Buyer Beware: Red Flags to Look Out for When House Hunting

If you are thinking of buying a home, you have probably already begun your search. It’s easy these days, with up-to-date listing information available on a wide variety of websites. And it’s fun!

House hunting is one of the most exciting parts of real estate, and it draws a lot of interest on TV shows and in-person open houses. Viewing and touring potential new homes means thinking of possibilities and dreaming about your future.

As fun as it is, though, it’s easy to get caught up in the thrill of house hunting — the perfectly staged rooms, the must-have features, the pool or kitchen you always wanted. Focusing too much on the aesthetics and amenities can lead you to miss some warning signs about a property, and a poor decision can lead to years of regrets.

We’re here to help you avoid making any costly mistakes in your home search. Read on for a quick guide on the red flags to spot when house hunting. 

No Photos in the Listing

The vast majority of homebuyers start their search online to get a feel for the market and their options. It’s a good way to get a glimpse of the types of homes available, their price, and which neighborhoods might suit you best. However, not all online listings are created equal. 

For example, if a listing has few photos (or zero photos), it’s probably not a good sign. Either the homeowner doesn’t want to show you what’s inside, or they don’t care enough to make an effort. Either way, chances are slim that it’s the right home for you.

Don’t just think about what’s shown in the pictures. Consider what’s not being shown.

Signs of Water Damage

Next, while touring homes, keep an eye out for signs of water damage. This can include cracking and bubbling paint, discolored walls and ceilings, pooling water, and moldy/mildewy smells.

Signs of water damage can be especially concerning because they can indicate damage to drywall, flooring, and structural components of the house, all of which may be very costly to remediate and repair. Worst of all, water damage can also mean the presence of toxic mold hidden throughout the house. 

Signs of Pests

Recent studies have shown that 84% of homes have some sort of pest presence. Typically, this means small, not-very-significant issues like the occasional bug or insect. However, if the home you visit while house hunting has obvious signs of a widespread infestation, you might want to think again.

Pest infestations can be tricky (and costly) to get rid of. Not to mention, most pests cause multiple forms of damage to a house. Termites chew through wood, rodents destroy materials and leave waste everywhere, etc.

As is the case with all these red flags, you might choose to simply move on and look at other homes. But if you really like some features of the home and think you can make it work, you can always negotiate a lower price, or ask the sellers to remedy the problem.

Obvious “DIY” Renovations

As you house hunt, work on your eye for spotting obvious DIY work. While there’s nothing wrong with a homeowner learning new skills and saving money by completing DIY repairs and updates, you can never be sure of the quality of their work. Additionally, the owners may have failed to follow the proper permitting process for a job. 

DIY repairs and renovations that violate the city coding laws could come back to haunt you, even if it was the previous owner who did them. More importantly, they may not be completely safe or sound.

Weird Odors

Weird smells are never a good sign while house hunting. Cleaning is an important part of the listing process, so if a home for sale still has lingering odors, they may be hard to fix or foretell deeper problems.

As noted previously, musty smells could be an indication of mold and mildew. Additionally, questionable smells could point to pests, pet accidents that weren’t properly cleaned up, rotting food lying somewhere and so on.

Similarly, if the home is covered in air fresheners, it might indicate lingering, foul smells. Of course, it could just be the seller and listing agent trying to make the home more inviting. But an excessive amount of scents could mean they’re trying to mask an unpleasant odor. 

Your Real Estate Agent is Also the Listing Agent

When looking for a house to buy, it’s always a good idea to hire a real estate agent. They can help you find the right house based on location, size, features, property size, etc. 

However, if your real estate agent is also the listing agent for the house you’re looking at, make sure that they have your best interests at heart. Agents are only people, after all. Most are good folks and they try to do right by their clients. But buying a home that’s also listed by your agent/agency can open things up to a conflict of interest. 

When you buy that listing, the agent makes double the commission since they represent both parties. If you have a good agent, this is not typically a problem. But an unscrupulous agent might be willing to withhold information or negative details about the home that might otherwise deter you from placing an offer.

The bigger lesson here is to work with an agent you trust!

Negative Drainage

When house hunting, it’s not just the interior of homes you should examine. You should also take a walk around the property to look for anything disconcerting. 

For example, take a look at the landscaping around the foundation of the house. Does the ground slope away from the house, toward the house, or is it flat? Ideally, the foundation should slope down away from the house to ensure positive drainage.

Negative drainage will drain water back toward the foundation, which can cause water leaks in the basement/crawl space, damages to the foundation, etc. All of these problems can be expensive and frustrating to deal with.

Questionable Roofing

The roof of a house is one of the most important components. It’s the primary defense for your home against the elements.

That means your roof is also the part of your home most susceptible to incurring damage. Inevitably over time, the wind, rain, hail, snow, ice and sun can break down a roof. 

If the roof needs to be replaced due to regular wear and tear, it won’t be covered by most insurance companies. This means the seller is less likely to invest in roof repairs or a replacement before selling. The last thing you want to do is buy a house that needs thousands (or tens of thousands) of dollars in roof repairs. 

An Insanely Low Price

We all know the importance of comparing house prices while house hunting. Comparable sales are the chief way that home values are determined by appraisers and other real estate pros.

When a sale price seems too good to be true, it probably is. In other words, a super cheap home is likely super cheap for a reason. 

If the home sounds too good to be true, there’s likely something fundamentally wrong. This is more common in homes that have been listed on the market for more than four or five months. 

If you run into this situation, ask your Realtor to find out why the listing price is so low. Alternatively, you could place a contingent offer on the home based on the results of a home inspection. It will cost you some money to get answers, but at least you’ll know what you’re dealing with.  

Ready to Start House Hunting?

It’s exciting to house hunt and think of the possibilities in your new home! Just make sure you keep an eye out for the red flags listed in this article while house hunting. A home is a huge investment, and the last thing you want is for an oversight to come back and haunt you.

Whether you’ve been searching real estate listings for a while, or you’re just getting started or mulling your options, we’re here to help. Connect with us today to start the conversation and discuss your options to buy, or sell and buy, a home! We would love to help you achieve your goals and find a home that’ll make you happy for years to come.

A Glossary of Orange County Real Estate Terms You Should Know

 

Buying or selling your Orange County home can be an extremely exciting time in your life, however, it can also be incredibly confusing and stressful if not equipped with the right tools to navigate this momentous life decision. Dealing with terms like Adjustable Rate Mortgage vs. Fixed-Rate Mortgage, recurring vs. nonrecurring closing costs, and Earnest Money Deposit can be daunting to even the most experienced homebuyer. That’s why it pays to have a good foundation of knowledge going into any real estate transaction. The real estate terminology guide we provided below will get you started, but the best way to ensure you have a thorough understanding of every step of your Laguna Beach, Corona del Mar or Newport Beach home buying or selling process is to have a knowledgable, reputable realtor on your side. Whether a first time home buyer in California or a seasoned pro, with my keen insight into the market and expertise in the community, I can help navigate your Orange County real estate transaction with ease and confidence. 

 

 

Glossary of Orange County Real Estate Terms

Active: This means that a property is currently on the market and available for sale. It may have received offers, but none has yet been accepted, meaning you are still able to make an offer if you so wish.

 

Active with contract (AWC): This means that even though there’s an accepted offer on the home, the seller is looking for backup offers in case the primary buyer falls through. While any seller can entertain backup offers as a precautionary measure as long as this is made clear in the contract, this term most often crops up with short sales, since they can often fall through, and it can be helpful if a second buyer is waiting in the wings.

 

Adjustable-Rate Mortgage (ARM): A mortgage loan with an interest rate that fluctuates in accordance with a designated market indicator over the life of the loan (usually 1-2/year). To avoid constant and drastic fluctuations, ARMs typically limit how often and by how much the interest rate can vary.

 

Annual Percentage Rate (APR): A yearly interest rate that includes upfront fees and costs paid to acquire the loan, calculated by taking the average compound interest rate over the term of the loan. Mortgage lenders are required to disclose the APR so that borrowers can more accurately compare the actual cost of different loans with different fees.

 

Appraisal: A determination of the value of the house you plan to buy. A professional appraiser makes an estimate by examining the property, looking at the initial purchase price, and comparing it with recent sales of similar properties. Your bank or other lender will require the appraisal in order to ascertain the worth of the house for lending purposes. The lender may refuse to fund the loan if the appraisal comes in lower than the loan amount. In this case, unfortunately, you must either come up with additional down payment money or a better appraisal.

 

Asking Price: The initial selling price of a property, determined by the seller.

 

Assumable Loan: A home mortgage which can be transferred from the previous owner to the new owner, thus allowing the buyer to take over the seller’s mortgage. Most lenders require the borrower to qualify for the mortgage in order to assume the mortgage.

 

CMA: Comparative market analysis or competitive market analysis. A CMA is a report that shows prices of homes comparable to a subject home and that were recently sold. The sold prices, known as comps, can help homeowners determine how much their home is worth in the current market.

 

Contingency: A provision in a real estate contract in making an offer is “contingent”, or dependent, on one or more conditions that must be fulfilled before the buyer is willing to proceed with the purchase; such as the prospective buyer making an offer contingent on his or her sale of a present home. 

 

Conventional Mortgage: A type of mortgage not insured by either the Federal Housing Administration (FHA) or the Department of Veterans Affairs (VA), and thus usually requiring a 10–20% down payment.

 

Counteroffer: The rejection of an offer to enter into a contract, where the rejecting party includes a different offer that changes the terms of the original offer in some way. The legal significance of a counteroffer is that it completely voids the original offer.

 

Down payment: The lump sum in cash that you can afford to pay at the time of purchase. Traditionally, down payments are 20% of the purchase price. 

 

Earnest money deposit (EMD): A partial payment demonstrating “good faith” in a contractual relationship, made at the time of the purchase offer. The remainder of the payment is due on the closing date. The seller keeps the earnest money if the buyer fails to make timely payment in full (or if there is a similar breach of the agreement).

 

Escrow: The holding of funds or documents by a neutral third party prior to closing your home sale.

 

Fixed-rate mortgage: A mortgage loan that has an interest rate that remains constant throughout the life of the loan, usually 15 or 30 years. This mortgage’s interest rate will never change, even if the term of the loan is 30 years. This can be good or bad, but it will always be predictable. Interest on fixed-rate mortgages is almost always higher initially than on adjustable-rate mortgages. But you’ll also be protected against rate hikes, a pitfall of adjustable-rate mortgages.

 

FHA Loan: A program in which the federal government (Federal Housing Administration) insures the lender if you fail to pay and they have to foreclose and wind up losing money.  The government doesn’t make the loan, they just offer the guarantee to the banks. Such financing allows for a lower down payment than required by most lenders. Houses must be in decent shape to qualify for FHA Loans.  The other kinds of loans are Conventional and VA.

 

Home inspection: A thorough professional examination, typically at the buyer’s expense, that evaluates the structural and mechanical condition of a property, including plumbing, foundation, roof, electrical, HVAC systems, etc. This highly recommended step is a common contingency clause in real estate sales contracts. If the inspector identifies issues that may be expensive to remedy, these can be revisited with the seller before proceeding with the sale.

 

Homeowners’ association: An organization made up of neighbors concerned with managing the common areas of a subdivision or condominium complex. These associations collect monthly dues and take on issues such as garden, pool, and fence maintenance, noise abatement, snow removal, parking area upkeep, repairs, and dues. The homeowners’ association is also responsible for enforcing any covenants, conditions, and restrictions (CC&Rs) that apply to the property.

 

Homeowners Insurance: Insurance that protects the homeowner from “casualty” (losses or damage to the home or personal property) and from “liability” (damages to other people or property). Required by the lender and usually included in the monthly mortgage payment.

 

House closing: The final transfer of the ownership of a house from the seller to the buyer, which occurs after both have met all the terms of their contract and the deed has been recorded.

 

Loan Origination Fee: A fee charged by the lender for evaluating, preparing, and submitting a proposed mortgage loan.

 

Mortgage Insurance Premium (MIP): A charge paid by the borrower (usually as part of the closing costs) to obtain financing, especially when making a down payment of less than 20 percent of the purchase price, for example on an FHA-insured loan.

 

Multiple listing service: A computer-based service, commonly referred to as MLS, that provides real estate professionals with detailed listings of most homes currently on the market. Membership isn’t open to the public, however much of this information is sold to and can be found by the public on many real estate listing websites. 

 

Nonrecurring closing costs: Those costs of closing a home purchase that need to be paid only once — such as the appraisal fee, title insurance, and transfer taxes. (Compare with recurring closing costs, defined below.)

 

Pending Sale: This is the escrow period, where the seller has an accepted offer and an executed contract, all the contingencies have been met, and the buyer and seller are working towards a closing. 

 

PITI: Abbreviation for the major expenses that make up a mortgage payment: principal (the amount borrowed), interest, (property) taxes, and (homeowners’) insurance.

 

Point: Prepaid interest on a loan, equal to one percent of the principal amount being borrowed. The lender may charge the borrower several “points” in order to provide the loan. The advantage of paying points up front is that a lower interest rate can be secured for the lifetime of the loan. This may be a good deal if a buyer plans to stay in the home for many years, as the long-term interest savings outweigh the initial cost in points.

 

Pre-approval (loan): A lender’s written guarantee to grant a loan up to a specified amount (subject to receiving full documentation). Pre-approval for a loan can strengthen a buyer’s negotiating position with a seller.

 

Pre-qualification: Less official than a mortgage pre-approval, banks offer free pre-qualifications to estimate the amount a buyer may be able to borrow. It is often used early in a buyer’s search to help determine a reasonable price range.

 

Principal: The outstanding balance on a loan.  Also refers to the portion of a loan payment that pays down your debt.  

 

PMI/Private Mortgage Insurance: If your down payment is less than 20%, you’ll have to buy Private Mortgage Insurance which protects the bank if you fail to make your payments, they have to foreclose, and they lose money.

 

Property Taxes: Taxes, based on the assessed value of the home, paid by the homeowner for community services such as schools, public works, and other costs of local government. Paid as a part of the monthly mortgage payment.

 

Recurring closing costs: Those costs of closing a home purchase that represent the first of a series of payments that will recur over time — such as homeowners’ insurance and property taxes. 

 

Title Insurance: This type of insurance is acquired to protect against any unknown liens or debts that may be placed against the property. Before issuing title insurance, public records are searched to ensure that the current owner has legal rights to the title as well as the legal ability to sell the home and that no liens are held against the property.

 

Under contract (UC): The seller has an agreed-upon contract with the potential buyer (which is typically contingent on additional factors like financing and inspection results).

 

VA Loan: A loan guaranteed by the Department of Veterans Affairs against loss to the lender, and made through a private lender. Similar to FHA Loans, the federal government insures the lender if you fail to pay and they have to foreclose and end up losing money.  The government doesn’t make the loan, they just offer the guarantee to the banks.