Common Issues When Purchasing Real Estate
Whether you’re an investor or just someone looking for a home, buying a house can be a daunting task. From financing, to inspections, to liens on the property, there are many ways a transaction can go wrong.
With Philadelphia’s housing market still booming, it is important to be armed with the right tools before entering into a transaction.
One of the best ways to avoid issues during a real estate purchase is to be aware of potential problems beforehand and to be on the lookout throughout the process.
Let’s review some of the most common issues in residential, new construction, and investment purchases so you can feel more comfortable completing your real estate purchase.
One of the most common problems in residential purchases is an issue with the buyer’s lender or mortgage company. Often, a buyer’s mortgage application is derailed because of a poor credit history, insufficient income, or a high debt load.
These are the types of issues that a buyer can address before even beginning to search for a home. By improving your financial situation and having an open discussion with your mortgage company, you can increase the chance that a lender will approve your mortgage application.
Sometimes the issue is not with your personal financial condition, but rather with the value of the property. For example, you might offer to pay $300,000 for a house, but the mortgage company sends an appraiser who values it for only $250,000. If you are taking out a mortgage to cover most of the cost of the purchase, it is possible that the lender will refuse to lend the amount requested at the offer price.
In these situations, the bank may still lend if you make up the appraisal difference with your own cash, but that is a risk you must consider carefully.
Another common issue arises during the inspection phase. Just when you think you’ve found the perfect home, an inspection might show issues with the roof, plumbing, or electrical system.
Sellers are not always willing to spend money to fix the issues, so it is up to you to weigh the risks and benefits of going through with a deal after learning about problems post-inspection. In some situations, the buyer may even be able to negotiate down the price or request a seller’s assist to compensate for the problems identified.
From rowhouse and apartment developments to luxury skyscrapers, there is an abundance of new construction in Philadelphia. Often, those thinking about purchasing a newly constructed property negotiate to have customized features built into the home. But as the house nears substantial completion, one of the most common problems is the contractor’s failure to adhere correctly to these specifications.
This failure is often expressed in a “punch list,” which is essentially a summary of items the contractor has not completed or failed to do correctly. Even with a good contractor, there will often be important issues that need to be addressed.
The punch list becomes a problem when the buyer and contractor disagree over the need to make the repairs or whether the fixes sufficiently rectify the problem.
In this situation, one option is for the buyer to withhold payment until the punch list items are completed in the form of an escrow at settlement. However, not all builders will allow for escrowed funds.
One of the first steps in buying an investment property is doing your due diligence. Let’s explore two issues you should incorporate into your research: zoning and liens.
- As an investor, liens can significantly complicate the process of buying or selling a property. As a buyer, the most important step is to run a title search and purchase title insurance from a reputable title company. By purchasing title insurance, you receive a guarantee that the title company will be responsible for settling any liens that accrued prior to closing but were discovered after closing.
- In Philadelphia, the zoning code classifies a property for certain uses. For example, a property might be zoned for single-family residential housing, so it cannot legally be used for multi- family housing. The zoning classification of an individual property can be changed, but that requires obtaining a variance from the city, which will cost you time and money without a guarantee of success. Now, you might feel comfortable taking the chance of operating a single-family zoned property as multi-family—but if you are caught you risk fines, liens, penalties, and the ability to rent out the property. That’s why the better course of action is to incorporate zoning into your due diligence on the front end so that you can start collecting rent checks without risking zoning violations.
Buying a house is one of most important financial decisions an individual makes in his or her lifetime. Let us help you navigate the process and tailor our expertise to your needs. Contact us to learn more at 215-717-2200.