Buyer’s Out of Pocket Expenses

In a residential Real Estate transaction, buyers will usually incur some out-of-pocket expenses and there’s a risk that those expenses could be lost. Allow me to explain.

Obviously, the purchase of a home is normally financed. In most cases, the buyer will pay a down payment, but if the deal falls through for whatever reason, there are no worries pertaining to this. The buyer simply doesn’t go to closing to pay that down payment. There are, however, a couple of fees which the buyer pays directly for 3rd party services. These parties need to be paid for their work whether or not the buyer’s deal closes.

Normally, the first fee is for a home inspection. This inspection is obviously to inform the buyer of the condition of the property. A negotiation can take place to address needed repairs but if an agreement can’t be reached, the deal might be terminated. However, the inspector’s fee is an expense which the buyer cannot have refunded since the work was completed per a separate agreement.  In the Morgantown area, home inspection fees often run $450 – $650. The variance is usually determined by the square footage of the home. The more square footage which exists, the more work it is for the inspector, which usually results in a higher fee. At the buyer’s discretion, there can also be supplemental inspections for things such as the structural integrity of the foundation, Radon gas, mold, the septic condition, well water quality, or for the presence of pests.  The most common pest would be Termites, but this inspection is not limited to only Termites. Most of these fees are relatively small compared to the actual home inspection fee.

Another fee which is often out-of-pocket is for the appraisal. Although the lender coordinates the appraisal, the actual appraiser is also a 3rd party entity and needs to be compensated, whether or not the buyer’s deal comes to fruition. This fee is often in the ballpark of $700 in our market, but this too can vary. If the appraised value is lower than the agreed purchase price but a new agreement isn’t reached, the deal can be terminated in this case as well.

So, as you can see, these fees can run over $1,000 depending on square footage and additional inspections. Keep in mind, that the inspections are designed to protect the buyer and although the appraisal is largely to protect the lender, it also protects the buyer from overpaying. So, paying nonrefundable fees when a deal could end up falling through is still in the best interest of the buyer. Obviously, most buyers can’t jump into multiple deals which don’t close only to lose fees each time. So, this is why the buyer and their REALTOR® should discuss the potential obvious issues even before inspections take place. The REALTOR® needs to explain what conditions will cause hang ups for government backed loans and that REALTOR® should be tracking if the seller is possibly selling “As Is” or will be open to making repairs or concessions.