The Real Estate Due Diligence Process Podcast
A deep dive into the process of inspecting a home, performing a title search, appraisal and survey to find out if a home is suitable to buy. Should you inspect a new home? Should you get a sewer scope? Should you get a survey? What is a title search? These questions and others are discussed and helpful tips and anecdotes provided along the way. Thanks for listening!
Transcription of “The Real Estate Due Diligence Process”
Hello friends, this is Ryan Jenkins. Thank you so much for tuning into this episode of the Fort Collins real estate ramp up podcast. We do these podcasts because we want our clients and anybody else listening to be razor sharp, well oiled real estate purchasing machines or selling machines as the case may be. We’ve kind of noticed over the years that we can be, you know, incredibly knowledgeable real estate brokers. But unless we are imparting that knowledge to our clients, we’re not doing as well as we could and they can feel like even though we are walking them through the transaction, they can still feel like they don’t have as much information as they need to make the best decisions. And there’s a huge amount to know during the real estate transaction and we don’t always get the chance to sit them down and kind of give them the unabridged crash course.
And we’ve found that these podcasts are a great format to do that. So that’s why we’re doing them. So thanks for listening. Today’s episode is about the due diligence process. Basically that’s a fancy term for the process after you put a property under contract, it’s all the things that you do to find out if that is the right house for you to buy. And there’s a bunch of stuff and we’ll just kind of walk through everything from start to finish and you can get a feel for what all the different due diligence pieces are, how much they cost, how much time they take, why we do them. And that’s what we’re going to talk about. The first thing you do right after you put a house under contract is you deposit your earnest money. Now this is not really a due diligence portion of the process, but I want people to know earnest money in northern Colorado and most parts of Colorado is typically 1% of the purchase price of the home.
So you buy a $400,000 house, you’re putting $4,000 in earnest money that is typically deposited with the title company into an escrow account. And a title company is a neutral party who handle the transfer of ownership between the buyer and the seller and they have an escrow account and you put that money into an escrow account and they hold it. If we do decide to terminate the contract for any of these due diligence items that we’re going to talk about, you can get your earnest money back. The Colorado contracts are written in such a way where there’s a whole bunch of different options that a buyer has to terminate the contract for inspection, for title work, for surveys, for appraisals, for a number of different things. And when we do terminate contracts and we still have our deadlines in place, those different deadlines have time limits on them, so as long as we have terminated the contract within the allowable time period, then we can get our earnest money back. And so, let’s start with inspection. So typically we do a general inspection first. General inspectors are guys, a lot of times they are former builders or former electricians, tradesman, whatever the case may be. And these are, we call them general inspectors because they kind of look at every different part of the house. They’re going to look at the roof, they’re going to get in the attic, they’re going to evaluate the electrical system. They’re going to look at exterior, interior, anything they can get eyes on, they’re going to have moisture meters to see if they can find visible evidence of leaks, if they have that visible evidence, they may then go go in with a moisture meter to see if that is a leak that’s been taken care of or if there might still be leakage still there. They will look at the furnace, they will look look at the, the AC.
A lot of times they will have a carbon monoxide detector. They will be looking for cracked heat exchanger. The furnace is one of the most dangerous things that we find on inspection. Because when your heat exchanger is cracked, there’s the potential for carbon monoxide to be distributed throughout the house. Obviously a very dangerous thing. So we’ll have a carbon monoxide detector during the general inspection. A couple things they don’t test for, most inspectors these days are not doing a sewer scope. And so along with our general inspection, we are bringing in a plumber and the plumber, will either remove or toilet or hopefully there’s a sewer cleanout access, you’ve probably seen those. It’s a four inch pipe that just sticks up a little bit above the ground. A lot of times it’s in the front of the house, somewhere in the yard. And in that case, it’s easy for the plumber to just unscrew that cap and then run his camera down through the line and check the condition of the sewer line. So for a lot of years, sewer scopes were not done. They’re actually becoming more and more popular. And even today, there’s a number of agents that I talked to that kind of say, well, we only do sewer scopes on older homes. You know, something from turn of the century or maybe in the 50’s we’ll scope the sewer, but the majority of the time if we don’t for not seeing problems drains draining or anything, we haven’t heard anything from the seller about the sewer backing up. We won’t scope the sewer, but it is our position that we should scope every sewer line. And the reason that we scope every sewer line, even on brand new construction is because you don’t know what you don’t know.
And that’s kind of my default position when I’m talking to my clients about whether or not to do, you know, particular portion of it, an inspection, I think it’s just always better to, to spend the extra money and do the extra due diligence because we have had brand new homes where we have scoped the sewer line and found issues with that sewer line. And the reason that is, is because a lot of times the sewer lines are 10 feet deep and the plumbers will dig the trench, place, the line, and then some damage may occur when they are backfilling that line. Especially if that’s done with a backhoe. You can imagine there’s rocks that can be thrown down in the trench. And we’re talking about plastic PVC schedule 30 year, schedule 40 PVC. It’s pretty strong stuff but if you drop a large rock on it from a backhoe, it will break. We have had instances where we have scoped sewer lines in a brand new home and found that the sewer line was actually crushed, like impenetrable. It would have backed up as soon as there was enough water that went down the line, it would have backed right up into the house. We have heard from other realtors who have had clients who have bought new construction and three months after they bought that house, they had sewage backing up in their basement because of that exact thing: the sewer line was crushed when it was installed. So, you know, a lot of times you can kind of just assume that things are okay because you’re buying a new house. We hear about a lot of folks that buy a new home and do not get a sewer scope or they don’t even get an inspection. And a lot of times that’s because they weren’t using a realtor because they’re like, I don’t really need a realtor. I’m just going to walk into the sales office and buy this house. And, and the, the sales office will literally tell you, don’t worry about getting an inspection because you have a home warranty and anything that comes up after you close, will be taken care of by the builder. Well, you can imagine folks that have a sewer line issues and have to get their yard dug up or have had sewage backing up into a finished basement would certainly have preferred to find that out before they closed on the house and have that taken care of prior to closing or potentially buy another house as the case may be. There’s a lot of things that we find on new builds during the inspection period and they’re rarely catastrophic, but they are often significant and stuff that you want taken care of. And, again, there’s a variety of reasons why you want that stuff done before you close and not kind of hoping that the, the warranty work will come through after closing. Let’s kind of jump back, we got a little bit off track. Let’s go back to the sewer scope issue. Like I said, we were recommending sewer scopes on all sewer lines. Typically, the general inspection and the sewer scope are happening on the same day. It’s just very efficient to do it that way because we’re accessing the house. Usually for an inspection, we have about four hours that were at the house. And that’s nice for our buyers to be there because it’s very informational. They can walk through the house with the inspector and kind of get the rundown on every little thing. I mean, it’s not necessarily all like problems. They’re finding a lot of stuff. The inspector can walk you through maintenance items and every house is different so it is super helpful to have somebody that looks at houses all day long, kind of walk through it with you. And it’s also usually a buyer’s first opportunity to get to spend a significant amount of time in the house, start measuring, doing whatever they need to do to start to really feel comfortable. And you know, a lot of times the first showing maybe it’s 20 or 30 minutes and this is their chance to really get to spend a lot of time in the house for the first time. Some of my clients have, if they’ve gotten a sewer scope that has been what I would call catastrophic where the sewer was in such a condition and they did not want to dig it up that they move on and go to terminate that contract and go and buy another house. I’ve had those clients request that we do the sewer scope first in the future because that is such a big ticket item. And it, it can be really intrusive to fix those lines. And if that’s just not something that they want to deal with or maybe don’t even want to ask the seller to deal with, they might ask to do the sewer scope before we do the inspection so that they can decide, once the sewer scope is good, then they can decide to spend the money on the general inspection. They don’t just spend money on both those items on the same day, but for the majority of the time even we do find a sewer line issue, we can have the seller remedy that prior to closing so the buyer doesn’t have to assume the brain damage of digging up the yard. And, and actually we have some new technology that a contractor that we work with a lot from Roto rooter has been re-lining a sewer line. Actually, it’s like re-casting. Part of the problem with sewer line repairs is that you have to dig up the yard and a lot of times you have to dig up a driveway or a street. And you can imagine once you start digging up, breaking up concrete and digging up a public neighborhood street you’re getting into traffic control, repaving, I mean it’s just an absolute nightmare. And what we’re seeing is Roto rooter, and a number of other companies are doing this as well, is they are digging, they have to dig to access the line, but they can dig at one point in the line and then they can actually run a sleeve down the line. They actually have to dry the line really good. They run a sleeve down, they inflate the sleeve and then they send water down the, the line and actually create a cast, basically becomes like a new sewer lining. And they’ve been doing this for about 30 years. And, the technology, they stand behind it, there’s a warranty on the work. I believe the warranty is 15 years and it’s just much less intrusive. It doesn’t work in every case. Obviously if you have a crushed, or badly broken sewer line where you just can’t run a sleeve through it because there’s a blockage. In that case you’re going to have to potentially replace the entire line. But there’s a lot of times we find a little crack, what they call an offset or a belly in the line where it’s not a catastrophic issue. But we do want to take care of it because you know, even if the line is working fine when we go to sell the house and the next buyer re scopes the line, we want to make sure it looks great for them. And that’s kind of an interesting thing we’re running into. A lot of times we’re scoping these lines and the seller is saying, “I’ve lived in this home for 50 years, we’ve never had a sewer line issue. Why is it that you guys can come in and scope this line? And, all of a sudden say it needs to be fixed when we’ve never had a single problem?” Well, the reality is that people are scoping sewers now on a pretty regular basis and that’s just not been the case in the past. This is new technology and people are becoming more and more aware of how expensive sewer replacements can be. And so that’s why we’re doing those repairs. And basically we just have to tell the seller, look, we understand that your sewer line has been working for decades and we sympathize with you. But the fact is we’re going to have to sell this house someday, the buyers are going to scope and we’re not going to assume the cost of replacing the sewer line at that time. We need you to take care of it now. It is an issue. And most of the time the problems that we find may not have been an issue, but at some point will become an issue. And you also can see, there’s times when you just have water, you’ll have a small crack in the sewer line. It doesn’t look like a lot, but you have water that’s running right into the ground. And considering the volume of water that goes down a sewer line, that can certainly cause an issue, especially if it’s close to a house. I think that pretty much covers, inspection, general inspection and sewer scopes. I know I’ve talked a lot about sewer scopes, maybe you’re tired of hearing about it, but it’s just kind of something that’s on our mind because it has been creating a lot of difficulties in our transactions lately just because it seems like, maybe 30 to 40% of the time we scope a line there is some issue that we have to deal with. And so that’s why the casting that I mentioned earlier is become particularly useful because it is a less intrusive problem. And again, most of the time we can get the sellers to assume responsibility for these repairs, either with a monetary credit or just doing the work prior to closing, which is always our preference because we never want, especially on something where you’re digging a huge hole in the yard and you’re locating other utilities, like your gas line and your waterline, there’s a lot that can go wrong and we don’t just want to say, hey, you know, take the money and deal with this yourself down the road whenever it becomes an issue. Because the reality is, the price of that repair could increase significantly. And there are times when our buyers are willing to assume those, those responsibilities. But, our preference is usually to have the seller fix the line prior to closing for obvious reasons. Okay.
So the general inspection, like I said, kind of covers top to bottom nearly everything in the house other than the sewer line. The sprinkler inspection is something that can be an add on. And a lot of times people just don’t choose to inspect the sprinkler. I mean a lot of times it’s too cold and the, the system is winterized. But there are times when we will have a sprinkler and we’ll have a sprinkler guy come out, turn on the system, make sure everything looks good. And that can be super helpful because sprinklers stuff, although not often is it super expensive to fix, can be really annoying. So it’s nice to know that all that stuff is working. We can also test for radon. Radon is a naturally occurring radioactive gas that is everywhere means in the air that we breathe outside and it’s not an issue outside. It becomes an issue when you’re inside, especially in the basements of homes where radon can accumulate because of lack of ventilation. And so a lot of homes have active rate on systems already installed. This is not an issue everywhere in the country. There are certain states that have high levels of radon and Colorado is one of them. And so a lot of times you’ll see a house that has an active radon system in, especially if it’s been bought or sold recently. And in that case, a lot of times the seller can provide you with a radon tests from when they purchased the house. And that’s helpful. And a lot of times my clients will choose not to test for radon if there’s already a radon system in and if the seller can provide them with a test showing that the levels are acceptable and the the government, the EPA, Has set radon levels that they recommend. Like if it’s above this level, you should remediate, you should put a radon system in. If it’s below this level, you can still remediate to get it as low as humanly possible, but we’re not so concerned. So when they put a radon remediation system in, essentially what it is, is they core through the foundation slab, the slab in the basement floor and they put a big four inch PVC pipe and they’ll put that down through the slab. They’ll seal it up and then they’ll install a fan in that PVC line that basically creates a vacuum underneath the house because most of the time you have gravel underneath the house. And so, if you put a vacuum fan in one place, it will draw all the air out and sometimes you’ll have to put two of those systems in depending on the size of the house, but usually it’s just one and that will then expel the radon gas through that pipe, either out the side of the house or sometimes out the roof. And when you do it out the side of the house, you know, you try to kind of hide it a little bit. A lot of times you’ll do it on the side of the house, but if you’re concerned about how that big four inch PVC pipe looks, a lot of times people will pay a little bit extra to have it expelled through the roof because it’s just a little more discreet and you don’t have a big PVC pipe running along the side of your house and a big fan. And, you’ve probably seen these systems on homes in Colorado. Maybe didn’t know what they were, but that’s what they are. Another thing we can test for is asbestos. A lot of times the general inspector during the inspection can say, hey, this siding may have asbestos or these ceiling tiles or this popcorn ceiling might have asbestos and they will recommend further testing. You have to take a sample and then send it to a lab. Asbestos is typically not a concern unless you are tearing it out. In that case, it greatly increases your cost to remodel because your contractor has to be an asbestos remediation certified contractor. They have to put plastic over everything in the house, use respirators, create a vacuum inside the house, all kinds of crazy stuff as they are tearing out. A lot of times we see it in siding, and we see it in ceiling tiles and we see it in popcorn. I have had clients who found asbestos in a house and their contractor told them that the easiest and most reasonable way to get rid of it is actually to put sheet rock over it. And if they wanted to get rid of that popcorn ceiling but they didn’t actually want to scrape it all off and disturb it because, disturbing it gets it in the air and asbestos is particularly harmful when it’s breathed in. So, instead of trying to take, the popcorn ceiling off, they just put new sheet rock up and they basically what they call, entombed it. And, that’s a route that a lot of people are going these days. All right, so last thing I’ll talk about as far as inspection stuff is meth testing. A lot of times when we noticed that there has been a grow room in a house and there’s a number of different signs for that. Some are obvious, some are not. But a lot of times you’ll see like in a garage or an an unfinished basement, you’ll see rings on the concrete where there’s been big pots. You’ll see beefed up electrical conduit for the lighting systems for the grow room. And if we see something like that, a lot of times we’ll recommend that a house be tested for meth. Obviously, meth contamination can occur in any type of a home. It doesn’t have to be a grow house, it can be any type of a home. But, meth testing is pretty expensive. It’s about $600. Most of my clients opt not to test for meth and unless they think that there’s a reason to do that. We definitely have had a number of meth tests come back positive and most of those homes have been in pretty rough shape. But again, those are very expensive tests. We certainly tell every client that they have the right to test for math, but not a lot of folks do unless they have reason to suspect it.
Let me just rewind real quick and talk about costs of some of the inspection items that we’ve talked about. Your general inspection is going to be about $400, maybe a little less for a smaller house, little more for a larger house, and then your sewer scope is going to be about $175 and it may be closer to $200 if they don’t have a sewer clean out and they actually have to remove a toilet and then replace the toilet with a new wax ring. But most of the time there’s a cleanout. And so you’re looking at close to $600 for the general inspection of the sewer scope. And those are the two main inspections that most of our clients do. Most of my clients do not test for for radon unless there’s no active radon system in and on a lot of homes that were purchasing, there is already a system in. Radon testing is another hundred dollars asbestos testing is another $200. And your meth testing would be another five to $600 on top of that. So kind of depending on what level of testing you are opting for and what the situation is, you know, you can run anywhere from $600 up to $1,500 for your due diligence costs.
So moving on, let’s talk about title work. Title work is happening at the same time as our inspection process is happening. So, as soon as we put a house under contract, the title company which handles the earnest money is also doing a title search on the property and they are providing title insurance to you. So part of providing title insurance to you is to do a title search to make sure that there are no liens on the property, there’s no, what we call, encumbrances. You don’t want to buy a house and then a year down the road have a contractor knock on your door and say, hey, the guy that used to own this house owed me $50,000 for a big remodel project, never paid me and I put a lien on this house and I’ve come to collect the money. I mean, that’s obviously an extreme case. But, there’s been a number of times when we have done a title search on a property and the title company has said, “Hey, we found a mechanic’s lien or we found a lien for child support payments” – we see that one from time to time. And so what the title company does, is before closing, we’ll ensure that that lien is taken care of. They’ll contact the lien holder and they’ll say, “hey, you have a lien on this property. How much is it going to cost to pay it off” and then they contact the seller. And, a lot of times the seller is very frustrated. They may not have known about this lien or they may have known of the issue, but didn’t actually realize that the contractor,, or whoever did the work actually put a lien on the house. Or, an ex spouse putting a lien on a house from a child support issue or something to that effect. So those are the kinds of things that we’re looking for during the title search. The title search will also bring back things like utility easements – you’ll find out that Xcel energy or the City of Fort Collins or City of Loveland has a utility line on the property and that will be described because it’s a recorded easement, which allows them to access a portion of your property to maintain their utility line. And you’ll also mostly find out, in almost every case, that you do not own the mineral rights for your property. Most of the mineral rights in Colorado were bought in 1920, a lot of times when we’re doing these title searches will see documents dating from the late 1800s up to like 1920. We’ll see documents saying the mineral rights for this property are owned by, “such and such” a person and a lot of times they’ve been bought and sold over the years. But the bottom line is the majority of people buying a property in Colorado do not own their mineral rights. Now, most of the time, this is not an issue because the properties are so small that there’s no way that an oil company could effectively drill on the surface of that property. But, there have been instances, especially in eastern Larimer County and Weld county, where we will find that an oil company may be directionally drilling from another site adjacent to a residential neighborhood with quarter acre lots. And so, you just need to know about those things. There can be times when there are small payments made. It’s obviously rare for somebody to be selling a property and transferring a significant income from oil drilling operations. So, most of the time we don’t see that, but, I have seen like some homes and Severance where the HOA is getting some income from an oil company that’s drilling on an adjacent farmers land, but they’re actually drilling underneath the, the homes that my client is buying. And, so everybody in the neighborhood is getting a small payment from that oil company. So, Those are the kinds of things that come up on a title, title search. If we find issues that are for whatever reason, an issue they will be cured. I’ve actually never had a deal where we had to walk away from a house because of a title search. But, I have had a number of times when we had to go to the seller and say, before we buy the house, this lien needs to be removed or at closing you have to pay off this lien. So, that is the deal with title work.
Let’s move on to surveys. So, a survey is a drawing of a property. We’ve done a separate podcast on surveys. You want to check that out, we’ll, go into a little bit more detail and we’ve changed our position a little bit on surveys. There’s two different types of surveys. One is called an improvement survey plat, which is the best type of survey that you can get where the surveyor goes out, nowadays with gps equipment, and locates the corners of your lot and draws a map of the lot and gives you dimensions, and shows you where utility easements are, shows you where the house is in relationship to your lot lines. And, where your neighbor’s house is, and the fence. It’s a very detailed diagram of the lot. And, a lot of times what these will end up showing is, encroachments, like the fence has not been built right on the property line. They’ll show that a driveway maybe is encroaching on your property line or a garage, or they might show a “right of way,” if you have a major city street, that boarders your property. You might find out that whoever owns the street has a right of way that extends beyond the street into your yard. So these are a bunch of different kinds of things that you may potentially find on a survey. A lot of people don’t do surveys because they are expensive. They are about $800 for an improvement survey plat for a quarter Acre parcel. I’m on a 40 acre parcel. They may be much as $5,000, especially if the terrain is difficult. We just had a quote for a survey outside of Longmont on a very mountainous property and the surveyor said, “we’re going to have to spend a couple days out there climbing around and it’s going to be pretty intense work. And, so this one’s going to be five grand.” Which, we were not thrilled about. But, the costs of the survey can be negotiable. It can be split between the buyer and the seller. You can ask the seller to pay for it or depending on the deal you’re getting, you might opt to pay for it yourself. But, because of the costs, a lot of people just, they don’t end up doing them. I mean, you’re buying a house, there’s a lot of money going out. Maybe the last thing you want to do is, is get a drawing of your property. But there’s a number of, of very significant things that we have found from surveys that we’re very glad that we found out before our buyers bought the house and not after. And, one of those things was, in one case, one of my agents is working with a buyer and actually found out that a portion of the house was actually built across the property line, which is a pretty significant oversight, as you can imagine. There are setbacks. So, you’re not supposed to build a house typically within like five or eight feet of a property line. But, this particular house was actually built across the property line. So, you can imagine, if you’re trying to cure an issue like that with your neighbor, um, you know, you’re going to have to adjust the lot line or move the house, which is probably not possible or incredibly expensive. So, we’d like to find out these things before we buy the house and not after. And, that’s what a survey is good for. Now, there’s another type of survey is called an Ilc, which is an improvement location certificate. And, this is not as good as a full survey because, in a full survey they’re locating these property pins precisely. If they can’t find the pin, they’ll actually replace the pin. And, a pin is basically a rebar. It’s like a monument that is inserted into the ground showing a particular point on a survey. And, when they do these full surveys, they locate these pins or if the pin’s at a particular corner or point on a lot does not exist, they will replace the pin. But an ILC is kind of a dumbed down survey. And, for a long time we haven’t been telling our clients to do those because we didn’t have as much confidence in them as we did a full survey. But, I was actually talking to a surveyor the other day and he said he actually recommends that people do ILCs if they don’t want to spend, they’re usually about half the cost. So, maybe an $800 survey is going to be a $400 ILC. And, he basically says they’re good for finding out big problems. Like they would have found out that this house was built across the property line but they should not be relied on for building improvements like fencing. I mean, if you have an ILC, it’s probably pretty spot on. But, if you want to build a fence right on the property line, you should get a full survey.
Let’s go to a flood plane, obviously an important thing. We’ll check and see what the flood plain is. Your insurance company also typically will do this and flag any flood plain issues that come up. There’s a lot of different kinds of floodplains. A lot of people are in a very low risk flood plain. But, some people are in higher risk flood plains that actually warrant mandatory flood insurance. And flood insurance is typically about $1,500 to $2,000 a year. So it’s a very significant cost item that you need to look closely at. And, a lot of people don’t know that most homeowners insurance does not cover flooding and which is kind of crazy to me, but that is the way it is. And so, if you’re getting a mortgage on a property in a certain flood zone, you may be required to purchase flood insurance even if you don’t want to, the mortgage company will basically say, we’re not going to give you a loan unless you have flood insurance in place. So, that’s one of the things we’re going to check for.
Let’s go to appraisals. A lot of times people get inspection and appraisal mixed up. They are two different things, an inspector is trying to find out the physical condition of the house. An appraiser is going out and trying to find out if you are paying a mark fair market value price for the home. So, they’re going to take comparable sales from the neighborhood. There’s a bunch of different rules as far as what appraisers are allowed to use for comparable sales. They usually like to go six months. No further back in time than six months. Because the markets are always changing and when she get further back than that the market conditions may have changed. They also try to stay as close in geographic area as they can to the house and they try to match the house up. Obviously, like finish quality and beds and bathrooms and all that different stuff. Appraisers do know what you’re paying for the house. A lot of people think that’s crazy. Like you shouldn’t give the appraiser of the contract and say, “hey, we’re buying this house for 450,000 What do you think it’s worth?” They think appraisers shouldn’t know that price and I tend to agree with that. But, for whatever the reason is, the appraisers do get the purchase contract. They are able to see what price you’re paying for the house. And, most of the time the appraisal comes back at the price that you are paying, which you can kind of understand, because every house is a little bit different. You’re a ready, willing, and able buyer and you are willing to purchase the house for the contract price. And, so the argument could be made that that is the most accurate reflection of the market value of a house. But, an appraiser is basically trying to figure out are they massively overpaying? Or, one of the things they are trying to find out is this an arm’s length transaction, which means are you selling this house to your brother or your mother or something like that where there might be something else in play that may be effecting the value of the property. They don’t want to see that you’re selling a Ferrari with the house or a fancy tractor that could inflate the price of the house. And, in general they just want to see is this a fair market value for the house? With our market moving as fast as it has been, and appreciation rates in the 10 to 15% per year range, people are paying quite a bit more than they can justify based on comparable sales from a year ago. If you have a $500,000 house and the market improved 10% in the last year, you might be paying $50,000 more than you can justify from comparable sales from a year ago. So, appraisers are certainly taking this stuff into consideration, but there are times when an appraiser will say, “look, you’re paying 500,000 for this house. We think it’s worth 475,000.” And, that’s very rare, but it does happen. And in that case, there’s a number of different ways we can kind of tackle that, we can go to the seller and say, “we need you to drop the price, we’re no longer comfortable paying the contract price of 500,000. We need you to drop it down to 475,000”. Usually the spreads aren’t that big. Usually an appraisal deficit as we usually call them is like $5,000. It’s usually not massive, but we have seen appraisal deficits up to like $30,000. And, depending on the situation, you might ask the seller to drop the price. You might meet somewhere in the middle or you also have the option to walk away and get your earnest money back. And so that is kind of the appraisal process. You’ll get the appraisal form is probably 20 pages long. They’ll do a floor plan sketch of the property to make sure the square footage that’s being advertised is accurate. They’ll take pictures of the property, they’ll include pictures of the comparable sales and they’ll make a bunch of adjustments for differences in square footage and beds and baths and lot size and you’ll get that report from your lender.
All right, so we’re getting kind of towards the end. So, the survey and appraisal usually take about three to four weeks. So, if we go under contract, we do the inspection and the sewer scope pretty much right away. But, appraisals and surveys take a lot longer to complete. And, a lot of times the termination of our due diligence periods for survey and appraisal could be three to four weeks after we go under contract. So, the order is inspection, usually happens in the first week and then there’s a little bit of some downtime and then we get the appraisal and the survey back in that three to four week mark and that’s usually kind of right before we close. So there can be issues that come up on appraisal and survey that we’re sort of negotiating at the last minute right before closing, which can be a little bit nerve wracking. But, most of the time appraisal and survey do not bring up any issues. The majority of issues happen during the inspection. And, usually when we get get down the line to that three week mark, most of the time everything is fine, but there are some cases where we have to deal with, some survey issues or a low appraisal as the case may be. And then right before closing we’re going to walk through the house one more time and we’re going to make sure, if there are significant repairs that were done, we’re going to bring the inspector back out to inspect those repairs. We’re also going to ensure that things like carbon monoxide detectors, if those weren’t installed already, we need to make sure that those are installed and we’re also just going to make sure that the move out went okay, that nothing was scratched or damaged during the move out, that all the personal property that was in the house was adequately removed. A lot of times people will leave stuff they think the buyers would like to have and then our buyers just think it looks like trash. And, so we’re making sure that that the house is in great condition. The buyers are excited to move in and that it’s clean. And, if we do that walk through and there’s something that’s not right, we’re going to call up the seller or the seller’s agent and say, you’ve got to make this right before we come to closing. So, there can be some last minute negotiation that happens there. But, usually folks deliver a house in great condition and it’s smooth sailing. So, thank you guys so much for listening. Again, this is Ryan Jenkins. I am the managing broker at Grey Rock Realty. We are a boutique firm in Old Town Fort Collins. We work all over northern Colorado, Loveland, Longmont, Windsor, Greeley, Wellington and up into the mountains.
And, really, what we do is, when I say boutique firm, I mean we have handpicked a small team of realtors. We’re not, certainly not the biggest firm in Fort Collins, we’re very small by comparison to most firms, but that is for a reason, we are very selective with who we hire and we have an awesome team here with multiple people to help you throughout the transaction mean you certainly have one point of contact. We have a team that helps each other out, And, if you read our reviews you will notice that we are the highest rated multi-person real estate firm in the city. There are, like I said, much bigger real estate brokerages in town. But, you will not find a multiple person real estate firm like ours with a five star Google and Zillow ratings and we’re very proud of that. So, don’t take my word for it, please Google us and read our reviews, see what our clients are saying about us. Reach out and ask us questions. We’d love to show you a property or give you a price opinion on your house as the case may be. And, thanks again for sticking with us, it was a long podcast and a lot of material, so really appreciate you guys listening. Hopefully it was helpful. I have an awesome day. Look forward to talking to you soon.
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