“What repairs are needed and if we fix it, will we still be able to make a profit?” These were the main questions my business partners and I asked as we evaluated a number of homes before selecting the house we rehabbed and sold in 2020. We saw all kinds of homes during this timeframe—vacant homes that needed heavy repair, investor-owned projects turned bad, as well as homes being sold as a part of estate sales. Many of the repairs needed, such as damaged hardwood floors and torn out electrical panels, were easily identifiable by the untrained eye. However, discovering repairs such as water damaged siding behind the backyard deck, was harder to spot and required a professional to identify the issue. Thankfully, one of our partners was a contractor and we were able to save on the home inspection expenses.
Carefully evaluating a home of interest, the property disclosure statement and any other information shared by the homeowner and REALTOR®, is a necessary step before making an offer. One of the first payments you will make, after your offer is accepted and the signed purchase agreement is delivered, is the earnest money deposit. This initial investment helps the seller determine your commitment to purchasing the home. So the larger the deposit, the more confident the seller will feel about accepting your offer. The contract allows for contingency clauses to account for the short time frame allotted for hiring a professional inspector or time needed to qualify for a loan. If there are unacceptable findings during the inspection or you are not able qualify for a loan, then you can legally back out of the contract. However, if you decide not to purchase the property after the contingency periods expires, the homeowner technically has a right to keep the earnest money. The good news is that the earnest money will count towards your down payment. If you planned for a $10,000 down payment, and had an earnest money deposit of $1,000, you will only need $9,000 when you close on the home.
Confident Home Buyer Tool Kit Tips:
Expenses such as a home inspection, home appraisal and in some cases your earnest money deposit will be non-refundable. Doing your due diligence before signing a contract will be in your best interest.
The earnest money deposit for a median priced residential home is usually about 1‒2% of the purchase price. Therefore, a buyer’s earnest money can be $2000–$4000 for a $200,000 home.
The costs for inspections range anywhere from $350‒$800 and will vary based on factors such as the home’s size and whether the home has a crawl space or slab foundation. In addition, if you have to conduct Radon or Mold tests, costs will be $200‒$300 for each test.
Appraisals can range from $450 to $600.
Start budgeting for these costs in Step 3 of the Confident Home Buyer Tool Kit. Membership is free!
For budgeting purposes, the earnest money deposit for a median priced residential home is usually about 1‒2% of the purchase price. Therefore, a buyer’s earnest money can be $2000‒$4000 for a $200,000 home. You can choose to pay a higher or lower deposit depending on whether you are in a seller’s market (low inventory, high number of buyers) or a buyer’s market (high inventory, low number of buyers). Work with your REALTOR® to determine the state of the current market.
If you included a contingency period for a home inspection, then be sure that you are hiring a qualified inspector. A professional inspection is highly recommended since the average age of homes in the U.S. is about 40 years old.[1] A good inspector can help you identify a potential money pit and can mean the difference between being a happy or unhappy homeowner. The costs for inspections range anywhere from $350‒$800 and will vary based on factors such as the home’s size and whether the home has a crawl space or slab foundation. In addition, if you have to conduct Radon or Mold tests, costs will be $200‒$300 for each test. Payment for the service will be due as soon as the job is complete so be sure to budget for these costs. The inspection expense is not refundable so be sure that you are evaluating and making an offer on the right property.
Another expense that you may incur before closing, unless it is negotiated ahead of time to be paid by the seller, is the cost to appraise the property. Since the home is used as collateral to secure the loan, the lender will order the appraisal to ensure that the home is worth the asking price. The outcome can determine whether the lender gives you the exact pre-approved loan amount or less. Appraisals can range from $450 to $600. Like the home inspection, the cost for the appraisal is also non-refundable so be sure that an appraisal is not ordered if you decide that you will not move forward with purchasing a home after the inspection.
Expenses such as a home inspection, home appraisal and in some cases your earnest money deposit will be non-refundable. Purchasing a home will be one of the largest investments you will make during your lifetime, so doing your due diligence before signing a contract will be in your best interest. Let’s get started with budgeting for these costs in Step 3 of the Confident Home Buyer Tool Kit.
Denise Johnson, MBA, REALTOR®, is often referred to as a "Data Nerd" by family and friends and has a gift for seeing the important facts of a situation. She aims to fit all the pieces of the jigsaw puzzle together into a complete picture, making it easier for herself or anyone she counsels to make sound and rapid decisions.
After 10+ years of working for multiple Fortune 500 and 1000 companies across Logistics, Finance and Marketing, Denise made the leap into the Real Estate Industry hoping to help others achieve their homeownership desires. She can remember purchasing her first home at the age of 23, and it being both a time of joy and stress because she didn't fully understand the process and the implications of owning a home. Since then, she has owned and sold multiple personal properties, including selling an investment home that turned from a Rehab to a New Construction project in 2020. She has a desire to share all that she has learned and continues to learn with future customers to tip the scales towards a joyous homeownership and home-selling experience.
When she is not busy finding solutions in business, she loves large get-togethers with friends and family, international travel adventures with her hubby, and growing her passion for gardening and cooking healthy recipes.
[1] 2019 American Housing Survey Data. Link to Website
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