Be Prepared
Be prepared. The side with the most knowledge does not always come out ahead, but it is a huge advantage. Read the contract, read the HOA documents, read the inspection reports, etc. Call the town, talk to the neighbors, get a survey, etc.
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Yes it’s a bit cliché, but be prepared. We’ve already talked about the contract. Read and understand that before you get started. But when you find something, read all the marketing material. It may be of limited usefulness, but it is readily and immediately available. Read the disclosures. There is usually a property disclosure and there may be others.
The homeowner’s association (HOA) documents are important, especially for townhouses and condos. And any single family subdivision with lots of amenities or where the HOA owns and maintains the streets. You want to read the HOA documents to understand the procedures and the organizational structure. You want to read the recent HOA history to see what’s going on and are there any possible assessments coming your way. A seller may be required to disclose confirmed assessments, but not a possibility that is currently under discussion. It would be a shame to close on a new home and then get hit with a $5,000 assessment at the next HOA meeting. Finally you want to have a look at their financial documents. You don’t have to be an expert to notice that the reserves are underfunded. But if you need an expert, get one. Start with the HOA Property Manager; you never know how much she might be willing to share.
And you just never know what you are going to find. We once represented a buyer considering a house in a subdivision where a group of neighbors were suing the builder for failure to install a vapor barrier (house wrap) under the siding during construction. This may or may not be important to you, but do you want to get involved in a lawsuit of any kind? Seller disclosure: None.
Have the property inspected. These days, separate roof and HVAC inspections are quite common. Attend the property inspection and ask the inspector if he’d recommend separate inspections for these or anything else. Make sure to give yourself time to schedule these as needed.
A while back, ten years or so, lenders stopped requiring surveys for most residential properties. Certainly for the cookie-cutter neighborhoods. In any case, I am always amazed by how few people want a survey if the lender does not require it. But if the property you are considering has an encroachment, especially where it somehow encroaches on a neighbor, surely this becomes a negotiating factor.
And that busy road behind the property? Yeah, let’s call the town and ask about that. What’s that? They start the widening project next month? Did the seller disclose? Heck, did the seller even know?
You are walking out after viewing a home and along comes a lady walking her dog. Hey, do you live in the neighborhood; do you like it? Most people are happy to answer, good or bad. And if not, you have not lost anything. I am not saying that you need to go knock on doors. But if the opportunity to speak with a neighbor presents itself, be sure and take advantage of it.
On the sell side, I have a client who will research his buyers. Yes, they currently live here. Do me a favor and look up that house and see if it is for sale? Or, yeah, I found him on Facebook and LinkedIn. Looks like he got a job transfer to the area. Point is, he is not happy with the information provided with the offer and any lender documentation. He wants to know as much as he possibly can about who he is about to deal with. I mean he will send me articles from our local business journal: Hey, isn’t this the guy who sent us the offer this morning? Necessary? Bit creepy? Or smart? You decide.
Now this is not meant to be a comprehensive list of what you should do when buying or selling a home. But clearly if you find that the HOA is considering a $5,000 assessment for street maintenance, that becomes a factor in the negotiation. You will either negotiate some portion of that off the price, or if you find that is not possible, at least you can proceed…if you choose to proceed, with full knowledge of what you are buying.
And truthfully, it is probably never enough. I have friends who bought a house in a neighborhood that backs up to an interstate-type divided highway. They were okay with that because there was a heavily wooded buffer between the houses and the highway. But some time after they purchased, low and behold, somebody started knocking the trees down. Soon enough they learned that the state transportation department had given the local power company an easement for new electric transmission lines. And they lost most of the buffer. Now could this have been determined ahead of time? Yes I think so. But I also think it is fair to ask: Would anyone think to check for this possibility?
Think about it. You lookup the subdivision plat. Nothing there, looks good. Yep, that’s the state DOT that owns the land behind the subdivision, but we know there’s a highway. Do you then pull the DOT surveys? Well if the buffer is important to you or your clients, you probably should. Another question of course is: Was the easement granted before or after they purchased their house? I don’t know; thankfully, I was not involved. But I like to think that I would have been more careful. I hope so anyway.
Now my friends bought the house as new construction from the broker representing the builder. If the easement had been in place prior to purchase, then the broker failed to disclose a material fact, as they are required to do. So this would have been either negligent or willful omission of a material fact. Yes, it’s a thing. But one take away from this chapter should be that we cannot depend on the other side to communicate any or all that they should (or that we might like them to). We must be prepared by doing our own homework.
So there are two lessons here. One, narrow, check out government-owned highway land for possible future utility easements. And two, more broadly, check out any adjacent or nearby land for anything vacant or odd or new. My advice: Go to the county GIS (Geographic Information System) and print out a half-mile radius of all the properties. I once did this and found a vacant parcel owned by the town, right next to the subdivision we were considering. Turned out the town had purchased for the possibility (not yet determined for sure) of placing a fire station on the parcel. Do you want to live next to a fire station?
Let me end this with one final story. My father was once part of an investment group that purchased a large tract of land outside of Myrtle Beach, South Carolina. They purchased the land from a Real Estate Investment Trust (REIT) previously spun-off from a large paper company. That company acquired the land through a couple of mergers and at least one corporate takeover. You get the idea.
After the purchase, they discovered two things: One, the land had been used as a practice bombing range in World War Two. And two, that there may be unexploded ordnance on the parcel. Here’s the point: No one involved thought to ask the question: Could there be bombs on this land?
No for some reason, the question just never occurred to anyone.
So it’s probably just never enough. But the more you know, the better your negotiating position