Buyer Beware most risks are not disclosed to new Homebuyers,
Buying a new home is an exciting proposition and a lifelong dream for many. However, there is a lot to consider when purchasing a home and a lot of it is counterintuitive. We have come up against some recurring stories of people buying homes in some of Maui’s problem areas, and not realizing their mistake until too late. Some people do not fully realize all of the costs associated with home ownership, and purchasing a home and get themselves financially overextended. Please read the following tips.
ITEMS DISCLOSED DURING ESCROW:
In my experience, most of these items/risks such as FEMA/Firm, Flood Insurance, title insurance, SMA, etc. are only mentioned at Escrow during the signing. But unfortunately, this usually only happens after the house’s price has been negotiated, after the buyer has been approved, and just before the documents are signed.
A stream of documents:
Our escrow person slid paper after paper access the table for us to sign, each with a comment, For Example:
- “..this is the title insurance in case the ownership is challenged”.
- “..this is the declaration of “popcorn ceiling, that might contain asbestos”.
- “..this is to acknowledge that you need flood insurance”.
- “..this is an agreement to purchase the property “As is”.
Documentation is designed to protect the seller and broker:
All of the documentation and on-the-spot disclosures are designed to protect the seller and the broker from liability. At the moment of signing, the new homebuyer assumes all of the risks from that moment onward. And the buyer relinquishes many of their rights to hold the sellers responsible for the condition of the property. Although many of these items contained a “disclosure”, they were never explained or discussed in any detail.
The first home is the largest purchase most people will ever make.
Unlike Developers, Builders, Real Estate Brokers, and Investors. The new home buyer is not in the business of home buying, or in the game of real estate investment. A new homebuyer has no complete understanding or comprehension of the implications and impacts that these documents have or the possible problems that could be hidden surrounding the house. A new homebuyer is vulnerable to deception, and exploitation by sellers and brokers.
Homebuyers deserve better protection:
The County should take reasonable steps to ensure that new home buyers are not exploited or deceived when making a home purchase. First home buyers are generally stretched to their financial limits when trying to qualify for a mortgage and will use their entire life savings, max-out their credit, and use family funds to make the purchase.
AMI based on multiple incomes:
AMI stands for Area Median Income. And increasingly the incomes of several family members are needed to service the mortgage. The incomes of two adults and one adult-age child are needed to calculate the AMI needed for affordable housing for example. This leaves them vulnerable to a financial upset.
A lost job, layoff, economic downturn, inflation, or interest rate change can derail the finances of the new home-buying family. They are also vulnerable to any losses resulting from flood damage, including lost vehicles and other appliances and possessions not covered in the homeowner insurance. New homebuyers are also especially vulnerable to sickness and injury.
A new homebuyer might assume that the neighborhood is reasonably safe.
And a reasonable person would also assume that the County would have ensured that adequate infrastructure was put in place to protect them from harm. But unfortunately, this is not the case.
The County should ensure that residential neighborhoods that are zoned for residential use, should be reasonably safe for that purpose and that all essential infrastructure for urban safety should be in place. In cases when there is less than the normal infrastructure available, the county has a duty to inform the public. When there is a flood risk due to failed or absent drainage infrastructure, the County should make it known to the public. The County SHOULD do this but they DON’T
When there is a deficit in essential infrastructure the county should change the zoning to suspend new developments: Changes in zoning should reflect the available infrastructure. The County needs to assure the community of a reasonable level of safety, And they should not allow more building in underserved areas. Zoning should be conditional on available infrastructure. Infrastructure must precede new buildings. BUT unfortunately despite this being the logical thing to do, some County’s infrastructure lags far behind the pace of development, When you move into a neighborhood, Do not assume that it has basic amenities like proper roads hospitals, emergency services, sidewalks, curbs, street lighting, drainage, or stormwater. Even a reliable water supply is not a given, many districts have regular water restrictions, and many areas do not have drinkable tap water.
The county needs to take responsibility to inform the public:
The County therefore should have the responsibility and liability to inform the public of the lack of essential infrastructure, the risks and hazards, and the full disclosure of flood risks and other coastal hazards.
True Costs are sometimes hidden:
This varies between the different counties and islands, But make sure that all of the costs and fees and expenses are disclosed to you and that you have properly budgeted for them. For example, many people are buying condos or multi-family dwellings, but there are usually run by an HOA (Home Owner’s Association), and the fees can add up to an extra 400-900 dollars per month. Flood Insurance is often mandated for flood zones, areas close to streams and gulches, or located on the flood plain. You need to check the property’s location and TMK (Tax Map Key) on the FEMA FIRM floodmap. But even if flood insurance is not mandatory it is also a good idea. Homeowner insurance can be basic but maybe you want hurricane insurance which is sure to cost extra. Flood insurance can cost an extra 3-5 thousand dollars a year, which is about $416 dollars per month. Water bills can be another couple of hundred, and the power bill can be $200-500 dollars or more.
When you buy a home it might be different from what was legally permitted. for example, the deed and tax map may say a 3 bedroom 2 bath, but the seller says it is a 5 bedroom 5bath. That means that it probably has 2 non-conforming (illegal) bedrooms and 3 nonconforming bathrooms. You might be cited, fined, and required to demolish them.
As the saying goes, “Caveat Emptor” or Buyer Beware. so when you are thinking of buying a new home, take time to do your due diligence, and some homework. At least do some google searches of search terms such as flooding, traffic, transport, crime, environment, and sea level rise.