Home Buyer's Handbook

The Perfect Place

When you find the perfect house, you want to move in immediately. Before your heart races ahead of your head, and you ignore the old pipes or leaky roof, it is time to hire a professional to help you make your final decision. Now is the time to talk about the nitty gritty details of a home inspection and making an offer.

The Home Inspection

Once you buy a home, repairs can eat into your pocketbook, making the home of your dreams a “money pit.” Homes can have wet basements, shaky foundations, rotting roofs, and a multitude of other problems—even if they’re relatively new. But a thorough home inspection before you buy can keep you from getting stuck with the bill.

A buyer should insist upon hiring an inspector whose loyalty is to the buyer.

Invisible Enemies

Unlike watermarks, some defects can be difficult to see. For example, radon (a gas emitted from the ground) has been discovered in dangerous levels in many Minnesota homes. A high level of radon may cause cancer. Not only is radon impossible to find without special detectors, it may be expensive to get rid of. Other potentially harmful “invisible enemies” include lead paint and asbestos.

Isn’t the Seller Required to Tell You About Problems?

Pursuant to some purchase agreements, the seller is required to note certain problems and environmental hazards, and state that certain mechanical systems are in working order. Sellers are also required by Minnesota law to make certain disclosures about wells and sewage treatment systems on the property.

In addition, in most arms-length transactions, the seller must disclose any information he or she has about the property that could significantly affect the buyer’s use of the property, unless the buyer waives this disclosure. A buyer can file a lawsuit against the seller for damages caused by violation of this law within two years of the closing date. Additionally, the seller and its agents have statutory, contractual, and tort duties which may provide a longer period of time to bring a claim.

However, a seller may not disclose everything and does not always know a problem exists. If you would like more information on selling a home, including more information on the seller’s disclosure requirements, the Minnesota Attorney General’s Office offers a free publication entitled The Home Seller’s Handbook.

What is a Truth-in-Housing Report?

Some Minnesota cities require a Truth-in-Housing Report that tells you the condition of the home based on the city’s housing code standards. The report is completed by a licensed evaluator. Some cities have limited requirements to meet, so don’t rely on this report alone.

Most communities that have this ordinance do not require the seller to make repairs. The intent of the report is to provide prospective home buyers with thorough, accurate information to assist them in making a good decision about buying a home. When a Truth-in-Housing Report is required, the seller must provide the report to all prospective buyers at the time of the showing.

If you have questions about a Truth-in-Housing Report for a particular home, contact the evaluator or the city in which the home is located.

Should You Pay for a Home Inspection?

Hiring a qualified inspector will protect you and help you feel confident about the condition of the home you’re buying. The home inspector you hire should identify any major plumbing, heating, electrical, structural, safety, and environmental problems. If a home inspector identifies numerous minor or major maintenance items, you may be able to negotiate the final sales price of the home with the existing owner.

There are several ways to do an inspection. You can hire a professional inspector or contractor. If you’re knowledgeable about construction, inspect the home yourself. An inspection should cover at least all of the items listed in the Inspection Checklist.

Where Do You Find a Good Inspector?

If you plan to hire a professional inspector, keep in mind they are not regulated by the state. Talk with friends and family about inspectors they’ve used. Your real estate agent may also be able to suggest someone. You can also check the Internet or yellow pages under “Building Inspection Services” or “Inspection Service.”

However you find your inspector, make sure you ask for references. Here are some other things to discuss with prospective inspectors:

• What training and experience do you have?
• How do you define major problems? Any repair over $500, $1,000 or $2,000?
• Do you stand behind the report, or is there a clause limiting your liability to the amount of the inspection fee?
• Have you ever written a report that caused a buyer to walk away from a sale?
• Do you carry professional liability insurance?

The price of home inspections varies considerably, so shop around. Be sure to ask the companies to list what they inspect. A word of caution about referrals from real estate agents—make sure the inspector is concerned about doing the job properly, not about getting more business. Some inspectors may be afraid to tell the truth for fear they will “blow the sale” and not receive referrals from the agent again.

A home inspection only takes a few hours, but is one of the best ways for you to learn about your new home. Tag along with the inspector and don’t hesitate to ask questions.

What if You Can’t Find a Professional Inspector?

If you live in a rural area, it may be difficult to find a professional inspector. A local building contractor may be able to inspect your home and may charge less than an inspector. Before you jump the gun and hire someone, ask a contractor the same questions that you would ask a professional building inspector. Be very clear that you are looking for someone to identify potential problems, not offering them a future contract to fix the problems. While you probably won’t get a written report and the work won’t be covered by insurance, you may save yourself money and trouble if a major problem is found.

What if the Property Doesn’t Pass Inspection?

The FHA and VA require their own appraisal and may ask a home seller to make repairs before the sale. But if a house does not pass a buyer’s independent inspection, and if the buyer has put an inspection contingency in the agreement, the buyer may cancel the purchase agreement. Otherwise, the seller and the buyer might have to negotiate who pays for repairs. (We’ll discuss more about contingencies later in this section.)

Making an Offer

Some people decide to buy a home within seconds of walking in. Even the most well-educated home buyers can’t ignore their hearts. The strings are pulled the second they see the garden and the bay window overlooking it, the fireplace at the end of a cozy living room, or the luxurious master bedroom and bathroom. We know it’s difficult, but try to keep your emotions in check when you’re bidding on a home. Your business savvy will have to ignore the tug of your heart strings to make a smart offer.

How Much Should You Bid on a Home?

Money isn’t the only consideration in home buying, though it usually appears near the top of the list! In making a bid, first prioritize your needs. Is it important for you to pay the lowest price possible? Or is the ability to move quickly your biggest concern? Your real estate agent can tell you what the typical neighborhood difference is between asking prices and bidding prices. This will help you know what to expect.

Your bid must be in writing and include:

• The price you offer to pay and how you plan to finance the purchase.
• The time period you’ll give the seller to accept or reject the bid.
• The date you want the seller to be obligated to close and give you possession of the home.

Bid High or Low?

You don’t need to offer to pay what a seller is asking for a home. Home buying is a game of negotiations. When sellers first put their homes on the market, they may ask for more than they are willing to take. Later, if the home hasn’t sold, the seller may be desperate to sell and could price the home below market value. The amount you offer depends on whether you think the asking price is high, low, or in line with market values in the neighborhood. Don’t worry about insulting the seller by bidding lower than the asking price. On the other hand, you may decide to bid higher if the home buying market is hot and homes are selling quickly, or if you really want to buy a certain home. A careful buyer may also wish to make an offer contingent upon an appraisal.

Understanding the Purchase Agreement

The purchase agreement is the major contract in home buying. It’s what you submit when you bid on a home and it becomes a binding legal contract if your offer is accepted. If you change your mind about buying the home after the seller has accepted your offer, prepare for a battle. The purchase agreement legally locks you into buying the house. You’ll probably have to pay hefty legal fees to try to get out of buying the home, and you may still be stuck with it in the end.

Read the purchase agreement thoroughly. If you don’t understand all of the provisions, you may wish to have an attorney with real estate experience review the purchase agreement with you before you sign it. A real estate agent may want to hurry you into signing it if another buyer is considering making an offer on the house you want to buy. Don’t be pressured. Understand the purchase agreement before you sign it!

There are two purchase agreement forms predominantly used in Minnesota residential transactions:

1. The Minnesota State Bar Association form approved by The Real Property Section; or
2. The form approved by the Minnesota Association of REALTORS®.

A Word About Contingencies

Contingencies are your safety net. Contingencies are conditions, or “what if…?” provisions, that you add to your purchase agreement. Carefully consider under what conditions you will and won’t buy the house by attaching contingencies that can make the agreement null and void. A real estate agent or an attorney can help you write your contingencies. Make sure it reflects your understanding of the conditions under which you’re willing to make the offer. To see a common contingency clause used by buyers, click here. You might want to use contingencies to allow you to cancel the purchase if:

• You aren’t accepted for a home loan.
• The house has structural, mechanical, or environmental defects that are discovered through your inspection.
• There are liens or other charges or claims on the property.
• The house appraisal comes in lower than the price you offered to pay.
• You can’t sell your current house.

Contingency Concern

It is important to note that some purchase agreements state that a seller is free to accept another offer while you’re waiting for your contingency(s) to be met. If another offer comes in, the seller can ask you to lift your contingency(s). If you are unable to lift the contingency(s), the seller can accept the other offer.

Arbitration

At the time you fill out the purchase agreement, you will likely be asked to sign an arbitration agreement. The arbitration agreement may be a separate document or it may be included as part of the purchase agreement. You don’t have to sign it. Signing or not signing won’t affect your purchase agreement. You can agree to arbitrate later.

So what is arbitration? In simple terms, it’s a system for settling out of court all differences or disputes relating to the sale of the property. An arbitrator will hear all sides of an argument and make a decision. Sound appealing? It is to those who think court is just another word for “high legal fees.” But that’s not always the case.

Disputes among buyers, sellers, and agents are often simple misunderstandings that involve a limited amount of money. Maybe you thought the washer and dryer came with the house, but the sellers didn’t think so. If you can’t agree on a solution, you’ll have to go to court, submit the dispute to arbitration, or use another dispute resolution process. However, if you sign an arbitration agreement, it is binding and you waive your rights to pursue any action in court. In addition, some arbitration agreements may shorten the period of time to file claims and make limit the remedies available.

Arbitration hearings are often held at the homesite. Usually an arbitrator will pick a winner—the buyer, seller, broker, or agent. Keep in mind that arbitrators aren’t bound by legal rules. It is next to impossible to appeal their decisions. Make sure you study the pros and cons of arbitration closely before you sign any agreement. In addition, keep in mind that there are fees involved with arbitration. Some consumer advocates have raised questions about the effectiveness of arbitration in resolving homeowners’ disputes.

If you don’t sign the arbitration agreement you can often have your case resolved quickly and inexpensively in conciliation or “small claims” court. Currently, judges in conciliation court can decide cases involving disputes up to $15,000 (this amount can change). If you would like more information on conciliation court, the Minnesota Attorney General’s Office offers a free publication entitled Conciliation Court: A User’s Guide to Small Claims Court.

If you sign an arbitration agreement at the time you sign the purchase agreement, you will be committing yourself to a particular method of dispute resolution before you know what the dispute is about. And you will be giving up the right to go to court to assert specific legal rights you may have if you find yourself in a dispute. For this reason, you may want to consider waiting until a dispute arises and then choose a method of dispute resolution—whether that method is arbitration, mediation, conciliation court, or district court.