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Thursday, July 07, 2011

Things to Find Out Before Buying a Home

Baruch Hashem, home ownership has worked in our favor, but the more times I do it and the more times I field questions, the more I realize that in a certain sense, I've went in blind and thankfully everything has worked out well.

I've written a lot about hidden costs on this blog and I thought I'd address five areas of hidden costs on a home and what questions to ask:

1. Utilities? It is a good practice to get an accounting of utilities used in the past year. But utility bills aren't the entire story. Do the current owners blast the heat or bundle up? Do the current owners shvitz in the summer, or is the home nice and cool? Are people home using utilities during the year or is everyone out of the house? Knowing how many residents is helpful also. If an elderly couple is living in the home, e.g., the water bill estimate will need to be increased if you are moving 2 adults and 4 very active children into the home.

To get a good handle on what utilities should run, speak to other people in the neighborhood to compare costs and try to come to a good estimate regarding the cost of utilities.

2. Property Tax? Knowing what the current owners are paying in property tax is not enough. It is a good practice to get copies of 3 years of bills to see the assessment and credits. Many counties offer credits which might be applicable to the current owner but won't necessarily be applicable to you. If there are credits for energy saving improvements, find out if that credit is applicable. Do the current owners qualify for a property tax credit based on income for which you would be ineligible? Even if you are currently eligible, what type of jump will you experience should your income increase?

3. Insurance? Insurance costs can vary widely. Rather that inquiring about the current owners current insurance policy, which might have a different deductible or different coverage amounts than you would like, call your insurance broker directly and get a solid estimate regarding insurance. It is very likely the current owner qualifies for a lower price based on military service, for example. To date, I have been unable to match the insurance price of the previous owners of this home, although we've been able to shave off cost by working with a great broker.

4. Maintenance and Upkeep Bills? If I'd only asked for maintenance bills on the first home, I might have either opted for a different home or asked for a sizable discount. A home inspection can detect a lot, but if an owner is a bit, uh, desperate, you might find yourself in for more than you bargained for. Are there regular repairs to any systems, like plumbing? Will you need to bring out a pest control service regularly for bees or other vermin?

If you are buying a home with a bonus, like a pool or fancy landscaping or even a deck/gazebo or a fireplace, find out what that costs are to maintain the extras (or alternatively, hauled away). Don't forget to find out what it costs to have the lawn mowed, the gutters cleaned, or the leaves raked if you don't plan to take care of it yourself. Even if you do plan on taking care of it yourself, it still might be good to work the extra into your budget. Neighbors don't like seeing your lawn turn into the jungle because you've been traveling for work.

This list just touches the surface. Feel free to share your surprises.


36 comments:

Paying Parent said...

For us, utilities was the biggest sticker shock.
We bought our house last year and thought that we were pretty informed. We even rented a small house the year before to approximate home living costs, albeit in a slightly different area. We estimated that our utility costs would double in our new home.
THEY HAVE QUADROUPLED!!!! It has been a HUGE adjustment for us. Luckily we bought less house then we had budgeted for so there is money in our bank account to cover the shortfall. I could only imagine the nightmare if we had actually bought at the top of our price range.

JS said...

Good topic for a post.

Firstly, whatever you budget for home expenses is almost definitely going to be an underestimate. So, the most prudent advice is to try to overestimate and make sure there's still plenty of room left in the budget for little, not so pleasant surprises.

Maybe your ideas will work in this down housing market, but in my experience (we bought about 2 years ago) most sellers don't have any of this information, don't want to share it with you, or will think you're too much of a pain to deal with if you keep asking these questions. We did a lot of planning buying our house, but we couldn't get the sellers to provide any useful information at all. They'd either shrug off the question, say they didn't have the information, say it wasn't too much money, or imply that we weren't serious or couldn't afford the house if we were concerned over "pennies." Maybe my experience is atypical, but somehow I doubt it.

I ended up speaking to neighbors from the shul to get a sense of the costs, but the most helpful thing I did was call up the town's tax assessor's office. They were SO happy to talk to me (no one ever calls them) and they explained exactly how taxes are calculated and how to determine if property taxes are too high for the value of the house. I was able to get a significant reduction in taxes just by submitting my purchase price to them (no appeals or formal paperwork or submitting comparables).

Our inspector found a few problems so it was nice going in prepared, but I found they also overestimated certain problems to protect themselves (said heating and AC were old and had to be replaced, both are still running fine) and also missed certain things as they don't look at certain systems or don't have the ability to open up walls and see what's been done. And, in my experience, that's the biggest danger - you have no idea what's lurking behind the walls. A halfway decent sheetrock, spackle, and paint job can hide an awful lot of problems from shoddy workmanship. In doing work we found a few instances of corner-cutting by the previous owners that we ended up having to fix correctly.

Another big thing, especially if moving from an apartment, is you don't realize just how much STUFF you have to buy when you're a home owner. I must have made a dozen trips to Home Depot in the first 2-3 weeks and I still go there at least 1-2 times a month.

I'd also be cautious of "project creep" when doing work in the house. I mentioned one kind already - fixing someone else's shoddy work. For example, you want to replace a faucet and you discover the plumbing wasn't done well. But, you also have unpleasant discoveries. Like, you want to retile the floor and you discover the subflooring is damaged as there had been a flood the sellers conveniently forgot to tell you about. And, of course, once you fix up one area, the rest of the house now looks worse by comparison and needs to be fixed up too.

Finally, I'd just add that living in a nicer, richer area means that contractors are much more likely to charge you more. This is especially true if you know nothing about home maintenance and look like a sucker with an open wallet.

ylj said...

Thank you!!! I've been saying this for years. Buying a home is so much more than the cost of the mortgage. In my opinion, this is why so many people find themselves under water. They take a mortgage that is at the top of what they can afford, and then they dont have anything left in the budget to pay for the surprise huge utility bills etc.

JS said...

Oh, and a point about utilities. We moved in when it was just me and my wife. We both worked full-time, long hours. Neither of us had problems putting on an extra sweater in the winter or wearing cooler clothes in the summer. So, we were able to set our thermostat cooler in the winters, warmer in the summers and adjust the timers as well. Our utility bills were pretty low even though our house isn't small.

Then we had contractors doing work for a while. The electric bill went through the roof due to all the power tools being used and the heating/cooling also skyrocketed as we had to leave the house comfortable for them and they kept leaving doors open as they brought supplies and garbage in and out.

Now we have a child and a live-in nanny and we have to keep the heat/air on 24/7 pretty much.

In short, don't assume your utilities will remain the same. Different circumstances can radically change your utility bills.

Best thing I did to lower my electric bill though was installing CFL bulbs throughout the house. Easily lowered the electric bill around 30% or so.

tesyaa said...

The home inspection is extremely important, but even the best inspector can be unable to test certain systems - central air can't be tested properly if you're buying in the winter when the outside temperature is below 60 degrees. As your commenters state, there are a million unexpected expenses.

I would just like to make a plug for the nicer aspects of homeownership, which have nothing to do with aesthetics. (You can get a lot of these pluses by renting a house, too, so don't ignore that possibility). It's wonderful to be able to do laundry 24/6, which you can't do in many apartments that lack a washer-dryer hookup. It's wonderful not to field complaints from neighbors who think your footsteps are too loud, even when you feel like you're walking on eggshells.

Definitely don't get too hung up on a house's flaws; you will not find a house without flaws. Budget for what you can afford, and add 20% (at least) to your expected house-related expenses.

We have a friend who used a very reliable inspector who advised him against buying a certain house, as it basically had a stream running underneath it and would be prone to major flooding. He bought a different house using the same inspector; ironically, the house he bought flooded and needed a drainage system installed, while the people who bought the first house had no problems! Go figure.

Bob Miller said...

In our house, the air conditioning system died the first day we moved in, a rather hot day. According to the techs who installed the new one, the previous system had been undersized from day one.

Based on this and other experiences we've had, it seems to be common for people planning to sell a house not to put the necessary bucks into heating/cooling system maintenance.

We've also encountered situations where the landscaping had to be redone so that the ground tilted away from, and not toward, the house. This is important to keep the basement dry and not overstress the sump pump. The sump pump ought to be in top shape, and a backup pump with a battery is advisable for protection against main pump failure and typical power outages. If the main pump goes out but there is still power, the backup uses house current. We've had situations where it was raining so hard that both the regular pump and the backup had to kick in.

Moral: use the best available house inspector. The final agreement can have a contingency that the sellers will fix any bad items noted by the inspector, at their own expense, within some reasonable time frame.

Angie's List membership and referrals from trusted friends in the area can steer you to competent, honest repair contractors, including handymen.

Homes without a connection to a city sewer can be a major problem. Septic tanks can fail at the worst time and cost a bundle to fix.

Avi said...

Great topic. Things that surprised us:
You may need to budget for annual (or semi-annual) gutter cleaning
You may need to budget for annual sewer line cleaning to keep tree roots from blocking it
You may need to budget for garbage pickup
You should look through the house and see if you can determine what was maintained/upgraded on the cheap. The previous owners of our house fixed up the kitchen, but did it in such a cheap way that it literally began falling apart a few years later.

Finally, I don't want to hijack the conversation, but one unforeseen expense that new home buyers should be aware of is tuition.

Dave said...

Buy less house than the charts say you can.

Being cash poor with a house is very risky. There are some things which are covered neither by home warranties nor by insurance that can be expensive, and you want to have the cash on hand to deal with them.

Additionally, do not make small claims on your home owners insurance. It is for catastrophic losses -- they figure that in. If, however, you make claims for small damages, they will drop you.

Anonymous said...

"You may need to budget for annual (or semi-annual) gutter cleaning"

My wife won't let me send the kids to JFS so I have to go up on a 34 foot ladder twice a year and clean my own gutters.

Miami Al said...

Renovations always take longer and cost more than you think.

Being handy in an apartment, say hanging shelves, does not translate into being handy in a home, say, redoing a kitchen.

Generally, home ownership costs more than renting, even when the charts say otherwise, the hidden costs drive it up.

On the plus side, "they can't take your home," in Florida this includes the bankruptcy court. Elsewhere it includes tuition committees and Universities. Nobody can force you to spend down home equity or retirement accounts. Tuition committees may demand you stop putting money in them, but has anyone ACTUALLY been told to liquidate them and pay the 10% penalty, and if they refused, had their child denied enrollment?

Abba's Rantings said...

JS:

"richer area means that contractors are much more likely to charge you more. "

my friend experienced this when he moved from bklyn to 5t

"and also missed certain things as they don't look at certain systems or don't have the ability to open up walls and see what's been done."

for this reason i would strongly recommend buying a home that has not been updated, without a finished basement, etc. (assuming of course its reflected in the price)

"and also missed certain things"

that's inevitable. we actually had 2 inspections (more on that below). i just had an electrician come to give an estimate on increasing the service to 200 amps and he said it would cost me a lot because there is a lot that isn't up to code. this was news to me after 2 inspections.

as to why we had 2 inspections: the first guy, a licensed home inspector, wasn't sure about the floor and said there could be a structural issue and i need to have an engineer come and look at it. i didn't realize that (at least where i live) licesned home inspectors aren't necessarily engineers. had i known this i would have made sure to get an engineer to begin with.

(we get the keys tomorrow)

Anonymous said...

Our kitchen had been cheaply updated by the previous owner before we bought our house. With hindsight, we did have a clue- old but working appliances in a kitchen with granite countertops. When people redo a new kitchen for themselves- the appliances are usually replaced too. If the age of the appliances are much older than the cosmetic appearance of the cabinets and counter tops, with hindsight, I would wonder if the kitchen was redone just to sell the home ( read: shoddy). If so, as in our case, the cabinets- and their hinges may be poor quality.
When you look at a home- don't hesitate to open- and close doors in each room you see. Also open and close 3-4 kitchen cabinets- to see the quality of the workmanship.
Also realize that every family "stresses" a house differently. An empty nester probably did not shower in the kid's bathroom for years!
Five years ago, we moved into our home that looked very well kept. The washing machine broke, we had to waterproof the basement last year(-the basement was fine the first 3 years),the air conditioning unit cannot keep the house cold when there are a lot of people over, the brick patio was crumbling and had to be fixed,and we now have to replace both garage doors-otherwise we seem to have to repair at least one of them every year!
Friends of ours gave us excellent advice years ago: when you buy a house, expect at least one major repair a year. It seems to be true!

Avi said...

Anon 3:10 PM, I do my own yard work to save money, but cleaning the gutters is a safety hazard I prefer to contract out.

Anon 8 AM, Nothing you're describing sounds out of the ordinary. That's home ownership.

Anonymous said...

In certain areas of the country HOA fees can be a chunk of change you spend very year or else...

JS said...

"I would wonder if the kitchen was redone just to sell the home ( read: shoddy)"

Kitchen and bathroom updates give you the biggest bang for the buck when selling a home (i.e., the highest ROI). I'd probably throw in a fresh paint job as well. These are the areas that people pay the most attention to are most "wowed" by. Therefore, it's also the area sellers skimp on the most when doing their updates. It's increasingly easy to find stainless steel appliances and nice looking countertops and cabinets that are really complete garbage. Manufacturers realize there's a whole market of people that want something that just LOOKS nice - whether they're just trying to sell or want a "nice" kitchen on the cheap. So, it really pays to take a very close look at those appliances, countertops, floors, and cabinets. Especially in terms of cabinets and bathroom vanities, they can do wonders with veneers nowadays that just hide particle board/composite wood - so you have a nice looking exterior covering up cheap garbage.

It's also one of the areas contractors have tons of tricks to produce something that looks nice, but is completely shoddy. It's so easy to hide poor or outdated plumbing or electrical or to hide water damage.

Just remember, doing a kitchen right often costs tens of thousands of dollars. Bathroom renovations aren't cheap either. If it doesn't look like they spent that much, beware.

conservative scifi said...

This was an excellent post. Two comments.

1. When we bought our house (back a few years before the height of the market in our area, when there were five bids), the home inspector was able to tell that the basement had never flooded. However, a neighbor built a large addition, relandscaped, and sent more water our way, which caused the basement to flood. We had a sump pump system put in, at great expense, which worked. A year or so later, I built a raised bed in our backyard (in an area which had grown wild), and the raised bed has apparently also solved the flooding problem, since the sump pump doesn't run very much anymore after the bed was put in. The lessons are that your neighbors can impact your costs (accidentally in my case) and that more than one solution might resolve a problem.

2. When looking for contractors, consider personal references the most. We frequently have used contractors with excellent regional credentials, consumer checkbook verified, etc., who are generally good, but quite expensive. We recently had two bathrooms remodeled (new tile, new shower, new tub, where I purchased all of the components myself at the tile store/home depot/lowes/etc. to ensure quality components and we used a gentleman referred to us by a cousin. He was excellent, fast, and charged us much less than we would have spent if we'd gone with either of our other two bids (both of whom wanted to also make money on the fixtures, as well as the labor).

tesyaa said...

I would be more concerned with structural, big ticket items like the roof, gutters, plumbing, heating & cooling systems than the quality of a kitchen and bathroom renovation. You CAN live with cabinets that don't close properly (though you don't want to pay extra for a renovation job that turns out to be cheap). But if you need a new roof, you need a new roof, and if it costs $12,000 that you don't have, you are looking at a HELOC (if you can get one) or some other type of unwelcome debt. I'm really surprised by the emphasis on cosmetics.

We bought our house 8 years ago and it had a 30 year old kitchen at the time. Not surprisingly, we've replaced the appliances one by one. We are still living with the old cabinets, old floor, and old ugly wallpaper, and we are functioning just fine. Four new appliances for a total of about $5,000 (includes a huge refrigerator and a double oven) is a lot cheaper than a $75,000 designer kitchen that will start looking old anyway in a few years.

Boxed Whine said...

The idea of buying a house scares me for all the reasons listed above. There are so many pitfalls that we just choose to rent. No, I don't consider it to be throwing my money away. I just know what we are capable of handling.

P.S. Looks like Mr. FOR JEWS ONLY has stopped spamming. I wonder what kind of secret, mystical knowledge that would make the gentiles' eyes melt was in his newsletter.

sethg-prime said...

When my wife and I went house-hunting, one house we looked at had numerous issues needing repair. (When the home inspector went thwack with his pole to test for dry rot around the basement windows, the Realtor’s facial expression was priceless.) Then my father-in-law noticed how one corner of the foundation had settled more than the other three—presumably due to the construction next door—which explained why the upstairs bathtub had its drain on the uphill side.

It still took me an hour or so of reading a book on how to renovate old houses before I was ready to walk away from the deal: this was near the peak of the recent housing bubble, and I had this overwhelming sense of “this is such a seller’s market, if we don’t take this one, there will be NOTHING ELSE in our price range...” But we did walk away, and we did find a better house.

sethg-prime said...

BTW, a while ago, the NYT Web site had a handy little “buy or rent?” calculator page, and in the fine print, it said they assumed homeowners would spend one percent of the house’s value on maintenance and renovation every year. This has pretty much been our experience. (The house we ended up getting was in good repair structurally, but it was about as well-insulated as a paper bag: the previous owner rented it out to a half-dozen college students, and obviously didn’t care how much THEY were going to spend on heat.)

tesyaa said...

Seth-g, insulation was not a big deal decades ago, when heating costs were cheap. Our house was built by a family of builders for their own use 60 years ago, and the construction is rock solid; but the exterior walls seem to have no insulation. We think it was cheaper for them to heat with oil at 20 cents a gallon (or less?)than to pay for insulation.

JS said...

tesyaa,

My point about the quality of the bathrooms or kitchen had more to do with no overpaying for crummy quality. Most people go into a home and if it has a glimmering kitchen or bathroom renovation assume it must be top-quality and open their wallets accordingly. It can be a huge mistake to pay extra for these things.

If anything, I think it's better to find a house that's structurally sound but needs cosmetic work. A lot of people have no imagination and can't get past the crummy paint or aging wallpaper or 70's tile or whatever. You can get a serious deal on a house like that and fix it up to however you like for far cheaper than buying something that just looks nice.

Abba's Rantings said...

"I think it's better to find a house that's structurally sound but needs cosmetic work."

agree 100%, but . . .

"You can get a serious deal on a house like that"

i don't about how good of a deal one can get unless major construcvtion is needed, and even then . . .
i guess it depends on which market, but where we looked, to a cerain extent you are paying for the land. condition of the structure on that land didn't impac the price as much as we would have thought.

Mr. Cohen said...

Rabbeinu Yonah commentary on tractate Avot, chapter 1, paragraph 7:

NITAI HA'ARBELI TAUGHT:
DISTANCE YOURSELF FROM AN EVIL NEIGHBOR.

This [especially] speaks to people who rent or buy houses.

Just as you ask in advance about the beauty of the house and its size, you must also as about the neighbors.

If they are wicked, then distance yourself from them. If they are righteous then come near.

PS: I thank the moderator very much for linking to my web site, Derech Emet!

JS said...

Abba,

Certainly it depends on the area. In Flatbush people buy completely run down homes that are 80-90 years old on postage stamp lots for between 1-2+ million dollars just to knock them down and build a tall brick "mansion" with no land. Extreme example perhaps, but your point is well-taken.

Other than that scenario though, you can often do very well. We got our house this way. The sellers had run out of money, let the house and property go, and put no effort into even trying to fix things themselves. To top it off they didn't even try to clean up the house when we came to see it. As a brief example, the ceiling in the den was coming down from a flood in the upstairs basement 6 months prior that they had just left.

It's a fairly large house in a nicer area of town. No one came to see the house because even from the pictures (which are always taken from the most flattering angles) it just didn't look good. But, it's only a 25 year old house and you can clearly see from all the neighbors (same developers) how nice it COULD be and that the houses were well-built.

So, no one else was coming to see it, they had run out of money, we got a really good deal. And, we've been fixing it up the way we like it in the 2 years since we purchased.

JS said...

"upstairs basement" lol

I meant "upstairs bathroom."

Anonymous said...

My niece and her husband, a kollel couple, bought a wonderful prewar that had old everything and needed renovation for a very low price of $150,000 in unfashionable Baltimore. For 3.5 down payment FHA, her husband the Talmid Chochom rolled up his sleeves, replaced the front stairs, built a backyard deck, installed whatever was needed, and they used the FHA loan to do renovation of kitchen and bath that could not be done themselves. They have housing for a growing family. No one looking at the outside of the house would be impressed, but I love the house, it has such old fashioned charm. Old fashioned furniture too, everything second hand. They are very practical.

Anonymous said...

And their four year old boy, watching his father, has become very interested in fixing things around the house - they bought him a children's tool set for his birthday - and he spends his time "fixing" things, just like Tatie. If you buy an old house, your husband and your four year old will be called on to do the renovations.

Anonymous said...

Mr. Cohen:
Quit giving us Torah quotes when we are discussing repairing houses.
Save it for a Torah site. Nobody here is discussing loshen hara, they are trying to find ways to budget and get house advice, but you don't have to stick in quotes that have nothing to do with anything. Doesn't the Torah teach you NOT to annoy other people: the great sage Hillel taught, That which is bothersome to you, do not do to others. PLEASE STOP!!!! SL, can you ask this guy to quit? Someone above just said he was so happy the guy stopped with his ads, and then you scroll downa dn he is back again. I am sure he means well, but needs to be told DIRECTLY to stop.

JRKmommy said...

After carefully documenting everything involved, double both the time and money estimates for any renovation.

Find out EXACTLY how the property taxes are calculated. If it is tied to property value and the existing taxes were based on an old assessment, find out if they will go up if the purchase price is more than the previously assessed value.

If you are buying a condo, consider condo fees and the financial health of the condo corporation.

If it is your intention to do some renovation, work with a contractor when buying a home, and focus on what is important. Location and basic structural issues will be more important, but it won't matter how ugly the kitchen, carpet or wall colors are.

Find out about zoning issues that may prevent you from doing a reno that you want. In older areas, a previous back extension, for example, may have been permitted under older rules, but newer rules may prevent you from pulling in down and replacing it.

In a subdivision, look at the condition of other homes in the area. Sometimes, they will all have similar problems in construction.

Anonymous said...

Tesyaa 11:38- my comment about "cosmetics" is not as superficial as it sounds- people renovate to get a higher price when selling. Some of my kitchen cabinet doors have fallen off the hinges- which can be dangerous if you are the only one in the house or it happens to a child. If a kitchen looks nice when buying a house, you might say to yourself, that is something that I won't have to spend on.. Not everyone is handy or has the time to spend on renovations-( we save money and maximize our income in other ways!). While I agree with you that structural issues are very, very important, the seller often renovates to sell the house for maximum dollar. By judging the quality of the "cosmetics" as you put it, you have a better idea of how to value the house.
By the way, my original post was not meant to gripe but rather let people know additional things to consider. Not everyone should post the same ideas!

Ariella said...

Good points. I'll put up a link alone with a lighter warning on shopping for a house.

Dovy said...

Today's WSJ has an op-ed regarding home ownership not always being such a good investment for folks.

Struggling Who said...

Insurance costs vary significantly depending on the company. I would recommend making some phone calls outside of the broker relationship you have, to see if there's a cheaper company.

That said, costs in Teaneck have gone up significantly (20-25% not uncommon) in the past two years, because of the heavy storms and all of the damage to roofs we've seen. So don't feel bad if you're paying more than you were two years ago.

Pia@Philippines properties said...

Your post will give the home buyers a good start in making decisions when purchasing a home. Thanks for sharing this!

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