Look at Houses

TLDR: Looking at pictures online is a good place to start, but always see a house in person before putting in an offer.

This is often the most fun part of home buying: house shopping! You get to walk through different properties and imagine yourself living there. Where would you put the TV? Which direction will your bed face? How would your dog feel about the yard? You’ll start identifying the features you want (or don't want) as you see additional properties.

What should I know about seeing houses?

You can walk through houses in one of two ways: Via a private showing or by attending an open house.

While the pandemic improved virtual tour options, it's always prudent to see properties in person before purchasing. There’s too much risk in buying such a significant purchase without seeing the property, the street, and the neighborhood firsthand. Vision is only one of the five senses that provides an indicator for how you’ll feel about a property (Who wants to buy a house whose previous owner had 35 cats and kept them all in the carpeted basement?).

Storytime

“My wife and I thought we had found the perfect home: It had this quaint cottage feel, it was waterfront, had a pool (with a tiki bar!), and had a library with a spiral staircase. We hadn’t seen it in person, but we were certain it was to be—until we saw it in person. What the virtual tour didn’t convey was the horrific commercial garbage bins located a few hundred feet away that wafted this acrid smell when the wind blew in the house’s direction. Make sure you see properties in person!”

What questions should I ask the seller?

Many states are caveat emptor states, which means the law favors the seller, resulting in the buyer bearing responsibility for researching the property before making the purchase. Even if your state is not a caveat emptor state, ask questions! This is a significant purchase, and you should feel completely comfortable with all elements of your new pad before closing. There is a lot you’ll want to know about the realities of living in a specific house, and below are just a few important questions to ask:

Who are the utility providers you use for power, heating/gas, water, trash, cable, internet? (If you have a preferred cable or internet providers, this is a good time to research whether the property is serviced by those companies.)
How much are they per month on average?
How much are the HOA fees/dues?
How much are the Condo fee/dues?
How is traffic in the area?
What are the grocery store options?
Can you tell me about the neighbors?
Are there easements on the property, and what are they?
Is the fireplace/chimney functional?
Costs and maintenance required of a pool, if there is one

A Critical Time to Do Your Homework

The seller may not have all the information for a complete picture. Here are other resources and considerations:

Megan's Law (find Virginia’s sex offender registry here)
HOA and/or Condo costs and restrictions (for example, not all condos permit pets, solar panels, etc.)
The Virginia Residential Property Disclosure Act, which states what the seller is required or not required to disclose
Planned improvements or revitalization efforts by the local government

While some of these questions are seemingly insignificant relative to whether you like the house, they can be deal (and wallet) breakers. Don't just assume that you can get high speed internet, because it could turn out that it'll cost $5,000 to get the service provider you want if their cables aren't already prepared to equip your house.

Tip: See Serious Contenders at a Variety of Times

Drive around the neighborhood at different times of the day and week: weekends, weekdays, day, and night. Do people feel comfortable walking around with their dogs and babies? Consider noise and traffic from a quality of life perspective. Not being able to open a window on a glorious Friday afternoon because traffic is too loud may be a deal breaker for you.

We also recommend asking a variety of people about their experience living in the area. Ask neighbors who are outside or working in the garden about their experience living in the neighborhood–everyone loves to provide their opinion!

How many houses should I see before making an offer?

Let's start with the most basic requirement for buying a house: paying for the property. You'll either need cash or a loan to get the house, and because paying the seller for your purchase is such a major requirement to close on the property, you'll want to know something about house loans, also known as mortgages.

While the subject of mortgages and interest rates can make many an eye glaze over, knowing the ins and outs of lending terms can help you save a boatload of money both in the short and the long term. With that in mind, our goal is to provide you with information that allows you to make the best decisions for you–but in order to keep you from clicking away to a different page, we’ll keep our explanations simple.

What should I know about properties that are listed as-is?

These properties are often listed as "as-is" because the owner either doesn't have the time or financial ability to conduct repairs. While you might get a lower price on as-is properties because of the disrepair, you'll likely end up making up for the discount via the cost of repairs and the time it’ll take you to make them. The benefit of doing the repairs yourself allows you to select the cosmetic features of the house, but you'll be responsible for finding the contractor(s) and supervising the work, as well as paying for the modifications out of pocket and dealing with any issues that may arise.

Depending on the types of repairs that need to be done, your bank may or may not approve a loan on a house in disrepair (remember, the property is the bank's collateral). For example, FHA loans do not approve loans on houses that have chipping paint, which can often be laced with toxic lead (Fun fact: Lead paint chips in rectangular patterns. Google it.). Make sure to ask your loan officer if there are certain stipulations about the condition of the property and read the fine print when you're applying for a loan.

The Inspection: A Home Buyer's Best Friend

An inspector will be able to provide a comprehensive list of the defects of the house, so it's always prudent to include an inspection contingency when making an offer on a property. In competitive markets, it’s become increasingly common to waive inspection contingencies to win the property. Regardless of whether your purchase is contingent upon an inspection or is being sold as-is, obtaining an Information-Only inspection before closing is always a good idea, if only to make you aware of existing and potential defects.

Pre-Foreclosures and Foreclosures 101

Pre-foreclosures are properties that are in default for lack of payment toward the mortgage, but they are still owned by the owner because they haven’t gone through the foreclosure process yet. Foreclosures are properties that have been reclaimed by the bank after a certain period of no payments.

Banks are not in the business of making repairs, so don't expect them to conduct any if you have your eye on a foreclosure. As we previously mentioned, banks are not usually in the business of negotiating. They expect to get a certain dollar value out of the property, and usually won’t budge if the offer is lower than that. In the case of a pre-foreclosure, the owner hasn't made payments on the property and is at risk of losing the house completely, so they likely don't have any money to conduct repairs themselves. Similar to properties that are sold as-is, you'll want to make your offer with the estimated cost of repairs already factored in for both foreclosures and for pre-foreclosures.

How do banks determine what they'll accept when it comes to offers on foreclosures?

Like most banking activities, it's all about the numbers. They'll typically send a broker to assess the value of the property, and they'll accept a certain percentage of that value. When comparing offers on a foreclosed property, banks will calculate the net from each offer, factoring in how much you're asking for closing assistance, whether you want a home warranty, whether agents need to be paid, etc. Assuming the offer meets the bank’s minimum criteria for acceptance, they'll accept the highest net offer to the bank.

Short Sales 101

A short sale is when a bank agrees to accept less than what is owed on a property's mortgage in the sale of a property. This occurs when a property's mortgage principal is higher than the market value of the property, as was very common after the market crash of 2008. For example, let's say a property was purchased in 2005 for $300,000, but the value fell to $200,000 in 2008. If the owner wanted to sell the property in 2009 but owed $280,000 while the house was only worth $200,000, the bank might agree to accept less than what it's owed so that the owner can sell.

Purchasing a short sale can be extremely time-consuming and is often frustrating for all parties involved. The buyer and seller have to make a case to the bank as to why it should accept less than is owed on the property, including submitting a plethora of documentation describing previous attempts to sell at or above the mortgage value, what other properties are selling for, etc. If the bank does agree to a short sale , the process can take anywhere from 3-12 months to close, and there’s no guarantee that it will ever close.

Additionally, buyer beware: short sales are often accompanied by other financial difficulties that the seller may have, so you likely won’t be getting many concessions in the transaction. When the value of a property is significantly below what is still outstanding on the mortgage, sellers may think it easier just to walk away and let the bank foreclose on the property instead of dealing with the headache that is a short sale.

If the seller hasn't been paying on the property while it's listed for sale as a short sale, it could also be simultaneously put up for auction by the bank. Strangely, the short sale department and auction department of a bank don’t always communicate with one another. It is not uncommon for property to be under contract as a short sale but sell at auction despite already being under contract with a buyer.

Auctions

Unless you’re an experienced investor, we don’t recommend purchasing a property at auction. There is too much risk when buying sight unseen and without conducting sufficient due diligence.