Inspections, Appraisals, and Title - Oh My!
If you are a first-time homebuyer or buying your first Wichita, KS area home, you may not be familiar with the process. Below is a general timeline of how we'll go from Start to End. As you click on each section, you'll learn more about how each step of the process can work. If you have a question about any step or how it applies to you, feel free to Email Me your question!
What happens during Inspections
What to do with Inspection Results
If you recall, we wrote in the contract the timeline for inspections on page 4. This is based on business days. So if you have 10 business days to perform inspections, you basically have 2 work weeks, barring any holidays. You can do any and all inspections in that 10 day window and have your right to respond to the inspections, get out of the contract, etc. You can do other inspections AFTER your timeline, but those do not give you the right to get out of the deal or make further requests if they are outside that window of time. So it's very important that as soon as the contract is ratified, we get the ball rolling on inspections.
Once inspections are done, we have a round of 3's. We have 3 business days to make our response to the seller. They have 3 business days to respond to that. Back and forth by 3 days until an agreement is reached. If differences cannot be resolved in 3 business days, then the Contract terminates.
There's no timelines in the contract currently for appraisals or titlework, so while those will get done, there's not the risk of everything blowing up on a certain day.
You have the right to do inspections. You can pretty much do whatever inspections you want, though you have to have permission to do any invasive inspections that would involve damaging the property by taking samples or removing siding to look behind it, etc. Licensing of inspectors is not yet mandated, so we do recommend you use someone with some sort of certification or training and not just BillyBob with a clipboard. While you can have any inspections you want, keep in mind that most inspectors want money to look things over, so be careful of nickel and diming yourself by getting each trade to look things over. Generally a good home inspector can give you a general overview and indicate areas you might want further inspected by someone in that trade.
All that aside - We HIGHLY recommend a home inspection. $250 now can save you thousands down the road IF the house has issues that can be discovered.
The most common two inspections are listed first, and this is not an exhaustive list, but here's inspections you could do:
- General Home Inspection - this is by far the most common. The inspectors will go over the whole home, test all the systems such as a/c, furnace, visually inspect reachable areas, crawl in crawl spaces, look over foundations, hop on roofs, get in the attic, check the electrical panel box, test outlets, test window function, test smoke alarms, run appliances, run tubs/showers/faucets/toilets and check for leaks, and more. The pricing on these run by the square footage of the home and varies by inspectors, but figure to have $200-$275 for this inspection.
- Wood-Eating Insect Inspection - Often called the Termite Inspection - this inspector checks for all wood-eating insects including termites, carpenter bees, carpenter beetles, carpenter ants, and anything else that would eat the structure of the house. In Kansas, we have a lot of termites. About 80% of homes have been visited, so most of the time they will find evidence of activity but also evidence of treatment. This inspection will run you about $35-$40, though some home inspectors throw this in for free.
- Systems inspections - basically any system in the house has a trade associated with it that you could call to inspect. You could have a plumber check the plumbing, an electrician check the electrical box, an HVAC person check the furnace and air, a roofer check the roof, and so on.
- Sewer line inspection - this is one that the seller may balk on because of the risk that the inspection itself can cause a line leak. This is one where the inspector lowers a camera in via a snake and looks through your line from the house to the city hookup to check for any potential problems in the sewer line. These can run $150-$250.
- Septic Tank and Well Inspections - the County requires these to be inspected for property transfers, so this should be covered. There may be some city properties still on septic that are grandfathered in and you will want to have those puppies checked out.
- Radon inspection - radon is a gas that comes up through the ground and without adequate ventilation can build-up in basements and homes. It has been linked to higher risks of lung cancer, particularly those who smoke. A radon test will run between $50-$100 and takes the inspector 72 hours to do and then time for the test results to come in. If you're going to do this test, notify everyone soon as it can easily over-run your inspection window and needs to be scheduled asap.
- Lead-based paint inspection - This is another one where you may need the seller's permission if the inspection used requires removing a sampling of paint from the home. They generally remove several areas of paint from around the home. This can also take a few days to get results.
- Mold inspections - While your overall home inspection should make reference to any mold-like substances or conditions, you could also bring in an environmental/mold person to look the house over for you.
- Structural Engineers - Particularly on very old homes or those that do show signs of cracking, shifting, or other movement, you could bring in an Engineer to look over the basement and home structure and let you know if it seems safe, needs stabilization, etc. They can run you $200 - $1200 depending on the firm, how in depth, etc.
And yes, I have references for all types of inspectors, never fear! You can also ask your friends and family who they have used for their homes. Inspectors now have to be Registered and are regulated by the State, as of Jan 1, 2010. For a list of registered home inspectors, click below:
Kansas Registered Home Inspectors!
What happens during Inspections
Obviously since there are so many inspections you can do, there's going to be many different ways an inspection can happen and what each one does. I'm going to go over the most common - the general home inspection and termite inspection.
The Termite Inspection will be over before you know it. As a matter of fact, most of the time you never even know they are there or have been there. They often schedule separately. The inspector will go around the home with his prod and flash light and check the exterior of the home for signs of entry or damage or bugs. Then he'll move on to the inside, checking the walls, trim, garage, joists, etc. He will go in the crawl space as well, under porches and decks, etc. The photo to the right is of actual termite damage found at a home, just so you can see what it can look like.
The Home Inspection is a much more known and drawn-out affair. We'll book the home 
inspection at a time when you can attend. Often the inspector gets there ahead of time to start on the exterior and lessen the time we're left standing around. Even so, inspections can often last 1-4 hours, depending on the home, the inspector, the amount needed to be documented, etc. It's best to let the inspector go do his thing and then ask him to show you the areas he found problems with and ask about any areas you had concerns with. Most also take photos of their findings, particularly in hard to access places so that you can see what they mean and also so you can show the seller what is wrong. As you sit there and chit chat (or this is a great time to measure for window treatments!), the inspector will be running all over, turning faucets on, flushing toilets, shooting laser beams at the vents to measure temperature differentials, using a moisture meter to check for moisture behind walls, tripping GFCI outlets, flipping lights off and on, etc. Every now and then he'll make a note or go to his computer to type in that section's findings. When finished, we'll all get together and go over his report, which will be provided to you usually at the inspection itself. He'll discuss what was found, usually in terms of marginal problems and defective problems. It's then that he can take you around and show you the problems and answer questions for you. Once we've satisfied ourselves as to what he wrote up, he will pack up and leave us to the decision-making!
What to do with Inspection Results
You've had your inspections and have your results in hand! What do you do with them? You basically have 3 options:
- If the inspections were what you expected of the home and you are satisfied with the condition, you just sign off that you are satisfied with the condition and move on through the transaction.
- If the inspections were NOT what you expected and you are totally NOT going to be happy with this house no matter what, we file to release our earnest money as a result of inspection findings and get out of the contract.
- If the inspection results were fairly okay but there were a few items you were concerned with, we can ask the seller if they will consider repairing those items. We fill out a repair request form and send it to the seller. They either refuse, accept, or counter back with what they are willing to do. We negotiate back and forth until agreement is made on who will fix what or what compensation will be provided instead.
If you negotiate in Repairs, we'll need to check back up on those and be sure they actually get done. As soon as we are notified that they are done, we can revisit the property and check. Some people like to have the inspector re-inspect those items. They do charge a minimal fee for a partial inspection. Some buyers are happy with a visual inspection and the invoices/receipts in case they have problems and need to reach the contractor.
An appraisal is a big report that analyzes homes that have sold recently and compares them to the one you are buying (the subject property) to determine a value based on those comparable sales.
The appraisal is to protect you from over-paying for a home and to protect the bank from loaning on a house that is not worth what they are loaning.
An appraiser will visit the home, measure the home and provide a footprint and room count. They will take exterior and interior photos. They will examine the recent sales in the area - usually within 1 mile of the subject or less and within the last year of sales, though some only go back 6 months. Of those that have sold, they find the ones that are most similar to the subject property. They then put them into the appraisal and make adjustments to them to see what they would have likely sold for if they were JUST like the subject. For example, if your potential home has a $5,000 3rd car stall and is being compared to a 2 car stall home, they'd raise the projected sales price of the 2 car to reflect what it would sell for if it had a 3rd call stall. And the reverse - if the comp has something the subject doesn't, they reduce the sales price of the comp to reflect what it'd sell for if it was without that item. And by doing this over 3-5 comparable homes, they determine a selling range for the subject and decide where they feel the value should be.
Now on a sidenote, appraisals are an opinion of value, albeit with a lot of supporting documentation. If you have 3 appraisals on a home, you will have 3 different values, though they should not be too far apart.
What if it appraises different from contract price?
If your appraisal comes in OVER what you're paying for the property, that is great! That means you have equity already in the home. You don't have to then pay what it appraised for.
If your appraisal comes in UNDER what you're paying for the home, we have a problem. The seller doesn't automatically have to sell it to you at appraisal price. The options we have at this point are to get another appraisal (some loans allow this), pay the difference in cash, or convince the seller to sell for less. This is becoming a problem more and more right now as lenders and appraisers become more conservative in their estimates, so do be prepared. The big thing getting called out right now is the inclusion of closing costs in the contract. An excessive amount may lead to the home not appraising. It can also happen a lot on unique homes, homes with acreage, or rural homes - this is because there are so few comps that 1 sale can really affect what homes are valued for. That same property can fluctuate thousands either way, due to the low amount of home sales happening.
When does the appraisal happen?
Generally the bank will try to hold off until after home inspections, so that you're not stuck paying for an appraisal if the inspection goes poorly. Sometimes though, time does not allow us that luxury and we have to order it ahead of the inspection. Once it's ordered it can take anywhere up to a week for the appraiser to schedule it with the seller. After the appraisal has been performed, it must then be input, tweaked, and uploaded for quality review, etc, meaning it can also take a few days for it to make it from the appraiser to the bank.
When we say we're ordering titlework, what we're talking about is the process of obtaining title insurance. When you buy a property, you have "title" to it - a deed that tells the world it's yours. To make sure that title is clean and stays that way, you have something called title insurance. And to issue Title Insurance, the title company researches the property and parties involved to check for problems like liens, encumbrances, lawsuits, mortgage releases, and more. You have the right to choose who performs your title insurance.
If you're obtaining a mortgage, you'll have 2 types of title insurance - the owner's policy (for you) and the lender's policy (for the bank).
A good explanation can be found here, at Continental Title, where I do a large portion of my closings: 
1.) Owners Policy – An owner's policy insures that the title to the property is free from defects (liens and encumbrances), except those which are listed as exceptions in the policy. It is normally issued in the amount equal to the real estate purchase price and remains in effect for as long as the owner or their heirs retains an interest in the property. In addition to identifying risk before the transaction is completed, the Owners Policy will pay for costs stemming from claims made against your title.
2.) Loan/Mortgage/Lender Policy* – The lender's policy is separate from the owner's policy. It assures the validity and enforceability of the lien of the lender's mortgage or deed of trust and serves as protection for the lender’s security interest in the property. A Loan Policy is issued in the amount of the loan, and liability decreases as the mortgage debt is reduced.
(courtesy of Continental Title Co, Copyright by them, used with permission.)
The simplest way to explain title insurance is that it makes sure that the property you buy is actually yours and stays that way.
Click Here to move on to the Next and LAST phase - The Closing!
