Home Purchase 411: The Top Five Things You Might Not Know

In homebuying, what you don’t know can indeed hurt you in the long run.

If you’re in the market for a new home you may be pondering many things: Will I get the best interest rate? What will my commute to work be like? What can we do with the basement? Will the primary bedroom closet fit all my clothes? Is there a cul-de-sac for the kids to play? Will I be able to afford the loan payment?

All important considerations, no doubt. But there are some not-so-obvious aspects of buying a home – one of largest, most important, and expensive transactions most people will undertake – that buyers should consider to minimize risk for what should be a happy and positive life milestone.

Keith Barrett, an attorney and founder of Vesta Settlements, recently met with many of our agents to discuss his Top Five things that buyers should be aware of.

Title Insurance

Title is the formal right of ownership of property; title insurance protects and insures an owner’s (or lender’s) interest in real property. Specifically, it is a policy of indemnification (“making whole”) against loss caused by any covered defect in the title. Title insurance is unique in its scope because where most insurance policies protect against future unknown events, title insurance is retrospective and looks back in history (generally back 40 years) at what has occurred to land or a property regarding ownership. It’s also unique in that the premium is paid once, rather than monthly or annual premiums like other insurance policies.

Why is this important? Title insurance protects a seller for the rest of their life because seller’s maintain liability related to the warranty they provide in the deed of conveyance.. As a result, the title policy protects the seller even after the property has sold … for all eternity! And even though you should permanently retain all title insurance documents, don’t worry if you happen to lose the physical copy of your title insurance as there will likely be a record at one the largest four title insurance companies.

There are two types of title policies: an optional Owner’s Policy (protects the homebuyer for life, with a one-time premium based on the purchase price) and a required Lender’s Policy (protects the lender until the loan is paid off, with a one-time premium based on the loan amount). And although title insurance is optional, it’s an expensive gamble to skip it. Barrett advises buyers ask themselves, “Am I willing to self-insure here?”

He used an example of the “extended warranties” that are pitched when buying appliances. If a $100 printer breaks down and you don’t have a warranty, it’s not that big a hit to buy another printer and be out a couple of hundred dollars. But when you’re looking at a $900,000 home for which you’ve put down a hefty downpayment of $100-200K, is that something you want to be on the hook for if a title claim arises.?

(Here’s an interesting bit of local history related to deeds: Barrett shared that most of our region’s land and property records were destroyed during the Civil War, but Loudoun County clerks had time to collect their records and hide them in various places throughout Virginia. This means Loudoun County still has their original records from more than 200 years ago! Worth taking a visit to tour this local bit of national history.)

Caveat Emptor…Buyer Beware!

If you’re a buyer in Virginia, the onus is on you to do your due diligence before purchasing a home to ensure the property is of suitable type and condition. While Virginia law requires a seller to provide a Residential Property Disclosure, it’s really a disclaimer statement and not a disclosure. A seller makes no representation to the buyer as to the condition of the property, adjacent parcels, covenants, or restrictions. Generally a seller will only be liable in the event actions were taken to conceal a condition or evidence of other fraudulent activities.

Why is this important?

Buyers might assume that sellers have a legal obligation to tell them about problems in a home, but in reality, in Virginia a seller doesn’t have an obligation to disclose known material adverse facts about the property and it’s up to the buyer to conduct inspections and seek out information. By law, agents are held to a higher standard for disclosure than their seller clients. Barrett offered an example of how disclosure works, such as a broken washing machine, by answering these five questions:

Is it material to a buyer?
Is it a fact?
Is it adverse?
Is it regarding the physical condition of the property?
Does the agent have actual knowledge of this?

Surveys

Imagine you are walking the backyard of a property and you see a traditional white-picket fence. You might assume that everything inside the fence is part of the property and everything outside the fence is not. But without a survey, you have no actual knowledge of where a property line actually falls.

A survey is a physical depiction of the property including boundary lines and other characteristics such as patios, sheds, decks, driveways, fences, setback lines and, possibly, easements. In the example above, a survey could reveal that the fence was in fact built on the neighbor’s property and, therefore, certain property inside the fenceline is not actually the property.

Why is this important? Conducting a property survey is not required by lenders, but that doesn’t mean buyers should skip one. Through the American Land Title Association, lenders receive survey coverage in their final title policies whether the buyer gets a survey or not. But the lender’s coverage does not cover a buyer.

Barrett joked that, despite the great expense and work that it takes to buy a home in our region, “Sometimes I feel like people do more due diligence buying a smartphone than they do buying an $800,000 or $900,000 home.” He shared that the average cost of a survey runs around $350, a mere pittance when thinking about the consequences of having to move a driveway or a shed because it fell a few feet into over a boundary line.

Taking Title

When two or more people take title to property, a tenancy will have to be selected from one of these three options:

Tenancy by the Entirety – reserved for married couples only. Includes rights of survivorship and basic asset protection to the extent the creditors of only one spouse cannot lien the property under this tenancy.
Joint Tenants – with this tenancy, each tenant holds equal undivided shares in the property. Includes rights of survivorship.
Tenants in Common – each tenant holds a proportionate undivided interest in the property, but it does not have to be equal shares. (Note that this is the default tenancy in Virginia.)

Why is this important? If you’re single or married, there’s very little to decide about tenancy. But when you have more than one buyer and they are not married it can have significant consequences down the road if the parties don’t understand how each tenancy plays out and how the home as an asset might be divided or protected in the case of a claim against assets (ex: creditors).

Home Inspections

As we saw above in “Caveat Emptor,” buyers need to do their homework about the state and condition of the property to uncover any issues. But most buyers don’t know what to look for when it comes to major systems like electrical, HVAC, plumbing, roofing, and foundations.

Why is this important? Without knowing the condition of a property, a buyer could get a nasty surprise when something major fails. Even in a competitive market, it’s critical to bring in an expert home inspector to do a thorough review of the home, looking at the age and condition of major systems and look for future issues that could arise. If a buyer wants to make an offer without including a home inspection contingency, ask to conduct a pre-offer inspection. That way the buyer is informed what may need to be updated, repaired, or replaced and can move forward with an offer or move onto a different property.

While homebuyers have a lot to worry about, these five areas are not normally top of mind. But giving these topics more thought and consideration will reduce headaches later. To make sure you’re working with an agent who will ask the out-of-the-ordinary questions to ensure you are informed about tricky subjects, reach out to any of our experts at Corcoran McEnearney to help keep trouble at bay.

Take a look at our website for all of our listings available throughout Washington, D.C., Maryland, and Virginia.