Home Buyer Q & A

Q: What are some common costs home buyers overlook when purchasing a house? 

A: One of the first things I talk to clients about is expectations.  Often buyers look at homes that are freshly painted and appear updated and the assumption is that everything is done or is turn-key.  In our marketplace I tell clients to expect about $30,000 in repair recommendations.  It could be a sewer line that needs to be replaced, an old roof, a bad electrical panel or foundation work.  A huge portion of my clients last year needed to replace Federal Pacific electrical panels; a very common panel in homes built in the mid-century.  Often electrical work is a recommended “do now” repair.  Another common misconception is that a buyer will pay property taxes based upon the current owners tax basis.  Yes, as part of the buyer’s closing costs, they will be billed at the current owner’s property tax, however within 6-10 months buyers will receive a supplemental tax bill that is a retroactive bill from the date of closing, which is the difference between the previous owner’s tax bill and the current tax bill.  Therefore if the seller paid $5,000 per year in property taxes and the current tax bill is $10,000 a buyer will owe the difference.  Property taxes are based upon your purchase price; 1% of the purchase price, plus another fraction of a percentage (that varies city to city), which is derived from bonds and assessments.

Another surprise to some buyers is that seismic retrofitting is currently considered an upgrade. The bolting, shear wall support and bracing to help protect a home in an earthquake is an upgrade, meaning a buyer will likely want to budget for this work and not expect it.  Let's say a home is built in the 1940s and there are bolts in place, those bolts are very likely not up to today's standards and are considered undersized.  Year by year we know much more about earthquake safety, as well as more about where fault lines are.

Q: Are any costs associated with buying a house negotiable?  How can you go about negotiating those or secure lower costs? 

A: Everything in a real estate transaction is negotiable, however, in the robust Oakland-Berkeley marketplace, the vast majority of closing cost fees are customary "pre-assigned".  I have seen heavy cash down or all cash buyers pay seller closing costs in an effort to reduce the purchase price. By doing this they hope to have a slightly lower property tax basis.  The one thing that should be known is the city may call and ask questions about the transaction and I have heard that there is no guarantee that the city may not adjust the value up.

Q: What are some more common costs associated with owning a home that you wouldn't experience through renting?

A: You will need to fix all repairs, there is no landlord to call when the hot water heater breaks or the roof leaks.

Q: What are some of the best ways to financially prepare for buying a house? 

A: Do not spend all of your liquid assets getting into a home nor use them as your down payment.  Make sure you work with a mortgage lender who provides spreadsheets of all of the out-of-pocket expenses, monthly payments, property taxes, etc.  Plug those numbers into your budget.  See if you have money to eat a meal out, fix an unexpected repair or make the improvements that you desire.  The best strategy would be to have a house savings fund for future repairs and maintenance, almost like an HOA reserve fund.  I have done a home improvement project almost every year that I have owned my house.