When you buy a home, you have three options:

Buy a used home

Purchase a prebuilt new home

Hire a Contractor to build your home

Buy A Used Home – When you find the home you’d like to purchase, obtain the owner’s permission and hire a licensed Home Inspector (see the Prepurchase Inspection Checklist below) and ask about and verify his background as best you can.  If the Home Inspector finds damage, you should ask for permission to obtain an estimate from a licensed Contractor in order to secure an estimate for repairs.  Use these reports as leverage to bargain on the selling price. To protect yourself, you can write in additional terms into your prepurchase/purchase agreement(s).  The most stringent home loans (VA Home Loans) require a Termite Inspection and appropriate repairs, a Water Inspection and appropriate water treatment remedies (for homes with wells), and a Percolation Test (for homes with septic systems or cesspools).  Most municipalities require the Percolation Test for in-ground waste treatment.  If your municipality does not require any of these, you should write them into your prepurchase/purchase agreement.  If the home you are purchasing requires a lot of work to make it “livable,” consider asking the seller to pay all of the closing costs, and also include this detail on your prepurchase/purchase agreement(s); this is not typical, but sometiems the financial burden for renovating a home is too great without every bit of help you can muster.  Before you purchase the home, to further protect yourself, purchase a Home Warranty insurance policy to cover hidden problems with the home, as well as to cover potentially devastating costs for repairing the home for a short period of time as you are acclimating to the home.

Look for homes that are being sold because the previous owner has entered a Nursing Home (estate sale).  The families of these people will not be collecting any of the proceeds of the sale of the home because the monies will go to the Nursing Home to pay for the care of the patient/owner of the home.  Since the family or a friend will be executing the sale, you can bargain for any price you like (within reason) because they already know that the money is going to the Nursing Home and not to them.  This is where your biggest bargaining chip lies – you can truly assess how much the cost of making the home “liveable” again will run and deduct that amount from what you believe the true value of the home is in its current state (almost without consideration of their “asking price”), and make an offer for that adjusted amount.  Unless you have competition, and these days there’s not much competition for buying a home, you win!

Purchase A Prebuilt New Home – You can save a lot of money when you buy a new prebuilt home BUT you won’t have the ability to see what went into the construction.  If you decide to do this, make sure you get a good Home Warranty that is usually provided by the Contractor – I recommend 5 years minimum, and make sure that this detail is included in writing on your prepurchase/purchase agreement(s).  If this option is not available, purchase a Home Warranty insurance policy before you purchase the home, which will insure you in case things don’t work as they should.  Since the Contractor should have warranted his own work, see if the Contractor will deduct the cost of this policy from the purchase price of the home, and make sure you get this in writing on your prepurchase/purchase agreement(s).

Build Your Own Home – This is the worst on your budget.  If you’ve got your heart set on having your home built, make sure you have a “closed” contract.  No contract is ever iron-clad, but you can set conditions that will restrict most contracts to the equivalent of plus or minus (+/-) 10 to 20%.  To protect yourself from rising cost, you MUST agree on exactly what you want and you MUST NOT MAKE CHANGES, that means “No” to better cabinets, “No” to better floors, and “No” to changing the size or configuration of a room or closet.

My Up-Front Tip if you insist on building is to make sure that all of the exhaust vents that protrude from your roof will be located on the shady side of your roof – the reason – if you ever decide to obtain solar heating panels on your roof to generate electricity, you’ll have a clean slate for installing them and no additional preparation to do before your contractor can start the installation.

Once you make any changes after your original agreement, everything will cascade because a Contractor is more than willing in most cases to oblige you because it means more money in his pockets.

If the Contractor approaches you to ask you whether you prefer “this” or “that,” be sure to ask him if what you are discussing is a change or deviation from the original agreement that would subject you to additional costs; in most instances, the Contractor will be forthright and tell you that what you’re discussing will mean more money added to the final cost, but always ask.

Sometimes changes need to be made because original equipment is not available and substitutions need to be made; when this occurs, the Contractor is obliged to replace the original equipment with equal value equipment – if you are told the replacement equipment will cost more, simply tell him to find an equal value replacement and tell him you aren’t willing to add costs to the job.  Remember, it is not your fault that the Contractor was relying on products that were not a solid source for him.  Make sure you get a chance to see the potential replacement equipment before the contractor purchases it so that you have the chance to evaluate whether or not it is of equal value in your opinion.

If it appears that the costs for replacement equipment is threatening your project, you can offer to shop yourself to see if you can find equipment that falls within the original price range; it is better for you to help the Contractor if you can to keep your costs down.  In some instances, you might ask him to delete the cost of the item from the cost of the home but leave in his cost for installation, secure the equipment yourself, and let the Contractor install it.

The best advice I can give you here is to mull over every detail of your home’s specifications before you sign the dotted line.

To close your contract, specify that the end-cost of the home cannot exceed the set price unless the cost of materials increase.  (Wisdom would dictate that the same should be true if the cost of materials decrease, but I want to meet the Contractor that agrees to that!)  To do this, you’ll need your Contractor’s original bid to specify the prices of basic building materials that he has bid so that you can compare any “claimed” difference to his original bid.

To protect yourself from Contractors who take the money and run, never pay all your money up front.  Typically, 1/3 of the cost of building your home would be paid up front for building materials, another 1/3 of the money at the half-way mark (this needs to be specified as a specific point that you both agree on), and the final 1/3 should be paid when you close the deal on the home.  I know people who have paid more than these amounts who have lost everything because it’s almost impossible to get your money back if the Contractor applied ANY AMOUNT OF LABOR, or if a year has not elapsed since you paid the Contractor!

One extra thing that you should add to the terms of the purchase (prepurchase/purchase agreement[s]) are a specific completion date.  Let’s say you call for the home construction to be complete and ready to move in by 7/1/2010, and the contractor has not finished, but you need a place to live – if you specify that for every day the Contractor exceeds the completion date that he must pay you 0 per day, then you would at least be able to live in a motel room while you are waiting.  If your household goods are in storage, you may need to collect more money per day to cover the additional expenses.  This can be payable each day or deducted from the purchase price of the home, as you feel would best suit your needs.

Make sure you get a good Home Warranty that is usually provided by the Contractor – I recommend 5 years minimum, and make sure this is in writing on your prepurchase/purchase agreement(s).  If this option is not available, before you purchase the home, purchase a Home Warranty insurance policy that will insure you in case things don’t work as they should, and (since the Contractor should have warranted his own work), see if the Contractor will deduct the cost of this policy from the purchase price of the home.

Prepurchase Inspection Checklist – Here is a comprehensive checklist of things either you or your Home Inspector should investigate before considering making an offer to purchase a house.

Bargaining Chips:

Under the house, check that there are adequate vents to let the home breathe so that it never becomes moldy due to moisture or water accumulation; if not, obtain an estimate to install them; use this info to devalue the house.

Under the house, touch the wood and walls to see if they feel moist or damp, and if so, check to see if vents are open; if so, there is a moisture problem under the home that needs to be resolved by either installing extra vents under the house, by excavating and sealing the exterior basement walls, by installing a weeping system and sump pump, or by using all three methods; obtain an estimate to repair the problem and be sure to look for signs of mold.  If the vents are closed, return on a day when there has not been rain for a good amount of time to see if the wood and walls are still moist or damp.

Under the house, check for existence of sump pumps and ask the owner what types of problems caused them to install it; use info to reduce the value of the house, depending on the nature of the problem. Under the house, check for cracks in the foundation wall; use info to reduce the value of the house unless the cracks are completely through the foundation; obtain estimates for repairs if the cracks run completely through the basement walls.

Under the house, check for aluminum flashing at the top of the basement wall that provides a separation between the basement wall and the wooden sill plate foundation of the house; this metal divider should be angled downward over each side of the cement foundation in order to deter termites from travelling up into the walls; use info to reduce the value of the house.

Turn on the water at each sink and bathtub in the house, then go under the house to check for leaks in plumbing; obtain repair estimates and use info to reduce the value of the house.

Under the house, check for small holes measuring approximately 1/16th to 1/8th inch in any of the wood; if you find them, you will probably see a lot of them, not just one.  Additionally, if you find them, you will probably see a collection of powder at the bottom of each tiny hole, which is powdered wood that is created by Powder Post Beetles.  If found, the home will need a thorough treatment and follow-up care from a qualified exterminator.  If found, wear a dust mask and brush off the powder away so that you will be able to see if any new powder collects under the holes; no new powder means extermination was effective (recheck in 3-6 months).  Make sure these treatments are performed prior to purchase and get a copy of the receipt for treatment.

Under the house, check for mud tunnels on the basement walls that are perpendicular to the ground and to the house – these are Termite trails (they should be removed after extermination); if found, the house will need a thorough treatment and follow-up care from a qualified exterminator.  Make sure these treatments are performed prior to purchase and get a copy of the receipt for treatment.

In the attic, check for adequate ventillation that keeps the attic from being too hot; a hot attic increases air conditioning bills; if no vents exist, use the detail to devalue the asking price.

In the attic, check for moist or discolored wood that can indicate a leaky roof (please note that discoloration alone could have been a previous leak that has been repaired); if in doubt, come back to check the attic on a very rainy day; make sure leaks are repaired prior to purchase, and get a copy of the receipt.

In the house, check for musty or moldy smells, which can indicate hidden mold.

In the house, turn on all of the faucets in the home at once and flush all toilets to see if all water flows well from each fixture; the more water you can make flow at once, the better so that you can see how the water flows under heavy demand; additionally, activate the washing machine to see if water flows into the tub, and turn on the dryer to see if it has electricity and that the heat source is working (if gas); cite any inadequate flow of water as a bargaining chip to devalue the house (reason: the house will probably require new plumbing).

In the house, check under all sinks for evidence of leaks and turn on the hot and cold water full force and observe incoming and outgoing plumbing; stains can indicate previously-repaired leaks; check for moisture on the surface directly underneath the plumbing; make sure leaks are repaired prior to purchase and get a copy of the receipt.

In the kitchen, turn on major appliances, electric stove, microwave, and toaster all at once to see if the electricity fails by tripping a circuit breaker; make sure basic electrical problems are repaired prior to purchase and get a copy of the receipt.

Bring a plug-in circuit checker and plug it into each socket in the house to verify the validity of the electrical wiring for polarity and for ground (follow the device’s instructions); additionally, turn on the lights in each room, turn on lamps, and turn on window air conditioners if there are any to make sure they have operating electricity; use your findings to devalue the house based on a potential need for rewiring.

Walk heavily in each room of the house to see if the floors spring, which indicates structural failure; use findings to devalue the house.

Check for cracks on walls in drywall or plaster, which means foundation problems usually from a deterioated sill plates, primary supports, or concrete foundation or footing; obtain an estimate for repair and to devalue the house.

Check for furniture that does not sit parallel to the walls, or furniture that has been shimmed on the front in order to make it sit parallel to the wall – this indicates a floor that is sagging, and usually means that floor joists are compromised by insect damage, improper size of floor joist lumber, improper spacing of floor joist lumber, and probability that the floor joists need to be repaired; use findings to devalue the house.

Items to recheck another day:

If the vents under the house were closed and the walls or wood were damp, return several days later when there hasn’t been any rain and touch the walls and wood to see if they still feel moist or damp; if so, obtain an estimate for repairs (resolve by installing extra vents under the house, by excavating and sealing the exterior basement walls, by installing a weeping system and sump pump, or by using all three methods).

Under the house, check for moist soil on the ground; return another day when there hasn’t been rain for a significant period of time to see if the soil dried. In the attic,

if you found discolored wood that could indicate a leaky roof, come back to check the attic on a very rainy day; if there is a leak, make sure it is repaired before you purchase the home, and obtain a copy of the receipt.

Under the house, recheck the Powder Post Beetle’s small holes to see if any new powder collects under the holes (recheck in 3-6 months).

Ask the exterminator to remove the Termite trails after extermination to avoid being exposed to the insecticides.

Don’t buy this house unless these repairs are made prior to purchase:

Mold anywhere in the house.

Leaks in the roof.

Plumbing leaks.

Minor electrical repairs.

Exceptions to the above “don’t buy this house” list should be made if you intend to perform a complete renovation to the house.  However, I would still require the seller to pay for mold removal, which should include removal of mold by a qualified service, and also should include mold removal if mold is discovered under walls during your renovations.

Additionally, I would require that roofing leaks be repaired prior to purchase unless your renovations involve restructuring the roof. Be sure to write expected repairs into your prepurchase/purchase agreements, and be sure to specify that recepts for work will be provided to you, and that the repairs are performed by qualified services, and that repairs will have a reasonable warranty.  Repairs by qualified repair services generally do provide a reasonable warranty.

See my related article:  Tips For Homeowners: Home Maintenance

See my related article:  Tips For Homeowners: Save Big On Big Projects Before You Start Them

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