How to Not Buy a Money Pit
In 2021’s competitive housing market, buyers are anxious to get a home under contract. With low inventory, frequent bidding wars, and buyers bending over backwards to appease sellers, there’s a lot of pressure to make an offer quickly and have it accepted. But what if the house you have under contract starts to look a little less dreamy after the inspection? That’s exactly the situation our client, Alex, found himself in last month.
First-time homebuyer Alex toured 36 homes while hunting for his dream house. After weeks of searching, he finally found what seemed to be “the one.” The rehabbed brick home was in a lovely, quiet neighborhood next to a park and boasted some eye-catching upgrades. Everything from the roof to the windows to the floor had been freshly updated; both bathrooms were brand new and crucial systems like the HVAC and hot water were all replaced during the rehab. What really caught Alex’s attention was the sparkling white chef’s kitchen complete with quartz countertops, gleaming stainless-steel appliances, designer touches, and - most importantly - an upmarket stove ventilation hood, an uncommon find for a home at that price point. Avid cook Alex had finally found his dream home.
It wasn’t completely perfect, of course, but the pros outweighed the cons and Alex decided to jump in with an above-listing price offer. His offer was accepted, beating out several other potential buyers, and his home-buying journey moved on the the next phase: the inspection.
This is when the shine started to fade from this lovely rehabbed house. In the report, the inspector identified multiple “red flag” issues, the most severe of which included over a dozen cracked floor joists, wall defects, and foundation defects. Photos of the foundation damage were sent to a structural engineer who warned Alex that it would cost tens of thousands of dollars to repair, with even more expensive work required to solve the root cause of the foundation issues.
Unfortunately, scenarios like this aren’t uncommon with rehabbed or “flipped” homes. Flippers are in the business to make a profit and often focus their updates and repairs only on what can be seen during a walk through. Stainless steel and fresh paint frequently camouflage more serious issues that can cost a new homeowner tens of thousands down the line. Realtors call these homes “lipstick pigs.” Some of the common but expensive issues that show up in these homes are: poor drainage around the foundation leading to mold and foundation damage, aged and damaged roofs, buckling or cracked foundations and brickwork, old or non-functional HVAC and hot water systems, old and inefficient windows, and an obsolete home layout (more important and much harder to fix than you might realize while walking through a well staged open house).
The bottom line for Alex was, well, the bottom line; the cost of fixing the structural damage meant that the actual cost of owning the rehabbed home was far outside of his comfort zone. He wanted out. We immediately helped him terminate the sale and got his earnest money returned to him in full. He was out the cost of the inspection, but it ultimately saved him tens of thousands of dollars.
Alex’s situation isn’t as uncommon as you might think. According to a national poll of realtors, some buyers will go through the inspection process five times before finding their dream home. Zelda has personally had several clients go through the process three times before finding “the one.”
“I call inspection periods the ‘weasel clause,’” says Zelda, “because sellers and listing agents know that buyers can and will use an inspection period, which gives them every right to legally ‘weasel out’ of the purchase contract if they find any objections in the condition of the home.”
In the current red-hot market, some buyers are being pressured to skip the inspection to sweeten their offer, but scenarios like the one Alex found himself in are exactly why the inspection period is one thing you shouldn’t budge on. Without the inspection, Alex wouldn’t have known there were major structural issues until he was in the home and on the hook for costly repairs.
Having the opportunity to reevaluate your decision to purchase a home can save you from more than just buckling foundations; our colleagues have had clients choose to cancel a sale for all kinds of reasons. The list includes: being upset the home was not as well maintained as it first appeared; having a very picky dad who was protecting his kids during their purchase; the home being farther from the city than they initially realized, and being disappointed that the home was “not as good as the ones on HGTV.”
The outcome was bittersweet for Alex:
“I would say the experience was extremely saddening, as I could see myself living happily in that home. The interior remodel appeared well done with high quality material. The initial impression of a quality remodel left me with the assumption that no sins would be found in the crawl space, but, unfortunately, that was not the case. The home inspection saved me from digging myself deep into a money pit, which I am very grateful for. But, it goes to show that in this market, sellers seem to be marketing homes that otherwise might not sell in a normal market and decorating them as what I call a ‘Sherwin-Williams Special,’ where brilliant white paint tends to attract buyers and hides the real underlying issues.“
Even in a seller’s market, you don’t have to settle for a “Sherwin-Williams Special,” as Alex put it. Working with an experienced realtor and approaching your home purchase with both eyes open can help you get in or out of the contract as painlessly as possible.
If you’re looking at any house but especially a rehabbed home, remember:
Keep an eye out for “lipstick pigs”; don’t let attractive upgrades distract you from larger issues.
Don’t waive your right to an inspection.
Don’t be afraid to walk away from a home if deal breakers turn up during the inspection.
The cost of a home inspection is far less than the cost to repair the defects it may uncover.
The moral of this home-buying story: not all that glitters is gold. Savvy buyers exercise due diligence by taking advantage of their right to an inspection period. It can be difficult when you’re falling in love with a gorgeous rehabbed home, but balancing the emotional aspects of house hunting against your financial bottom line will help you land your dream home in the long run.
Ready To Buy a Home? Give Us a Call.
One of the best ways to avoid buying a money pit is to work with a great realtor. A savvy realtor will connect you with a great home inspector and can help you spot a lipstick pig before your money is on the line. If you’re ready to assemble your rock-star real estate team, get in touch with Zelda Sheldon at Benchmark Realty. Our Real Estate Rock Star team is here to help you find your next home.