Protection: Inspections and Insurance
Ok, without question, there are two main things you will definitely want
to do to protect your investment. First you will want to inspect the property
with a licensed
inspector and
secondly you will want to contact an
insurance agent
to insure the property.
If you haven't, you should make your
purchase agreement contingent
on a comprehensive inspection of the property.
Inspections
There are essentially three types of inspections you may want to consider conducting.
The first one, which is the most common and comprehensive, is the Prepurchase Interior
and Exterior Comprehensive Inspection, which has to be conducted by a licensed inspector.
Even if the purchase agreement states that the property is offered "as-is," you should
still have this type of inspection performed for your own benefit.
This type of inspection should be performed regardless if the property is a condo,
townhouse, or single-family home that are made of wood or steel. The inspection should
include everything such as the roof, plumbing and electrical, heating and cooling, smoke
detectors, kitchen and bathrooms, and foundation. The inspection is determining the
property's overall health, safety, and potential hazards.
These types of inspections can run anywhere from an hour to several and cost as much as $500.
Also, don't be surprised if your inspector recommends other inspections, such as radon and pest
(these range in costs from $75 to $300 and are the other two you may want to consider).
Good inspectors will be able to spot red flags and want to have another inspector take
a look - think of it as a second opinion on an operation. Some inspectors may even provide
you with estimates regarding repair work that they see necessary.
Problems Found
Ok, so maybe the inspector's report found a few problems - now what? Well you have a couple
of options. If the issues are minor, you may simply consider continuing with the purchase
and fixing them once you've moved in. If the report indicates that the roof needs to be re
shingled or the furnace has 4 months left, you may not want to be paying for these items
immediately upon moving in.
Go back to the seller, with the report, and try to negotiate or factor these inspection issues
into the agreement. Have the seller fix them or reduce the price to compensate for your wish
to have them improved. If you are purchasing a fixer-upper or the improvements are extensive,
you may want to have a general contractor or architect inspect the property and give you
estimates on repairs to see if it is worth it to you.
If none of these issues can be negotiated or perhaps the report just makes you uncomfortable,
you can always terminate the agreement. Go make an offer on one of the other properties you
found - that's why you have contingencies. Consider the $500 spent on an inspection insurance
saving you from extensive additional expenses in the future.
Insurance
Let's just start by saying - not insuring your property is just plain crazy. However, there
are many people out there that don't. Chances are you're taking a loan. Well most lenders
require you carry homeowners insurance on the property, otherwise you will not get a mortgage
from them. This is similar to registering your car - no insurance, no registration! Yes, we
know not all states require this either, but they should.
Ok, back to the point. Considering the cost against the investment, homeowners insurance is
fairly reasonable. In fact for most of us, it costs less than automobile insurance. You should
carefully discuss different policies with insurance agents. Consider the cost of rebuilding,
because some policies will cover up to 120% of the total dwelling coverage.
You will also want to consider lawsuit protection. This is necessary in case the neighbor's
child breaks an arm falling down the stairs in your home and decide to sue you because there was
no gate on the stairs. We're not trying to scare you, because the chances of being sued are
very rare. However, you should consider this coverage, because if there were an accident, the
financial consequences could be overwhelming. You can typically, purchase this coverage in
increments of $1,000,000.
Finally there's personal property protection. You know all the stuff you cram into your home
such as furniture and clothes. If there is ever a fire, heaven forbid, you'll want to make sure
you can replace these items, as well as rebuild your dwelling. Typically this coverage is a
percentage of your dwelling coverage, ranging from 50% to 75%. This also covers theft. However,
beware that jewelry is rarely covered, and may need to be added as a rider in coverage
increments of $1,000. Be prepared to itemize and have your jewels appraised if you need or want
this coverage.
Well, very good job. If everything looks good, it's time to close -->
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