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Why sellers hate inspection-contingent offers

September 24, 2023 by Jennifer LeBow Leave a Comment

Relocating to Philadelphia's Main Line — To present the most compelling offer to the home seller, while keeping your risk at a level you can tolerate, you need to understand the role of an inspection contingency.

If you are in a competitive bid situation, your agent will probably discuss the option of waiving the home inspection. Most buyers are not comfortable agreeing to purchase a property without one. However, in our current market, if sellers have offers without an inspection contingency, they are much more likely to choose one of them. The the obvious reason is that the buyer could try to negotiate repairs or a credit or reduction in price, leaving the seller with more headache and lower net proceeds than expected based on the original offer. As a way to combat that worry, many buyers are adding language like, “Buyer to absorb up to first $15,000 worth of items discovered through inspections”. While thiat kind of caveat does, indeed, lessen the risk to the seller, it certainly doesn’t eliminate it.

The part of the picture that buyers often don’t focus enough on is the risk the seller faces of the deal falling through (versus just having a reduction in net proceeds in the event of a negotiation resulting from inspection issues). Remember that the home inspection contingency on a PA contract says that, if the buyer is not “satisfied” with the inspection, she can terminate with return of deposit monies. Here’s why, especially in this market with lots of multiple bid situations, this ability for the buyer to get out of the transaction is such a big deal:

Consider a buyer who has been looking for a house for a year, has lost out on five bids and is feeling desperate. She puts a bid on a house that is higher than the others. It has an inspection contingency, but reflects the buyer absorbing the first $20,000 worth of issues. Unless she specifically relinquishes her right to terminate based on the “not satisfied” line in the contract, she could still back out. And here’s the part that most buyers don’t think about–why would that buyer want to back out? Remember how desperate she was because she’d been looking for so long? What if she realizes, after she wins the bid, that the house is ok, but far from perfect. She can still be looking at new properties that come on the market during her inspection periond and if she finds one she likes better, she may choose to terminate based on the inspection contingency language.

That scenario is what many sellers cite as the main reason they don’t want an offer with an inspection contingency–because if the deal falls apart, its is rare that the seller can find someone who will pay what some of the competing bids were when it first went under contract. People attach a stigma to a property that has gone under contract, had inspections and then goes back on the market. All of a sudden, its value is reduced in the opinion of the buying public. Sure, the listing agent would go back to the buyer agents who’d submitted the other offers, but some of those buyers may have since found something else and the ones that haven’t might well not offer as high a price.

So, if you are a buyer writing an offer for a property, carefully consider the risk/reward balance of including an inspection contingency. First, consider how likely the property is to have major issues (is it old? does it seem like it may not have had regular maintenance?). Then consider things from the seller’s perspective. How much risk does the structure of your offer put on the seller? It boils down to how badly you want the property and just how much risk you are willing to take to present an offer the seller will choose.

If you are relocating to the Philadelphia/Main Line area, please go to my blog page and search for posts using the relocation tag. Contact me to discuss your Philadelphia area relocation! jen@jenniferlebow.com/610 308-5973

What do (and don’t) home inspectors look for?

September 15, 2023 by Jennifer LeBow Leave a Comment

What does a home inspection cover — What does (and doesn’t) a home inspector examine?

If you are considering buying a home, you’ve definitely heard the term “home inspection”. But do you understand what, exactly, a home inspector does? What is he looking for? What doesn’t “count”?

Inspectors are required to look for safety hazards (like a shaky handrail or an unsturdy deck) and material defects. Material defects are system failures like an air conditioning unit that doesn’t get as cold as it should, a leaking pipe, incorrectly wired electrical, etc.

They look at the exterior of the house to be sure the sheathing (stone, brick, siding, stucco) is in good repair, that the roof is not worn out and that, for example, there are no tree limbs overhanging the roof. They look at basements and attics to determine quality of insulation, air flow and whether there’s any water penetration. These areas also provide information about the structural integrity of the house. They look at the electrical and plumbing systems, check appliances, make sure doors and windows operate and lock as they are meant to, etc.

What does NOT fall under the scope of an inspection is cosmetic items. Stains on rugs, old countertops, dated bathroom fixtures, peeling wallpaper–these issues don’t compromise the safety of the house, nor translate to a system working incorrectly.

It’s easier to be prepared to read a home inspection report if you understand what the inspector is and isn’t examining.

Home inspectors don’t provide cost estimates for everything

September 7, 2023 by Jennifer LeBow Leave a Comment

Home inspectors' cost estimates — What do you do when the inspector doesn’t provide a cost estimate for something?

While fewer home buyers have been making offers contingent on home inspections during the last few years, we are starting to see more contracts accepted that do have those contingencies. Obviously, it is better for the buyer to know what problems there are with the house, in order to decide whether to stay in the transaction (and potentially negotiate a credit or have repairs done) or terminate and have deposit monies returned. Clearly, the purpose of the inspection is to identify safety concerns and material defects, and, specifically, to put a price tag on those repairs. Buyers want that information so they can determine whether it makes sense to walk away or renegotiate a purchase price that reflects the costs involved.

You might expect that the inspector will provide a cost estimate for every defect he finds. While many inspection companies do provide ranges for many repair items (and some don’t provide any estimates at all!), there are almost always a few that say “Contact qualified contractor.” This comment is found when an inspector is unable to determine exactly what the fix should be and/or what it might cost. For example, when there is a lot of wood rot around windows all over the house, the inspector wont’ necessarily know if windows actually need to be replaced or if it’s just some carpentry work, and may not be able to estimate the repair cost. If there’s a pipe that is leaking into the ceiling from an upstairs bathroom, many inspectors aren’t comfortable quoting an amount because they don’t know how much work will need to be made to the bathroom floor once the pipe under it is fixed. Sometimes, a specialist is needed to diagnose the problem and outline a solution and its cost. So, why should you care?

You should care because if you need to estimate how much the repair is going to cost, and if you are going to request a credit for it from the seller, you’ll need to have a number. Theoretically, you can have a contractor (electrician/plumber/roofer, etc.) come in and give you a quote, but time constraints surrounding contracts often make that route impossible. Then you need to ask permission from the seller to extend the inspection period and it’s not a foregone conclusion that a seller will grant it.

(As an aside, there is also the option of asking the seller to repair something. That way, the buyer is less concerned about the actual cost of the work, as she won’t be paying for it. However, in that case, the seller usually won’t agree to fix something until he has gotten an estimate, so that path doesn’t eliminate the problem. For more on whether you should ask for a credit vs. asking the seller to make repairs, click here.)

While I’d like to be able to present a solution to this problem, I can’t. The purpose of this post is simply to alert buyers, so that it doesn’t come as a surprise. Some agents have contractors they work with frequently who are willing to provide estimates based on seeing a copy of the report, which can be a good option. Regardless, you should discuss the strategy for dealing with this issue with your agent if you are planning on having a home inspection.

Fudgy Brownie Recipe

September 6, 2023 by Jennifer LeBow Leave a Comment

Dense, fudgy brownies

Preheat to 350 degrees.

Line a 10 x 15 pan with foil (sprayed with Pam) that hangs over the short edges (so you can lift them out to cut once cool).

If you don’t have a 10 x 15 pan, ¾ the recipe and use a 9 x 13.

I never eat these fresh; once I cut them, I put them in the freezer and like them right out of there. Super dense and fudgy.

Melt over very low flame, stirring continuously til smooth:

2 1/4 sticks unsalted (18T) butter

3 cups semi sweet chocolate chips

1 1/2 cups sugar

3/4 cup brown sugar

Pour into stand mixture and allow to cool a few minutes.

In separate bowl, mix just til combined (if overbeaten, the brownie top will be crispy and separate) 5 eggs and 1 yolk. Add to cooled chocolate mixture and mix only enough to combine.

Add and mix only til combined:

1 cup flour, sifted

5 T unsweetened cocoa, sifted

1/4 t salt

Add and mix only til combined:

2 T vanilla

1 t coffee extract (optional)

Pour batter into prepared pan and let rest on counter 30 minutes.

Bake on 350 around 30 minutes.

Cool at room temperature for 30 minutes, then put the pan into the fridge. After about 4 hours, they should be cool enough to cut. I put them directly in the freezer.

What must sellers disclose?

August 23, 2023 by Jennifer LeBow Leave a Comment

What does a home seller have to disclose to a buyer? — Both buyers and sellers often need clarification on exactly what is and isn’t required to be disclosed.

Whether you are selling a home or buying one, there are often questions about what the seller is required to disclose. In Pennsylvania, we have an 11 page form that asks about the roof, plumbing, HVAC, whether there’s been water in the basement, shifting in the foundation, and lots of other specifics. The overriding theme is that the seller must disclose material defects. Those are defined as issues with the property that significantly affect its value or pose a safety risk to someone living there.

Many times, when I provide this explanation, I am asked questions like, “Do I have to disclose if someone died here?” The answer is no, not in PA. Our rules for what needs to be disclosed are based on problems that could potentially be assigned a dollar value to rectify. So things like a leaking roof, unsafe wiring or rotted window frame fall into that category. A neighbor with a dog that bark a lot or being in the path of the news traffic helicopters don’t.

Here is a scenario that comes up fairly often and also tends to cause confusion: Let’s say your property goes under contract and the buyers have an inspection done and then terminate. If you receive a copy of that inspeciton, you are required to update the disclosure to reflect any problems discovered by the inspector. Alternatively, you can provide a copy of the report to all interested buyers. (As a side note, sellers often fix some of the problems and then provide a copy of the report with notations on repairs that have been made,)

While it’s understandable that some sellers are reluctant to disclose defects (even though they are required by law to do so), keep in mind that disclosure has a benefit to the seller. Remember that a buyer’s offer includes a signed copy of the disclosure. Any problems that are disclosed are, in theory “off the table” as far as a buyer asking for a credit for them after they are noted by an inspector. The seller has a strong argument by saying, “But you knew about that when you made your offer since it was disclosed; the understanding is that your offer reflected your awareness of that problem.”

A final point about disclosure: as much as it might make a seller squirm to list a bunch of “problems” with a house he’s trying to make appealing to buyers, it can protect him in the long run. Consider that the more a seller discloses, the less the likelihood that a buyer will come back after the sale and accuse the seller of knowingly hiding something. These situations can quickly turn into lawsuits which are not only costly, but extremely stressful. So, as we say in the industry, disclose, disclose, disclose.

Getting rid of mortgage insurance sooner rather than later

August 2, 2023 by Jennifer LeBow Leave a Comment

How to eliminate your PMI — If you have mortgage insurance (PMI or MIP), you may be able to stop paying it sooner than you think. Here’s how.

If you put less than 20% down when you purchased your home, you most likely had to pay (and may still be paying) mortgage insurance. Traditionally known as PMI (private mortgage insurance), it is often now called MIP (mortgage insurance premium). Either way, it’s an extra fee that provides the lender with some insurance against what is seen as a more risky investment–they are on the hook for a larger percentage of the home’s value than if you’d put down 20% or more. If you default on the loan, they run a higher risk of not covering their investment with a sale (particularly if the market declines).

So that’s what mortgage insurance is and why lenders use it. With conventional loans, the insurance disappears once you’ve paid off enough of the loan to leave the bank owning just under 80% of the initial purchase price (usually it’s about 78%, just so they have a cushion). In most cases, this “roll off” of insurance happens automatically once your equity reaches around 22%.

HOWEVER, if the value of your home has significantly increased since you bought it, it’s quite likely that its current value is appreciably more than you paid for it. In that scenario, the bank’s investment would be more than covered, even if you defaulted tomorrow, which is the entire premise of why the insurance is charged in the first place. Most lenders will agree to remove the PMI/MIP if you can demonstrate, through an appraisal, that the value of your house more than covers the bank’s exposure. The appraisal will cost about $500. If you suspect your home value would mean the bank’s existing investment is now less than 78% of the home’s current market value, that insurance could disappear.

To determine whether it makes sense to have an appraisal, first check with your lender what their requirements are to have the insurance removed. Second, ask when, according to the bank’s existing schedule, they expect your insurance to go away. If it’s a only a few more payments, it might make sense not to bother with an appraisal. It could, though, save you a lot of money, depending on the amount of the insurance and for how many more payments it’s expected to be attached to your monthly bill.

Oven-roasted Eggplant

May 23, 2023 by Jennifer LeBow Leave a Comment

Jen LeBow’s oven-roasted eggplant

Preheat oven to 375°.

Cut ¼” thin strips vertically from JAPANESE eggplant (other eggplants are rubbery). I usually figure one very large (or 1 ½ medium) per person

Place slices in Ziploc bag with about ¼ cup milk and shake/smush so they are all moistened.

Leave in the bag 5 minutes-1 hour.

When ready to bake, lay out eggplant slices in single layer on cookie sheet sprayed with non-stick spray.

Mix together in plastic bag or bowl:

1/3 cup grated Parmesan cheese

2 T breadcrumbs

½ t Italian seasoning

Sprinkle mixture with fingers or spoon over each slice.

Bake 35 minutes or til starting to crisp.

How to improve your credit score

May 3, 2023 by Jennifer LeBow Leave a Comment

Buying a house on Philadelphia's Main Line — Bfore you apply for a mortgage make sure you’ve done everything you can to imprvoe your credit score.

Want to improve your credit score?

If you are considering purchasing a home and you will need a mortgage, your credit score is very important. It is used to determine the interest rate on your loan. Some people consider their credit report a mystery–they don’t understand what affects it, whether they have any control over changing it or that (gasp!) there are sometimes even errors on it that, if corrected, can benefit them. For more information on how to determine if there are mistakes and what to do if there are, click here. Be aware that it can take significant time for the adjustments to show up, though, so I’d recommend getting started as soon as possible.

What helps or hurts my credit score?

You might be surprised about which activities help you, hurt you or make very little difference as far as your credit score.

Is it good to have a lot of credit cards or better to have only a few? Investopedia says, “Having too many open credit lines, even if you’re not using them, can hurt your credit score by making you look more risky to lenders.”

Should you use them up to their maximums? Credit Karma says, “Though individual cases may vary, those who keep their utilization percentage low generally have higher scores than those who habitually max out their credit cards….Using less of your available credit is generally best for your credit scores because using a large amount of your available credit could mean you’ll have trouble repaying that debt. If you want to keep your scores healthy and your credit reports in good shape, you should try to use as little of your credit as possible.”

How important is it to pay them all off monthly vs. carrying a balance? Forbes says, “Carrying a monthly credit card balance can cost you in interest and increase your credit utilization rate, which is one factor used to calculate your credit scores.” The Consumer Financial Protection Bureau says, “Paying off your credit card balance every month may not improve your credit score alone, but it’s one factor that can help you improve your score. There are several factors that companies use to calculate your credit score, including comparing how much credit you’re using to how much credit you have available.”

Should you close most of your cards before applying for a loan so the bank isn’t worried about having to compete for the monthly mortgage payment? Investopedia says, “Closing credit card accounts can have an adverse effect on your credit score, mostly because it decreases your credit utilization. Keeping cards open, even when they are barely in use, can be beneficial because it keeps your history of payment and age of the oldest credit account positive.”

Is it good or bad for your credit score to open additional credit cards? This question is a bit complex, so click here to find out more.

There are some things you definitely should NOT do if you don’t want to negatively impact your credit score. Creditcard.com warns:

Pay off a car loan early. Unlike credit cards, loan balances – whether mortgage, auto or student – carry very little of the weight we see assigned to credit card debt. As such, aggressively paying down a car loan in anticipation of a mortgage won’t provide nearly the bang for your (scoring) buck that paying down a similarly-sized credit card balance will.
Apply for or accept a credit offer. In light of its extremely short track record and accompanying hard inquiry from the recent credit evaluation, a new account appearing on your credit report just prior to a mortgage application is likely to do more damage to your score than good.

Equifax.uk.com adds, “Try not to open new credit lines in the six months before applying for a mortgage. This could increase your debt-to-income ratio, which may reflect badly on your ability to repay any mortgage loans. These can demonstrate to lenders that you’ve been able to make repayments over a sustained period of time.”

What specific factors go into determining your credit score?

The most heavily weighted sector is your debt payment history. If you historically pay off debt every month, you are already well-positioned. The next largest category is how much debt you currently carry as compared with available credit. The scoring calculator prefers that you are using a conservative amount of the credit available to you. How long you’ve been making payments is next most important (this is why young people often don’t qualify for mortgages; they have short credit histories). Other considerations are your credit mix (what variety of credit you have–car loans, credit cards, other real estate mortgages, etc.) and how much new (recent) credit you’ve applied for.

For a clear, straightforward explanation of what goes into figuring out your credit score and lots of other ancillary information, click here.

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What helps or hurts my credit score?

What specific factors go into determining your credit score?

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