Every homeowner was a “first-time home buyer” at one time. Do you understand obsolescence?
When I bought my first home some 40+ years ago, there were no local home inspectors available to assist me. Like today, the inventory I had to choose from (in my price range) was limited and interest rates were over 13% on mortgages. All I knew was I wanted to invest in a primary home to build wealth. Fast forward to today, and nothing has changed; owning a home is the single best investment any person can make but not everyone is ready for home ownership.
Buying a Home
Buying a home is exciting and frustrating at the same time. It is an emotional time for most and decisions must be made quickly to secure the home and get to closing. Few can navigate this maze without the support and guidance of an experienced real estate agent.
If you are thinking of buying your first home, congratulations on making the decision to invest in your future. Financially, home ownership is always the best choice provided you make the right decision on what property to purchase.
First-time homebuyers are guided by their mortgage brokers on what they can “afford” to pay each month for the mortgage payment, taxes, and insurance. However, no one advises you on what short-term repair costs may be or the cost of maintenance and repairs in owning the home. Inspection contingencies in most real estate contracts today do not provide buyers with ample time to obtain good repair estimates. Often, buyers have no more than five days to perform due diligence inspections. That is rarely enough time for most buyers.
First-time home buyers who are buying resale homes need to understand obsolescence. An aged home will have wear and tear. Most buyers buy resale homes for the price, lot appeal, and/or location. Many resale homes may have components that are less than optimal or require replacement such as older AC systems, water heaters, windows, etc. Our insurance carriers today may require the replacement of some components such as roofs, electrical, plumbing, or HVAC units as a condition of homeowners insurance. New homeowners are generally shocked to learn the cost to replace or update these systems. Buyers today not only need to know if the home is habitable, but they also need to know if it is insurable!
When you are buying a resale home, you should expect most homes will have at least minor deficiencies related to wear and tear (obsolescence). Your property appraisal will reference or assign an obsolescence factor to the home. This is a general reference to how your home compares, across the board, to similar homes of size/age. For example, the appraiser may note the home has some water damage to the exterior or observe some wear on the roof and they may determine this home has obsolescence of 20% meaning they will appraise this home at 80% of the market value of similar homes. Home buyers should take the time to carefully review their appraisals to understand how the appraiser sees the home relative to other homes. This is insightful information most buyers fail to understand. Too many buyers simply view the appraisal in terms of whether it meets the lending criteria for the loan; unfortunately, real estate agents make the same mistake and generally fail to discuss the actual appraisal with their clients. In a more perfect world, the appraiser would review the appraisal with the buyer but that almost never happens.
Bridging the Information Gap
We try to bridge that information gap by providing obsolescence factors to the primary components in our home inspection reports. This helps our clients reach a better understanding of the overall condition of the primary components such as roofs, windows, siding, HVAC, electrical, and plumbing. We add to this by advising our clients to “budget for replacement” on items considered to be functional but at 75% obsolescence. Few home inspectors, for reasons I do not understand, report obsolescence to their clients. They may advise something needs repair or is not functional, but they don’t help you understand when you should “budget for replacement”. We think that is important information you should have.
Property360 provides qualified home inspections in the NE and Central areas of Florida including metro Jacksonville, St. Augustine, Gainesville, Lake City, Orlando, Daytona, Windermere, and most towns in between. To request an inspection, contact us at (904) 606-1570 today!