Avoiding a real estate 'lemon'

Q: I've been wanting to buy a home for years, and now seems to be the perfect time, but I'm still procrastinating. I have a deep-seated fear that I'll buy a home that has hidden problems. I'm afraid of making such a major, long-term financial commitment and then -- surprise! -- the foundation has a problem, or the roof is bad. How do people get past these fears?

A: A number of things about home buying should be uncomfortable if you are treating the matter with the appropriate gravity. To make the momentous move from procrastinator to property owner, you must gain a certain level of comfort and control around those items.

Mindset Management

Many smart homebuyers are concerned about the prospect of buying a "lemon" of a house. Horror stories abound of unsuspecting buyers closing escrow only moments before the house starts to fall apart, piece-by-piece. In fact, years ago, Richard Pryor documented a bizarrely extreme and hilarious version of this phenomenon in the film "Moving."

To get a comfort level around the issue of potential future repairs and surprises, so that you can activate yourself on the path to homeownership, rethink the process of house hunting and getting into contract. Shopping for a home and even getting into contract does not lock you in, irretrievably, to purchasing a specific home, warts and all.

Rather, the house hunt and contract are like a first phase vetting that sets the stage for your due diligence into the condition of the property. In a wisely conducted transaction (see Need-to-Knows, below, for how to conduct your transaction wisely), the contract simply secures the property for you, at the price terms you can live with, so that you can acquire the information you need to avoid big surprises after close of escrow. If you structure your deal correctly -- including contingencies, disclosures, inspections and a home warranty -- you will slash the risk of having later condition problems pop up.

Even when you buy a home as-is, in most cases you are still entitled to obtain inspections, review all the sellers' disclosures, and back out of the deal if your investigations reveal condition issues that you are not willing and able to take on. As-is really means that you agree to take (and the seller agrees to sell) the property in its current condition at a certain price, if you elect to close the transaction after you have completed your investigations into the property.

Your house hunt and contract do not lock you into buying a problem property, and it doesn't make sense to thoroughly investigate the property until you get into contract. As such, if you want to and are ready to buy, don't let the fear of a lemon stop you from getting a loan approval and starting to look. When you've found a place and its time to formulate your offer, you can structure your purchase contract to protect yourself from buying a lemon.

Need-to-Knows and Action Items

There are a number of protective elements that you can, and should, build into your transaction and your ongoing smart ownership strategy to dramatically minimize (a) the likelihood that you will end up with major, surprise problems with your home, and (b) your exposure to big-dollar-amount repairs in the event surprise problems do arise. ...CONTINUED

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