and loyalty. Moreover, no contact with a real estate agent is made until the consumer initiates it. Consumers like that. I like that. You can find a house without an intermediary. If you're plucky, you can sell your house without an intermediary.

Most buyers and some sellers totally get this, with more to follow. Brokers do not. Well, to be fair, some do, but many are in De Nile. And I don't mean the river in Egypt.

Realistically, the effects of this sea change won't completely happen in 20 seconds or so, especially with sellers. That's because a huge number of owners bought their homes in the 1980s and 1990s, when life was Life, as in the '50s-era magazine. Many of these sellers aren't into the way the tech world operates in 2014.

At least, not yet. The average age of a Realtor is somewhere around 56. First-time buyers are in their 30s. Sellers? Older, but getting younger fast.

But let's take the Zillow folks' at their word in their oft-repeated assertion that the company merely plans to be an advertising platform. Can you see a website containing every house in the U.S being searched rabidly by home buyers and, soon, sellers?

Oops. And on this site, anyone with some service to hawk advertises it--home inspectors, mortgage lenders, title companies, contract lawyers, Home Depot and Lowe's, and, dare I say it, Realtors.

Shoot, if I just graduated law school, I'd be tempted to peddle a real estate contract service on Zillow. If I were a lender, I'd think of some spiff for someone filling out an application. If I were a real estate agent, I'd think it was time to go back to the drawing board and decide what I was selling and what it cost.

Buyers already know they don't need Realtors to house hunt. For sellers, the question is no longer, "Will you buy an ad in the real estate section," it's "Will my house be on Zillow?" And they can DIY that one for free.

In truth, service is all real estate brokers have ever had to sell anyway, despite claims of buying and selling houses. Service is in their inventory. Houses ain't. And it's not the service itself. It's what consumers will pay for it. Services can be advertised featuring price, quality, or an amalgam of both. Any consumer knows that, right?

As my appraisal instructor preached, the only certainty is change. The best of the real estate pros will not only adapt, but prosper.