I thought doing a little summary of how much we've spent so far in our home buying process might be useful for any of you looking to buy yourselves in the future. There are several costs involved, that really do add up. And I'm only talking about the costs you incur before you get the keys to your house, not the actual down payment!
Today I'm going to cover everything up to our closing costs. Next week I'll post about those, since we won't receive our HUD-1 until then, which is the document that shows our final closing costs.
But as far as other things we've spent money on so far, there's two categories: all of the inspections, and money to the sellers.
We got two separate and independent home inspections done, and are very glad we did. We didn't even tell the inspectors that we were having a second one done, just so they would do a normal, though job. Mostly, the two inspectors found all of the same things wrong with the house, but there were a few minor differences, one found something the other didn't, the other thought something was a bigger problem than the other, etc. I would very highly recommend attending your home inspection(s), so you can ask questions. Our inspectors also gave us a lot of tips, how to prevent something from happening in the future, recommending a certain product to fix something, etc. They can't sell you on their services (many are contractors themselves), but they're a wealth of knowledge. We took about 6 full pages of notes between the two inspections, and will be using them as our 'to do' list once we move in.
Inspection #1: $450
Inspection #2: $500
Most home inspectors charge based on the square footage of your house, and all of the prices I looked at were about in the range we paid for the size of our house.
(My husband watching the inspector check the AC units. No, the flamingo and clothes line won't be staying, and someday all those leaves will be replaced with grass!)
We also got a termite and pest inspection done, as well as tested for radon. As first time home buyers, we didn't want to skimp on these extra inspections. For the pest inspection, we asked the first home inspector if he could recommend someone ahead of time, and they came out to do their testing while we were there doing the home inspection. For the radon, that was a service that the second home inspection company offered, so we went through them for it.
Pest Inspection: $70
Radon Testing: $150 (although it would have cost less if we had been willing to go pick up the testing canisters ourselves 3 days later)
We had two additional inspections that I mentioned last week, one where a roofing company came out to tell us how much life was left in the roof, and how much a replacement roof would cost. We also had a tree removal service come out to provide a quote for removing 12 trees, so we will have more space for grass in the back yard. Neither of these were a cost to us, and I found that generally, if someone is coming out to give you a quote to provide you a service you will pay for in the future, they don't charge for the quote.
And finally, there's the loss of time cost. There's no good way to assign a monetary value to this, but we've spent quite a bit of time being present for these inspections. One of our home inspections took about 3 1/2 hours and the other took about 4 hours. For the roofing company and tree removal company, I was able to schedule them back to back, and it took about an hour at the home for both of them. Not to mention time to research the companies before hiring them, scheduling the appointments with our realtor, the sellers and setting up the appointments with the service providers, and then reading through the extensive reports after the inspections were done. I know some people don't put a value on their time, I often don't when it comes to working on craft projects, but I just wanted to mention that we've invested a good amount of time off of work to take care of these things over the past month. Most home inspectors don't work on weekends, which is something we didn't know before we went to book the appointments with them.
Money to the Sellers Costs
This part will vary state to state on what the practice is, and what the costs are. But in North Carolina, we have something called the Due Diligence Period. This is a period of time, usually a month, after your offer is accepted where the buyers get reasonable access to the home to do any number of inspections. We can walk away at any time during this time period, and all we would lose would be the Due Diligence Fee. We specified this amount in the Offer To Purchase, and we deferred to our realtor to guide us on the appropriate amount to put down.
Basically with this amount, buyers want to put down as little as they can, since they will lose the money if they walk away from the deal. And sellers want the amount to be as high as possible, since it's more security for them, and also compensation if they take the house off of the market for the buyers, and then the deal falls through. You're basically paying for time to investigate the property during the Due Diligence Period. Our realtor suggested we offer a really low amount, because the seller's realtor had indicated that the sellers would take a smaller fee.
Due Diligence Fee: $200
There's also the matter of the Earnest Money, another amount that we put in our Offer To Purchase. This is an amount that you pledge to put into the escrow account on a certain date before closing, usually one day after the Due Diligence Period ends. It's money to show the sellers that you are serious about buying the home, and this is money that after you put it down, if you walk away from the deal the seller gets to keep it. Assumedly, after your Due Diligence Period ends, you won't be backing out of the deal, since all of your inspections and renegotiations should be done by then. But if something goes wrong, you loose your job or whatever, it's additional compensation to the sellers for taking their home off the market if the deal falls through.
Here again, we asked our realtor to guide us on what the Earnest Money amount should be. I'd read online that it can be anywhere from 1%-5% of the offer price on the home, but that it depends mainly on what is customary in your area. Our realtor indicated that around here, like the Due Diligence Fee, it's typically lower, closer to 0.5%-2% of the offer price.
Earnest Money: $3,000
One thing to note with both of these payments to the sellers, is that if nothing goes wrong and you move forward with the purchase, both of these amounts are credited back to you at closing (disclaimer: at least in North Carolina this is the case. Like I said above, these things vary state to state, so verify this info with your realtor.). So mainly, it's the Due Diligence fee that you should worry about losing, since really, that's the time period that you're going to walk away from the home, if you decide you can't live with something that comes out of the inspections. We chose to look at the Earnest Money as just money toward our down payment. Writing the check for $3,000 three weeks before closing, or at closing, it was the same to us.
Grand Total for Costs Incurred Prior to Closing: $4,370
I should also note that some people will include the inspections costs in the closing costs, especially if you're having the seller pay some or part of your closing costs. But since we didn't ask the sellers initially to contribute toward our closing costs, these were not included, and we paid them out of pocket.
Next week I'll do a part two, to detail our closing costs. Likely I'll do that as a percentage of the total sales price, since that's what I've seen closing costs expressed as in the few examples I've been able to find. It will probably be more useful to you that way as well, so you can apply it to your own situation and purchase price.
Did you or will you get more than one home inspection done? Anyone else a fan of Mike Holmes on HGTV, and because of his shows, terrified of bad home inspectors?