Eleven Key Considerations for the Prudent Prospective Luxury Home Purchaser
By Procopio Partner Enrique Hernandez-Pulido and Of Counsel Todd E. Leigh
The time has come for you to buy that dream property, a luxury home. It’s easy to picture yourself relaxing in comfort while taking in a spectacular view, but that future state of tranquility will be much harder to reach if you don’t follow key steps in the process of properly identifying and acquiring that property. The stakes can be even higher with a high-end luxury property, with greater potential for costly complications from inspections and land surveying to financing and tax implications.
Following a few well-tested recommendations with your attorney prior to purchase will make it easier to enjoy your new home worry-free. Here are 11 steps you need to take with care:
1. Selecting a Location:
This is perhaps the most obvious consideration. Take the time necessary to explore areas that interest you. Narrow down the alternatives and spend as much time as you can driving and walking the area, talking to residents, and researching online information from crime reports to traffic to local government responsiveness, as well as neighborhood schools if you have children. Consider renting a house in your favorite location for a few months to get a better sense of things.
2. Securing Your Financing:
Don’t wait until you’re well down the road to secure pre-financing of an amount sufficient to purchase your dream property. Pre-financing can avoid surprises during the escrow period by securing a prequalification letter from the lender. This will provide comfort for your seller and give you an edge over competing buyers. Even if you’re not planning to finance, get set in your mind now how much you’re willing to pay.
3. Selecting a Broker:
Once you’ve locked in what you’re willing to spend and have identified a general geographic region in which you’d like to buy, select a broker who specializes in the area. Look around and see who is listed on various neighborhood “for sale” signs, or ask friends for a recommendation. You want to find a broker who knows the market and understands your needs, thus ensuring a more successful and enjoyable experience. Your attorney plays a critical role in this process, in that you should have him or her review the broker’s agreement before you sign it.
4. Selecting the Property:
Again, don’t rush this process. Your broker and your seller may pressure you to make a decision, but you want to be sure that the property is right for you. View as many properties as you feel necessary, and make multiple visits to specific properties if you feel it is necessary. Be prepared to walk away.
5. Performing a Home Inspection:
Congratulations! You’ve now selected your potential dream home. It’s time to work with your broker and attorney to secure a home inspector to look for surprises you couldn’t have seen in your own visits. The inspector will check every part of the home and grounds—including structure, soils, water, mold, utilities, pests and additions and remodeling with or without permits—and provide you a written report of all deficiencies. This report can be used to request repairs or a credit for the cost of repairs. Have your attorney review the inspector’s contract in advance of inspection to be sure you are getting the services and protection you need.
6. Performing a Land Survey:
You’re not just buying a home, you’re buying the land beneath and around it as well. Don’t be caught by surprise by a detail not shared by the seller. You don’t want to buy a property only to discover later that part of the home or pool, etc., is located on adjacent property. A survey will locate all improvements on the property and clearly spell out the square footage of the home. Your attorney can help you interpret and understand the survey.
7. Hiring an Architect or Contractor:
You’re willing to spend the money on a luxury home, but it’s unlikely that an existing property will meet every single one of your needs and aesthetic tastes. If you anticipate doing any major work at the home or grounds after purchase, hire an architect or contractor before you close the deal to learn if your dream remodeling is even possible, and if so, how much it might cost.
8. Securing an Appraisal:
If you are financing the purchase, your lender will require an appraisal. Even if you are not financing, you should still get an appraisal to be sure you are not overpaying. The appraisal may lend you weight in the negotiation of a final sale price.
9. Seeking Conveyance of Personal Property:
If you are expecting that the seller will leave certain items of personal property, say so as clearly as possible in the purchase agreement. Don’t assume that the beautiful crystal chandelier will stay with the house just because it is wired to the house. State that it conveys to you in your purchase agreement.
10. Securing a Title Report:
You will be given a preliminary title report to review and approve. A proper review by your attorney is critical at this stage. He or she will consider the exceptions to title and advise you of any future problems those exceptions could trigger. In addition, the way you take title is very important, and attorney can help you avoid any mistakes.
11. Determining “Hidden” Costs:
Your attorney can also advise you during the title process regarding the property taxes and any additional assessments, fees, etc., that attach to the property. This ensures that you know all the annual taxes payable by you as owner of the property. Your attorney will also review and advise you as to the effects of any covenants, conditions and restrictions (CC&Rs). They may govern you and your home in surprising ways.
If you follow all of these steps, in consultation with your attorney, you’ll find the closing a breeze. You’ll take possession of the keys to your new luxury home with anticipation and excitement, which is exactly how you should feel after such a life-changing experience.
Enrique Hernandez-Pulido is a Partner at Procopio. Licensed to practice in Mexico and in California, Enrique’s practice includes representing clients in international tax planning and related international matters, particularly Mexican and U.S.-Mexican legal matters. Enrique represents clients in the development of business transactions, worldwide investment and financing structures, planning for worldwide income and estate and inheritance taxes.
Todd E. Leigh is Of Counsel at Procopio in its Real Estate practice group. His practice focuses on representation of landlords, tenants, buyers, sellers and developers of real estate property. He is also experienced in real estate secured transactions, including shopping centers, office buildings, industrial parks, retail sites and similar properties.