Category Archives: New Construction

How to Find Open Permits
on the Property You Want to Buy

Sandy Gadow

As a potential Buyer, you may have have no reason to suspect that an outstanding permit exists on a home you intend to purchase. After all, repair or remodel work may not be obvious during a visual inspection of the property and standard purchase contracts often do not include a contingency clause for verification of open permits.

Buyers rarely request that the seller disclose work that was performed years ago. The outstanding-permit issue may lay dormant until the new owner tries to modify an electric meter, remodel a room or repair a heating system, only to find that previous work has not been officially inspected and approved.

Since open permits or building code violations will not be listed in the preliminary title report nor be covered by the title insurance policy, it is important to clear up unpermitted work early on and avoid a possible delay in the closing.

Daniel and Janet were in the final stages of selling their house, when they awoke in the middle of the night  to the sound of a loud alarm.  Daniel called 911, the fire brigade arrived to discover that the home’s previous owner had put in an alarm system that was hidden from view and incorrectly installed. A permit for the work had never been closed out. Daniel and Janet were obligated to either have the system removed or correct the faulty installation before their sale of their home could go through.

Work done without a permit can also cause problems for a new owner. The residential alteration may have been completed according to the local building code, but if no permit was filed, the new owner may be liable for a fine. And if the work is found to not be up to code, the new owner will be required to fix the problem, bring the alteration up to standard and get a final inspection.

There are several reasons why previous homeowners did not obtain a permit. The owners may have used a local handyman to install a washing machine inside a small closet — a job that required new plumbing and electrical work but that would not be visible when the closet door was closed. The owners may have felt that a permit was not needed because — in their opinion — the job was relatively insignificant and took only a few days to complete.

In another scenario, the owners may have added a fence to their back yard and not have been aware that an ordinance required a permit for fences over a certain height.

Sometimes owners may avoid securing a permit either to get around paying the fees or because they are afraid that their property taxes might rise if the authorities become aware of their remodeling work. Or owners who did the work themselves may have been confident the job was done correctly and didn’t see the need to apply for a permit or submit to an inspection.

Before taking a listing, many real estate agents will ask Sellers if they are aware of any open permits that exist on the property. And then they will inquire if any upgrades or changes have been made that would have required a building permit.

Agents may also ask the local title company to run a courtesy permit history search, which should reveal all permits — whether pending or closed — on a property. In some parts of the country — such as Florida, where weather-related natural disasters have caused large-scale emergency repair work to be done on short notice — a permit search is common practice whenever a property sells.

Buyers can take the initiative and look up the permit history of a property by contacting the local regulatory building department for their area. A municipal search can also reveal unpermitted work.

When you hire a licensed contractor, he or she will be responsible for obtaining a permit for the work to be performed and closing out the permit after the job is completed. If you are doing remodeling work, large or small, remember to ask your contractor to give you a copy of the

closed permit for your files.

Use Contingencies To Protect Your Right To Cancel a Sale

Sandy Gadow

Kristen and Ben had been looking for the right property to buy for over six months. They finally found a home that seemed to be about perfect, so they put down a deposit and signed a Purchase and Sales Agreement.They were excited to have their property search over with, but they still wondered if they had made the right choice. The house would be the biggest purchase they had ever made, a lot of money was involved, and they  wanted to have an option available if for some reason they changed their mind.

“Contingencies” written into a Purchase Contract are one of the best ways to insure that you will have way to cancel the sale during the contingency period when inspections are made and the issues are either removed or resolved between the Buyer and Seller.

Contingencies will contain a time limit in which to fulfill the task. For example, an inspection contingency may give you 10 days in which to obtain and approve a pest or termite control report, a building inspection unless the property is purchased in “as is” condition.  A contingency clause  may allow 5 to 10 days for you to obtain a written loan commitment. The seller is generally given a certain number of days in which to deliver “marketable title” or a title report to the buyer. You then can review the exceptions listed in this report, and dispute any items which are in question. One common example of a title exception may be an easement. For example. If you plan to add a swimming pool in an area where an easement exists, you will want to be sure this will be possible.

Once a contingency has been approved, both the you and  the Seller sign a document removing that contingency from the purchase contract. This agreement should be given to your closing agent and real estate representative. If the deadline for a contingency arrives, and both parties do not sign off on that contingency, this failure to act serves as acceptance of the contingency. For this reason, it is important to keep a calendar of the dates for removal of each contingency.

Contingencies help prevent problems at closing by eliminating last minute disputes covering inspections, the buyer’s inability to obtain financing, or repair work not being done according to contingency specifications.

  Almost no contract automatically includes a clause that determines what will happen in case of death, since buyers assume your heirs (or the executor) will step up to close the deal. And, if the agreement is “silent” on what happens in case of illness or death, the contract continues to be enforceable, says real estate attorney Sam Tamkin, of Lawproblems.com. 

A default clause describes what happens when a Buyer or Seller defaults under the contract. If the case goes to trial, a judge will decide what remedies are available. Some contracts provide that in case of default, the parties will go to arbitration. Your attorney should review the agreement to see whether everything was done properly. If not, then you may be able to cancel the agreement.

Common Contingencies

  • A financing contingency allows a specified amount of time for the Buyer to obtain a loan commitment and acceptable financing terms. These can be as specific as a designated interest rate or loan term. If not approved exactly as stated, the buyer has the option to cancel.
  • An inspection contingency, depending on your state law, can be written to include property inspections that cover possible structural problems or material defects. It can specify who will pay for necessary repairs, and to what extent each party is willing to pay for those repairs. This can also include termite damage; the presence of radon, lead or asbestos; and whether the property is in a flood or an earthquake zone.
  • Attorney approval means the contract is subject to passing legal scrutiny. That can include an attorney review, title report or any other legal paperwork (such as condominium documents) that relate to the purchase.
  • The sale can subject to the approval of a condominium or co-op board.
  • If you suspect recent remodeling or additions were done on the property, the purchase contract may be reliant on proof that the necessary building permits were obtained and building codes were enforced.

Recently, buyers from out of state made an offer to buy a newly built home. It was ideal, with amenities such as a swimming pool and location on a golf course. The buyers were envisaging decorating and furnishing this beautiful house. Several weeks into the sale process, the buyers realized the home was in a high-crime area, and bulgaries were common in the community. They also found that the morning traffic to go to their places of work would be a nightmare. The closing date was set. Their mortgage had been approved. The couple agonized how they could get out of the purchase without loosing their downpayment money. It seemed impossible

The day before the closing, the buyers noticed a clause in the purchase agreement that stated new palm trees must be planted in the driveway leading up to the

home. In their final inspection, there were no trees planted. They telephoned the seller’s closing agent and said that the deal was off. The builder had failed to live up to the contingency that the trees would be planted before the closing date, no exceptions allowed.

The buyers were refunded their full downpayment. They went on to find  a home in a safer area, with a good commute, and although not a new home, with minor cosmetic work, the house would be perfect.

How to Negotiate Closing Costs on a Newly Constructed House

Sandy Gadow

By Sandy Gadow
Special to The Washington Post

Ever notice how enticing advertising for newly built houses can be?

More than one million new housing projects were started in 2014, and the prospect of being able to choose between several models — combined with the benefits of owning a new house — make buying from a developer an attractive option.

Today, many builders offer incentives to the buyer in the form of either upgrades to the house or credits given at settlement that help reduce the closing costs. Often, in order to qualify for these offers, the builder may require that you use its in-house or affiliated closing agent. It may also offer assistance with financing, help arrange pre-qualification for a mortgage and even secure reduced interest rates and loan-related costs. There is no problem with using the builder’s recommended or affiliated agents, but there are certain things you can do to insure that you will get the best deal possible — and pay the lowest fees.

These days, closing costs on a new house typically range from 2 to 4 percent of the sales price. A house that sells for $250,000, for example, could incur settlement fees from $5,000 to $10,000. Naturally included in those fees will be the costs associated with obtaining a mortgage and expenses payable to the closing agent (or title company) such as:

  • Title searches and lien clearance
  • Issuance of title insurance
  • Payment of applicable county and state transfer taxes
  • Recording fees

Although many builders might insist that it is customary for the buyer to pay all title insurance fees — depending on who issues the policy — this fee can be negotiated. When you use the builder’s in-house or affiliated agent, the builder is generally allowed greater leeway to offer you a discount or credit toward the settlement costs.

Whether you use the builder’s agent or a closing company of your choosing, be sure to ask for a “reissue” rate for the title policy. A reissue rate is available to a home buyer when the seller has owned the property for a stipulated amount of time — generally two to 10 years. Each state sets its own requirement as to the length of time the seller must have owned the house and also determines the reissue rate.

In Florida, for example, the seller must have owned the house for less than three years to qualify for the discount, whereas in Maryland the seller can own the property for 10 years or less for the buyer to be entitled to the reduced rate. According to Federal Title and Escrow Company in the District, 65 percent of all transactions qualify for the reissue rate, and in some in some cases, the discount can be as high as 40 percent.

In new construction, the builder will have already purchased title insurance on the land, probably within the last year. So the buyer would qualify for a discounted rate that would be applied to the amount paid for the policy on the land, and then pay the standard rate for the balance. For example, if the builder purchased a title policy for $200,000 and the sales price of the new house is $400,000, the buyer would receive a discounted rate on the first $200,000 of coverage, and only pay the full cost on the remaining $200,000 balance.

On all home sales there is a state-levied transfer or “documentary transfer tax,” and in some areas individual counties add their own transfer tax. The tax rate is determined by the state (and counties), and who will pay the tax is determined by local custom. You can find a chart of the tax for your state at: www.ncsl.org/research/fiscal-policy/real-estate-transfer-taxes.aspx.

In some states, such as California, the seller always pays the tax. But in other states, such as Maryland, the fee is shared between the buyer and seller and an exemption is given to first-time home buyers. Although the tax is not negotiable, who pays the tax can be. This is especially the case if you are using the builder’s agent, as the builder will be able to negotiate with you regarding who will pay this closing cost. An independent title company may not have that option. Similarly, if you use the builder’s finance company or preferred lender, you may be able to receive further discounts (ones that might not otherwise be available to you), on loan fees.

To be sure you are getting the best value on closing costs, check with a local title company, and ask if it will run a comparison for you between your builder’s closing cost estimate and the title company’s breakdown of fees. Many companies will do this for you at no charge, and it generally takes only minutes. You may find that the builder’s estimates for title and escrow fees are much lower, and choose to take that option.

To avoid any misunderstandings, complete your closing cost negotiations with the builder before you sign the sales agreement.

Copyright © 2015 Sandy Gadow This column may not be resold, reprinted, resyndicated, or redistributed without the written permission of Escrow Publishing Company.

Will The Builder Pay for the Owner’s Policy of Title Insurance?

Sandy Gadow

In many states it is customary for the Seller to provide the Buyer with an owner’s policy of title insurance. It is then the responsibility of the Buyer to purchase the policy of title insurance covering the lender. Customarily, the two policies of title insurance are issued “simultaneously” by the same title company and the Buyer profits from obtaining a discounted or “simultaneous issue” rate on the lender’s policy.

When purchasing property from a builder, you may find that the Builder is paying a special rate of only $25-$35.00 for the Owner’s Policy of title insurance and you will be paying a full non-discounted rate for your Lender’s policy. This is a common practice in many states in new construction. Title companies often file this Builder discounted rate of $25-$35.00 with the state insurance division for their state. After all, Builders may bring quite a bit of business to the title company and the title search may take a shorter amount of time than normal, allowing for a discounted rate.

You might want to try negotiating with the Builder on the payment of title insurance fees. Ask what rate you will be paying for the lender’s policy of title insurance. If you are being required to pay the full, non-discounted rate, you may be able to negotiate and arrange for the Builder to pay for a portion of this higher rate.

Although many builders may insist that it is customary for the Buyer to pay for all title insurance closing costs in new construction, keep in mind that title insurance fees are negotiable. Be sure to make your negotiations with the Builder clear before you sign the Purchase Agreement.

This column may not be resold, reprinted, resyndicated or redistributed without the written permission from Escrow Publishing Company.