Questions and Answers
Home inspections For most people, purchasing a home is the largest investment they will ever make. It is no wonder then that many homebuyers employ professionals to inspect the structural and mechanical systems of the home and report on their condition. While sellers also employ home inspectors to alert them to problems with their homes which could arise later in the transaction, this brochure is written from the viewpoint of the potential homebuyer. Q: What is a home inspection? A: A home inspection is an evaluation of the visible and accessible systems and components of a home (plumbing system, roof, etc.) and is intended to give the client (usually a homebuyer) an understanding of their condition. It is also important to know what a home inspection is not! It is not an appraisal of the property’s value; nor should you expect it to address the cost of repairs. It does not guarantee that the home complies with building codes (which are subject to periodic change) or protect you in the event an item inspected fails in the future. (Note: warranties can be purchased to cover many items.) No home inspection should be considered a “technically exhaustive” evaluation; rather, it is an evaluation of the property on the day it is inspected, taking into consideration normal wear and tear. Q: Can anyone perform a home inspection? A: No. Only South Carolina Licensed Home Inspectors are permitted to perform home inspections for compensation. To qualify for licensure, they must satisfy certain education and experience requirements and pass a state licensing examination.
Q: Why should I have the home inspected? A: Most homebuyers lack the knowledge, skill and emotional detachment needed to inspect homes themselves. By using the services of a licensed home inspector, homebuyers can gain an understanding of the condition of the property, especially whether any items are so defective as to impair function or warrant further investigation by a specialist. Q: In my home purchase I have chosen to sign the standard Agreement to Buy & Sell form which many real estate and legal professionals use. It states that I have the right to have inspections to determine the condition of the house during a due diligence period. Will the home inspection identify all problems at the home? A: Home inspectors typically inspect structural components (floors, walls, roofs, chimneys, foundations, etc.), mechanical systems (plumbing, electrical, heating/air conditioning), installed appliances and other major components of the property. Always ask the home inspector if he or she covers all the things that are important to you. If not, it is your responsibility to arrange for an inspection of these items by the appropriate professionals. For a description of the services to be provided by the home inspector (and the cost), you should read carefully the written contract which the home inspector must give you and which you must sign before the home inspection can be performed.
Home inspections (continued from front)
Q: How do I request a home inspection, and who will pay for it?
Q: What should I do if I feel something has been missed on the inspection?
A: You can arrange for the home inspection or ask your real estate agent to assist you. Unless you otherwise agree, you will be responsible for payments of the home inspection and any subsequent inspections. If the inspection is to be performed after you have signed the purchase contract, be sure to schedule the inspection as soon as possible to allow adequate time for any repairs to be performed.
A: Before any repairs are made (except emergency repairs), call the inspector or inspection company to discuss the problem. Many times a “trip charge” can be saved by explaining the problem to the inspector who can answer the question over the telephone. This also gives the inspector a chance to promptly handle any problems that may have been overlooked in the inspection.
Q: Should I be present when the home inspection is performed?
Q: If, following the home inspection, the seller repairs an item found in the home inspection, may I have the Home Inspector perform a “reinspection”?
A: Whenever possible, you should be present. The inspector can review with you the results of the inspection and point out any problems found. Usually the inspection of the home can be completed in two to three hours (the time can vary depending on the size and age of the dwelling). The home inspector must give you a written report of the home inspection within three business days after the inspection is performed (unless otherwise stated in your contract with the home inspector). The home inspection report is your property. The home inspector may only give it to you and may not share it with other persons without your permission. Q: Are all inspection reports the same? A: They can range from a “checklist” of the systems and components to a full narrative including photographs. A home inspector is required to give you a written “Summary” of the inspection identifying any system or component that does not function as intended, or has tangible evidence that warrants further investigation by a specialist. The summary may also describe any system or component that poses a safety concern. The summary does not represent everything you need to know about the home. Carefully read and understand the entire home inspection report.
A: Yes. Some repairs may not be as straightforward as they might seem. The inspector may be able to help you evaluate the repair, but you should be aware that the reinspection is not a warranty of the repairs that have been made. Some home inspectors charge a fee for re-inspections.
Questions and Answers
Due diligence Q: What is due diligence?
Q: Is there a fee for due diligence?
A: Due diligence is a negotiated period of time during the real estate transaction in which the buyer has the opportunity to investigate the property. Typically, this time is used to conduct inspections, review restrictive covenants, and any other items that will help the buyer determine whether to proceed with the purchase or terminate the contract.
A: It is not required by law, but most sellers do require it as compensation for taking their house off the market while the buyer investigates the property.
Many buyers employ professionals to inspect and report on the structural and mechanical systems of the home. Having the home inspected by a licensed home inspector allows the buyer to make a more informed decision about the purchase. Some items addressed in a home inspection include: •
Exterior & structural components
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Roofing condition
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Plumbing
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Electrical systems
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Heating and air conditioning systems
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Conditions of walls, ceilings, flooring, windows and doors
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Insulation and ventilation
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Wood destroying insects
Before the end of the due diligence period, the buyer has the right to terminate the contract for any reason.
Q: How much should the termination fee be for Due Diligence? A: The fee is negotiated between parties. It is typically a small percentage of the purchase price depending on market conditions.
Q: What happens to termination money? A: It is paid directly to the seller if the contract is terminated.
Q: What if needed repairs are identified during the due diligence period? A: Repairs are typically negotiated with the seller during this time. Please note that sellers are not required to make any repairs; however, it is common to negotiate either repairs or some amount of monetary compensation to help with the cost of repairs. All repairs should be outlined in a repair addendum agreement and signed by both parties prior to the expiration of the due diligence period. If a seller chooses not to make repairs or provide any monetary compensation, they are not in breach of contract. Buyers still have a right to terminate the contract prior to the due diligence expiration. The termination fee must be delivered prior to the end of the Due Diligence period.
Questions and Answers
Earnest money deposits Q: What is “earnest money”? A: It is money you give to the designated escrow agent to show your good faith when making an offer to purchase the seller’s property. Q: Do I have to pay an earnest money deposit to have a valid contract? A: Although no law requires it, sellers typically do require it. If you agree to pay earnest money but do not make the required payment or your earnest money check “bounces”, you will probably be considered in breach of contract and the seller may elect to terminate the contract. Q: How much earnest money should I pay? A: The amount is negotiated between you and the seller. It is typically a small percentage of the purchase price and can vary depending upon local market conditions, the price of the property, the type of property (e.g. vacant land, existing housing, or new construction), whether cash advances to a builder or seller are involved, and other factors. Q: What happens to earnest money before closing? A: The purchase contract governs where earnest money will go. It should also specify the amount(s) to be paid, when the payments are to be made, whether the money will be held in a trust (escrow) account, who will hold it, and whether it will be credited against the purchase price at closing. Q: Who can hold earnest money? A: Any person (or entity) agreeable to you and the seller, but usually an attorney. As a buyer, be aware that if you allow earnest money to be held and deposited by a seller or by a builder or developer for use in construction, you risk that they will not be able to return it to you in the event the transaction does not close (due to the seller’s death, divorce, bankruptcy, judgment liens, receivership, fraud, tax liens, title problems, etc.). Consequently, most buyers prefer to have real estate agents or attorneys hold the earnest money deposit. Since they are licensed by the state and require to deposit the money in a trust or escrow account, this reduces the risk that monies will be improperly used.
Q: Under the standard Agreement to Buy or Sell Real Estate, who hold the earnest money? A: The form permits the parties to select who will hold the money. Whenever a licensed real estate firm or agent holds any earnest money, it must be deposited in a trust or escrow account until closing. Q: Is earnest money the same as a termination fee? A: No. The termination fee is a separate fee a buyer may pay for a negotiated period of time (the “due diligence period”) during which the buyer may perform inspections, review restrictive covenants, and determine whether or not to proceed with the purchase. The termination fee is paid directly to the seller if the buyer wants to terminate. Before the end of the due diligence period, the buyer has the right to terminate the contract for any reason or not reason at all, while the seller remains bound by the terms of the contract. Buyers typically want to negotiate the lowest termination fee for the longest due diligence period, while sellers want to negotiate the highest fee for the shortest period. Regardless, just like the earnest money deposit, no due diligence fee is required by law. If a buyer wants the seller to make repairs, the buyer should ensure that all repairs are made before the expiration of the due diligence period, or have the parties enter into a signed, written agreement to have the specific repairs completed, which end the due diligence period. Q: Under the standard Agreement to Buy or Sell Real Estate, do I get my earnest money back if the transaction does not close? A: No, only a court order or signed release can allow earnest money to be distributed. Q: Will my earnest money earn interest between contract and closing? A: Probably not. Most earnest money is held by real estate brokers or attorneys in non-interest-bearing trust or escrow accounts.
Questions and Answers
Title insurance Owner’s Title insurance protects the owner’s equity by: •
Providing a corporate indemnity against insured defects
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Paying legal expenses to eliminate title defects
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Paying claims arising from missing liens or interests
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Paying losses from hidden defects in title and defects not of record
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The owner has this protection so long as they own the property, and even on warranties in the deed of sale.
Q: But I thought the bank or lending institution always had the title insured? A: It usually does, but its policy only insures its own interest in your property. You could lose your equity if you do not have your own policy.
Q: If Owner’s Title Insurance is so important, isn’t it expensive? A: No, Owner’s Title Insurance is one of the least expensive forms of insurance.
Q: Is it a one-time premium? A: Yes. And this one modest premium insures your home for as long as your or your heirs have an interest in the property.
Q: What is a title defect? A: It is any one of a number of things that could jeopardize your interest or ownership. It could be an unsatisfied mortgage, lien, judgment, or other recorded claim against the property. It could arise through easements, use restrictions, or other existing covenants. There are many additional hidden risk such as errors in recording or invalid deeds, just to name two.
Q: Are all Title Policies the same? A: Some title companies issue blanket exceptions on policies, thereby providing less coverage for the same premium. We have interest in and recommend Key Title. Key Title only lists exceptions applicable to the transaction.