On its surface, purchasing a home seems like a pretty straight-forward task. Don’t you just find a house, put in an offer, get a loan and find yourself cozying up to your new fireplace by the end of the week? Unfortunately, this isn’t how home buying in Wisconsin works, and it’s for good reason.
At Accunet Mortgage, we find ourselves faced with bewildered prospective home buyers all the time. They can’t believe how much actually goes into the process, but that’s what we’re here for. And with that in mind, we have compiled our Top 7 Surprises for Wisconsin Home Buyers in hopes that it will absorb some of that initial shock and help you prepare for buying your first home.
The appraiser must be given a complete copy of the offer to purchase including the sales price. About half of home buyers incorrectly assume the appraiser won’t know the agreed-upon purchase price, but providing the appraiser with the complete purchase contract, including the selling price, is a standard requirement for all mortgage programs.
Why can’t the sales price just be blacked out? There’s really no good reason. The appraiser’s job is to determine a “range of value” and a “most likely value” within that range. In the vast majority of purchase-transaction appraisals, the agreed-upon sales price falls within the appraiser’s value range, and, therefore, the appraiser typically pegs the agreed-upon sales price as the “most likely value.”
If the appraiser didn’t know the actual sales price and concluded a “most likely value” that was $2,000 less than the agreed-upon price, there would be a lot more renegotiations of purchase prices. Letting the appraiser know the price to which the parties agreed simply helps most transactions get to closing with the least hassle.
Right to Cure Defects
The buyers don’t get to dictate or even participate in how defects get fixed on a Wisconsin residential real estate purchase if they’ve given the seller the standard Right to Cure Defects (Lines 429-430). Under the standard terms detailed in the Wisconsin Offer to Purchase contract, if the seller has the right to cure a defect, the seller must cure the defects in a “good and workmanlike manner” and deliver a written report to the buyer detailing the work done within three days prior to closing. The only two ways for a buyer to participate in the decision of how to cure defects on a Wisconsin home purchase are:
1) Not giving the seller the right to cure defects (in which case the buyer can propose in an amendment how the defects will be cured.)
2) By giving the seller the right to cure but also having their real estate agent insert additional language into their initial offer that specifically gives the buyer the right to participate in determining how any defects are cured.
If the seller has the standard “Right to Cure” in a Wisconsin transaction, it’s too late for the buyer to ask for input on the cures once a defect is found.
Cost to Cancel
You might end up spending a lot of money to get out of an offer to purchase. A typical home inspection with a radon test costs between $400 and $550, depending on the size of the home. Let’s say the home inspection leads to the need for a structural engineer’s report that costs $300 to $500. Not only does the buyer have to complete all inspections and tests within the original home inspection time period, the typical basement wall issue (requiring a structural engineer’s report), it could literally cost between $700 and $1,000 to prove to the seller that a bona fide defect exists so that the contract can be legitimately terminated by the buyer.
Additionally, buyers must give copies of the home inspection report and any other reports or testing (per Line 407 of the Wisconsin Offer to Purchase) like roof or basement inspections to the seller, even if the buyer isn’t claiming any defects and even though the reports and tests were likely paid for solely by the buyer.
Student Loan Payments
We can now use income-based payments on student loans as the qualifying payment on most loan programs. The exception is on FHA and VA loans and some jumbo loans (loans over $453,100) where we have to use the GREATER OF the actual verified loan payment or 1% of the current student loan balance. So, if your are paying only $100 a month on a $50,000 student loan, and you’re applying an FHA mortgage, we must use a theoretical monthly payment equal to 1% of the loan balance, or in this example $500 per month.
Property Tax and HOA Assessments
Special assessments by taxing authorities and/or home owners’ associations that are levied on or after the accepted offer date and before closing are the responsibility of the buyer, not the seller. This is not a typo (see Lines 360-362). The only way to protect yourself as a buyer from this risk is to instruct your real estate agent to modify the standard language to make the seller responsible.
Defaulting on Offer to Purchase
The buyer is at risk for potentially a lot more than their earnest money if they default on the offer to purchase. Lines 281 to 284 of the Wisconsin Residential Offer to Purchase clearly state the seller may:
1) Sue for specific performance, which means a judge could order the buyer to follow through with the contract, and request the earnest money as partial payment of the purchase price; or
2) The seller may terminate the offer and have the option to request the earnest money as liquidated damages or sue for actual damages.
Let’s say you offered $250,000 for a property and decided to walk away from the deal for no good reason. If the seller later sells the home for $225,000, they could sue you for “actual damages” which could be the $25,000 difference in price plus the costs of holding onto the property for the additional time it took to sell and close.
Buyers don’t automatically get their earnest money back if they terminate the contract. Lines 376 – 394 give all the details, but the short story is the buyer and seller have to sign a Consent and Mutual Release in order for the broker holding the earnest money to return it to the buyer. If there is a dispute that cannot be negotiated, buyers and sellers have to go to small claims court for all earnest money disputes arising out of the sale of residential property with 1-4 dwelling units.