Why Price Isn’t Everything

Charlotte’s real estate market is nutty right now and with very little inventory on the market the chances of a home going into a multiple offers situation is exponentially higher. Especially in price points under 350k, where first time homebuyers are up against investors with deep pockets, all-cash offers, homes on the market only a day (if getting on-market at all) and general real estate debauchery.

Multiple offers. Highest and Best. What does it all really mean for the average homebuyer? Maybe not quite what you think. There’s a lot that goes into a seller selecting an offer from a pile of eager buyers, and it’s not just who offers the highest price (but yes, that’s important too).

Type of Financing

The type of financing that a buyer has can have vast implications when it comes to getting the transaction through to the closing table. FHA and VA loans are guaranteed by the government, but they also require more stringent approval processes. And because they are government-backed these processes can move slower and be more difficult to navigate. Down payment assistance programs can be another caveat within the process. A buyer would be silly not to take free money, but when that money comes with strings and stress for the seller, it might be best foregoing that money with our current market.

Buyer Liquidity aka money in the bank

Buyer liquidity is a natural extension of financing. Certain financing is geared towards helping buyers that don’t have much money to put down on a home. For example, there are VA loans that are 100% financed loans, so the buyer is bringing no money to closing. That’s great for the buyer, but what if the home doesn’t appraise up to the purchase price that’s written on the contract? The lender is only going to lend up to the appraisal price (aka what the home is “worth” in the eyes of the lender) so if the seller knows that the buyers aren’t bringing money for a down payment (or aren’t bringing much) then the likelihood is high that buyers won’t have cash to bring to cover the difference in the appraisal and purchase price. If this can’t get figured out in a timely manner then the buyer will have to terminate the contract.

Which brings us to…

Due Diligence and Earnest Money Deposits

If a buyer needs to terminate a contract the money that they have on the line is their Due Diligence money and potentially their Earnest Money. Whether or not they lose Earnest Money is dependent on when they terminate the contract (during or after the due diligence period) and certain types of financing require the buyer to receive their Earnest Money back if the home does not appraise for the purchase price (I’m talking about FHA and VA loans here).

If any of these termination scenarios were to occur, would the DD and EMD received from the buyer really be enough to compensate for the lost time and the seller having to go back to square one in selling their property? Riskier financing means more DD and EMD is needed to entice the seller to take a chance on the buyer.

Closing Date

Depending on the moving situation that the seller may be in, they may want to move very-very quickly and be done with the sale or they may want to stay in the house a few extra days or weeks to make the move-out process smoother. This can also lead in to the discussion of seller possession after closing. If, for example, the seller needs to sell their home to put money towards a new construction home they’re building they may need to close soon but then they don’t have a place to live until their home is completed and ready for move-in. A closing with seller possession after closing, also known as renting back a house after the sale, may be very-very important to the sellers. There are liability issues with the seller staying in a home they do not own for a period of time, so if this is something you’re interested in doing or offering, make sure you understand what could go wrong.

Buyer and Agent Requests

For the buyer this means other things that are requested as part of the contract. Usually it’s requesting the seller to pay a portion of the buyer’s closing costs, leaving personal property behind like a fridge, washer or dryer, or paying for a one-year home warranty for the buyer.

Requesting closing costs reduces the overall amount of money that the seller receives from the sale, and sellers don’t really like less money. Also, such a request tells the listing agent that the buyer is likely already strapped for cash because they need help paying their closing costs. It’s important to note that closing costs can’t really be financed as part of your loan amount, someone needs to pay them at the closing table. If those expenses are already tough for the buyer to cover are they really going to have money to cover an issue if the home doesn’t appraise? Likely not.

Another thing that goes into decision-making is how the buyer’s agent conducts themselves. I know, it doesn’t sound fair to be judged by someone else’s actions, but if that person is representing you and they aren’t conducting themselves in a professional manner then that’s a problem. If a seller receives two largely identical offers but one has a knowledgeable, communicative, and courteous agent and the other has a trainwreck of an agent, I have to tell the seller because it could impact the buyer’s ability to get things done in a timely and accurate manner, which could cause the buyer to need to terminate the sale.

Seller Preferences. Maybe.

This is where things turn into a grey area. It’s common practice these days for buyers to write personal letters to the sellers explaining why they love the house and why they should choose their offer over any other. Depending on the seller these may work, or they may backfire, so if you’re the buyer be careful! I had a client going through a messy divorce and they got a ton of letters explaining how the buyers saw themselves building their family with their spouse in the home. It was hard to read knowing the circumstances of the seller, who had also planned to grow their family in the home, but life ended up much different than they had expected.

I had another client who got their offer accepted because both the buyer and the seller were veterans. The seller felt so strongly about supporting a fellow veteran that they took a more-difficult VA loan as opposed to a conventional loan.

Seller preferences can get sticky if their preferences could appear to be a violation of fair housing laws. Choices based on the buyer’s race, gender, family status, etc. are highly discouraged by real estate professionals so we’ll try to keep these details out of the discussion if at all possible. When I talk to a seller about selecting an offer and personal details about the buyer are invovled in the submission I forewarn the seller than I will remove photos or information that could violate fair housing. If this is a problem for the seller then we have another issue entirely.

New Construction… Now What?

The purchase of a new construction home is exciting, with lots of time for anticipation of moving in to your new home. It feels like the builder rep becomes your new best friend, you get to pick out your packages and upgrades so everything can reflect your style (if the home isn’t already built or spec’d of course!), so with all of the excitement it’s important to keep in mind that there are pitfalls that you’ll want to avoid along the way.

Builder-Specific Contracts

Most if not all builders in the area use their own purchase contract forms. Why? Because it allows them to closely control the process, while being very forgiving to the builder and not very friendly towards the homebuyer. Example, there’s often a clause that the builder can delay construction for any reason and must simply begin the construction process on your lot within one year. That does not read that they’ll hand over a fully constructed home in one year, but merely start the build in one year. Regardless of when they tell you that the expected completion date is.

It’s extremely important to know and understand the contract terms that you’re signing and what your rights are if something goes wrong. Many builder contracts mandate the use of arbitration instead of legal action in a court of law. It’s important to know what this means before you find that you need to sue the builder. This might seem like something that wouldn’t happen often, but there are some very good lawyers here in Charlotte that spend their days only litigating with residential new home builders.

If you decide that the contract is too skewed in the builder’s favor and don’t want to agree to the contract there is little that you can do to still purchase the home. Using their contract is like the price of admission to the ballpark just to play the game. If you want the house, you will have to take on the risk.

Homeowners Inspections – pre and post drywall

Even if you’re buying your home new, there could still be issues that you would want to be aware of before closing, so I always, always, always recommend having an inspection done. And not just one inspection for new construction but TWO. The first is called a pre-drywall inspection. This is when everything has been framed, utilities have been installed and the walls are just about the be closed up. Having an inspection completed at this point allows the inspector to view areas of concern that are normally hidden behind drywall, meaning that they can see more potential issues. Just because a home is new doesn’t mean that it was built correctly, so buyer beware.

Once everything is completed I recommend having a traditional homeowners inspection. This is when the inspector will go through and look at everything they can to ensure it was built the way that it should’ve been. They will also find things like loose door molding and other random things that you’ll want the builder to fix prior to closing.

Environmental testing

Though a house might be new there’s still good reason to test things like water quality and whether or not the home has high levels of radon gas. Even if a geographical area isn’t know to have issues with radon there are some building materials that may be included in the house that might spike levels and that’s an important thing to know before you move in. Example, granite, though trendy in both kitchens and bathrooms, can be known to emit high levels of radon, so know your stuff and get a test.

First Year Warranty

Many builders will offer a warranty on their homes at the 12 month after closing. The builder will do a walkthrough with the owners and fix anything that may have broken or settled during the first year that you’ve lived there. This is another GREAT time to get a full home inspection. This gives you a full report with issues listed and pictures provided for the builder to then go and fix. I recommend scheduling a home inspection around month 11 so you’re prepared for the builder’s walkthrough. I also recommend keeping a running list of items you corrected taped to the inside of a kitchen cabinet. You might forget about that kitchen cabinet that doesn’t close quite right and miss having it fixed without you needing to call a fix-it person.

Sales Process

For builders this is a business, and they treat it as such. They are very savvy, so it’s important that you have someone on your side to represent you and your interests. Plus, it’s good to have someone that understands the builder’s sales process. Sales people have quotas to meet on a monthly and quarterly basis, so sometimes there’s more wiggle-room in the price than people realize. They have a purchase price listed but what they don’t tell you is that they likely have a range of prices they’re willing to accept if it means making a sale. You’ll have more luck negotiating on price if you buy already built inventory home, but if homes are slow to sell they might make an exception if you’re looking to go under contract on a to-be built home. You never know, so ask! And if you have any questions or changes that the sales staff agrees to, be sure to get it all in writing before signing and giving your deposit.

Know Thy Neighbor… and Neighborhood too

When searching for a home it’s great to shop online, and honestly, that’s the only way to be successful these days for the average homebuyer. While you can find out many details about the house you’re interested in, it’s almost impossible to learn about the area and the neighborhood unless you KNOW the area and the neighborhood. In Charlotte, one street can make all the difference between luxury living and “wouldn’t walk my dog there on a dark night,” so what can you do?

Many of my clients will ask my opinion, which I am always hesitant to give out for two reasons: one, anything I can say can be construed as trying to steer you one way or another (which is illegal), and two, I don’t have a good baseline of what you consider “safe” or “good” so any opinion I have might not align with what you’re looking for.

Case in point: I had a friend live with me for a few months and after the first week she said that she couldn’t believe that I lived in such a “rough” area. For context, I do live on the edge of two distinct neighborhoods, if you turn one direction out of my driveway you will see new homes ranging from 600-800k, and if you go out the other direction you will see questionable characters standing on street corners. I generally understand where my friend was coming from, but I also don’t agree with her. Alas, this is why I am so finicky about sharing my personal opinion, and instead I offer some options for my clients to make their own best decisions.

Safety

As with my friend, one person’s “safe” is another person’s “no way” so there are tons of online resources that I give to my clients including the Charlotte-Mecklenburg police department website, CrimeMapping.com and AreaVibes.com. It’s important to know that negative reports will always outweigh the good and it’s equally important to see what a rating would be for a city you know and are familiar with. You might just see that your lovely hometown doesn’t fair as well as you thought it did in these website ratings.

What’s most important, and something I stress that all of my clients do, is to drive around a neighborhood that they may be interested in. And I don’t just mean a quick drive on a sunny Sunday afternoon. What I actually mean is go there around dusk on a Friday night, drive through at midnight, take an extra few minutes one morning and drive what your commute to the office would be from that neighborhood. You would be surprised what you can find out about a neighborhood by taking a few extra minutes there.

Also, during your drive through I recommend taking a walk down a few streets during a time when people have just gotten out of work and will be the most active outside. This gives you an opportunity to say hello to the neighbors. While it can be a bit uncomfortable to speak to someone, most people are happy to talk about their neighborhoods and to connect over the mutual interest. They will also tell you the good and the bad, and will be much more candid with you than the sellers or their agent will be with me.

Fun example: in that 600k-800k part of my neighborhood there are a few older homes sprinkled throughout. One of those homes illegally keeps chickens on the property. This is a well-known detail within the neighborhood, they’ve been there for eons but how would you feel if your first Saturday morning in your new half-million dollar home started with a rooster crowing at 6:30am? While I’m certain it’s against city ordinances to keep farm animals within the city limits, there’s also something to be said for getting grandfathered in because you’ve been around for the last 25 years living your best chicken-keeping life in the same house, on the same block. Who are we to stop them?

Schools

A parent’s choice for their child’s education is deeply personal and has a hefty impact on that child’s future, so it’s a big deal. I have had appointments on the same day with different families, and one family thinks school X is absolutely amazing but only a few minutes later I hear that school X is absolutely terrible and this second family only wants their child to go to school Y. Both sets of parents are right. Everyone is entitled to their opinion and everyone is entitled to pick their child’s education. Do not give me or any other real estate professional the power to tell you otherwise. Again, jump online and look at some school ratings, find the PTA and parent groups on social media, and talk to someone who has their kids in that school. You can ask all of the questions and get the unfiltered answers from the people who really know, and then make the best decision for you and your family.

It’s also important to note that school districting lines change every few years around here, so if there’s a school that you would like your child to be in it’s imperative that you go the extra mile. I can confirm with the seller’s agent and call the school district to double-check, however, there may be changes in the future that I’m unaware of. Parents and students that are going to be directly impacted by a change are the best to know details, so again, talk to your school’s PTA and parent groups for any pending details.

Here are some additional school resources, and of course there are more out there depending on where in Charlotte you’re interesting in buying:

  • Greatschools.org – widely known for rankings
  • MeckEd – shows some additional statistics for rankings in Charlotte-Mecklenburg and where they’re expected to go over the next few years
  • SchoolDigger – includes data from National Center for Education Statistics, U.S. Department of Education, the U.S. Census Bureau and the North Carolina Dept of Public Instruction
  • Charlotte-Mecklenburg School District

“To DO” (Due Diligence) List

The process of buying a new home can be jarring because we prepare ourselves to shop for a home, but we forget to prepare ourselves for what happens next. Once the thrill of an accepted offer wears off, the next feeling that sets in is most-likely panic or at least a large dose of anxiety. So, what comes next in the process?

Once you have a fully-executed and valid contract, it kicks off the buyer’s due diligence (DD) period. This is a period of time that is negotiated as part of the contract for the buyer to complete all investigative procedures on the home and to finalize their loan in preparation for closing. The DD period is the time in which the buyer could walk away from purchasing a home with the least amount of negative financial impact.

A.K.A. if you’re not going to go through in purchasing the home that you are under contract on, DD is the period of time that you want to alert the seller. Yes, you will lose money, but if you wait until after the DD period closes, you’ll lose more.

Therefore, the few weeks of due diligence (length depending on the time period negotiated between the buyer and seller during contract) are used by the buyer to investigate every aspect of the home and the transaction to ensure that they would like to move forward in purchasing the home. Mutually agreed upon changes can be made to the contract during this time, though it’s best not to go into a contract expecting this after-the-fact change to occur.

Home Inspection

It’s important for you to understand what it is you’re buying with your hard-earned money, so it’s important to have a licensed home inspector schedule to come in. They will look at everything from top to bottom and will tell you whether or not something is working as intended, requires repair or requires additional investigation by a contractor. Because of the litigious nature of our society, everything will fall into one of these three categories but don’t let that scare you.

The home inspector terminology of “requires repair” does not mean that the seller has to make this repair. Let me repeat: THE SELLER DOES NOT NEED TO MAKE ANY REPAIRS TO THE HOME. North Carolina is an “as is” state and therefore property can be bought and sold regardless of whether or not it is deemed habitable. Scary , huh? If the buyer and seller cannot come to agreement on how to remedy the situation through repairs or compensation, then the buyer can decide not to purchase the home and forfeit their Due Diligence fee paid to the seller at the time of contract.

If the home inspector finds something major that is wrong with the home that would cause the buyer to want to walk away and find a new home to buy instead, then we are in territory where it makes sense to ask for repairs, a decrease in purchase price on the home, or seller paid closing costs to benefit the buyer. Each remedy option has its positives and negatives, so be sure to talk through these options carefully based on your situation.

Major items include the five systems within a home. If the repair is not a large-scale problem in one of these areas, it is likely not worth asking for a remedy. These include:

  • Roofing
  • Plumbing (including well water and septic, if applicable)
  • Electrical
  • Structural
  • Heating and Cooling (HVAC)

If there is something outside of these areas that really bothers the buyer and would make them want to walk away from the purchase of the home, the item is still worth having a conversation about. However, with our current market having very little inventory and lots and lots of buyers, a seller would be more likely to want a buyer to walk away from a deal, keep the due diligence fee for their trouble, and place the home back on the market than to fix something that they deem to be a cosmetic defect. Again, if the problem makes a buyer not want to purchase the home then it’s worth having a conversation about the item. Always.

Specialized Inspections

These inspections are outside the scope of the general home inspection report, but can be very important to a buyer’s overall understanding of the condition of a home. It’s important to understand whether or not these are important to you.

Termite Inspection

This is a specialist that comes out to specifically look for damage due to termite activity. While this may not be important in other areas of the US, it’s important here in the Carolinas. Termites can cause structural damage, so it’s best if damage is caught early and a remediation and maintenance plan can be put into place if needed. Some homes (specifically condos) often have what’s called a termite bond, it’s a yearly contract that the homeowner or HOA holds to ensure that any damage found is covered under an insurance policy. This requires ongoing walkthroughs on the home, usually on a yearly basis, to maintain coverage.

Well Water and Septic Inspections

If the home is on a well water system it’s important to have the water tested for bacteria and contaminants. You and your family will be drinking and bathing in the homes water, so it’s important to know. For homes on a municipal water system, this is purely optional.

Homes that are on well systems are often on septic for waste water as well. A complete inspection can uncover costly (and gross) problems. Also, homeowners rarely remember to have their septics serviced, so this is a nice time to have it pumped as well. Having it pumped also allows for a more-thorough inspection of the working condition of the system.

Radon Inspection

Radon is a naturally occurring gas that comes from certain types of rock. While we each come into contact with radon on a constant basis, the issue is when levels of radon become too high and are trapped in a living space (like your house). The scientific community is a bit mixed up on the severity of radon, but it can be a problem in any type of home. Consistent contact with high levels of radon gas has been linked to issues like lung cancer and more specific information can be found on the EPA website.

Additional areas of concern

There are some additional items that are outside the scope of your general home inspection that may be important for you to take a look at. The most-common areas in my experience are swimming pools and fireplaces, though I would include any other miscellaneous area of concern. Have a tree that is hanging precariously over the garage? Call a tree specialist. Planning to put up a fence or a pool in the future? Have a survey done. Need your new home to have a koi pond? Call your koi specialist.

… No seriously, that’s a thing.

Financing Requirements

If you’ll be securing a mortgage to purchase a new home it’s important to have the loan underwritten within the due diligence period. If something happens and the loan is not approved, a buyer would want to know prior to the close of due diligence. Also included in this process is a bank appraisal, meaning that the lender will send out a 3rd party appraiser to ascertain whether or not the home is “worth” what the bank is being asked to lend on it. If the appraiser reports that the home is valued at less than the contract price then the bank will only fund up to the appraisal price, the buyer will be on the hook to make up the difference in cash or a compromise will need to be reached with the seller to lower the price to appraised value. There are many caveats to this process, so look for a more-detailed post soon.

Have additional questions on the Due Diligence process? Something I missed? Reach out to me directly and I’ll help however I can!