The 5 Reports Every Home-Buyer Should Review

The 5 Reports Every Home-Buyer Should Review

By Victor Kung

05/26/2023

Many readers have had the experience of buying or selling a home. But how many of you have also carefully read each of the relevant documents during the transaction process? Or fully understood the content of these documents? Did your real estate agent explain the key takeaways of each document? With these questions in mind, I would like to use my 23 years of experience in the real estate business to share with you the five most important reports to consider when purchasing a home. Four of these reports are paid by the seller, while the home inspection report is paid by the buyer. The five reports are as follows:

• Preliminary Title Report (PR): California law stipulates that a seller of a home must purchase an Owner Title Policy on behalf of the buyer. The policy is meant to protect the buyer from seller-owned liabilities and is based on the purchasing price of the home. If the buyer requires a loan to complete the purchase, his or her lending bank will require the buyer to purchase a Lender Title Policy. This policy protects the buyer’s creditor in the amount of the buyer’s loan. In addition to issuing these two policies, the title insurance company also provides the buyer with the Preliminary Title Report (PR). This report includes the name of the seller, the property’s unique APN (assessor parcel number), and whether the seller has an outstanding loan amount owed to any lenders. Other important information in the PR is whether the property carries other debts or has specific usages by third parties (easements). For example, a PR may show that a home has underground pipelines that were previously buried by an electric-gas company, water company, or telecommunications company. If the home is a townhouse or condominium, the PR will also show if there are any registered parking spaces listed on the home’s Grant Deed. In summary, the PR contains a list of important information related to a home and its land that all sellers and buyers should review in detail.
• Natural Hazard Disclosure Report (NHD): Purchasing a home is a big investment that comes with the potential of great risk. To protect buyers making this important financial decision, California law requires that sellers provide an NHD Report. This report explains how the home may be located in an area specifically affected by, or prone to, natural hazards by indicating whether the home is “In” or “Out” of a hazard zone. Common natural hazards listed on a typical NHD include the wildfire risk, flooding risk, an earthquake fault line, and soft soil. There are more than 10 natural hazard items listed in an NHD. Supplementary hazards include whether the home is located within a commercial or industrial zone, and whether it is near a gas station. In addition, the NHD discloses property tax information and any special assessments levied against the home, such as a Mello-Roos tax, that must be paid at its specific tax collection office.
• Homeowner Association Report (HOA Docs): If a home is part of a community with an HOA, the buyer may ask the seller to pay for HOA documents provided by the community’s management company. Most importantly, the HOA Docs package includes the community’s primary governing document in its Covenants, Conditions, and Restrictions (CC&R). The HOA Docs also contain key information about the management company’s contact details, monthly HOA fees, HOA income and expenses, current HOA funds in reserve, HOA rules & regulations, certificates of establishment filed with the state government, and regular HOA meeting minutes. The HOA Docs also explain whether the seller owes any outstanding fees or has any unresolved housing violations, and whether the HOA itself has ongoing lawsuits. If the home in question is an attached condo, the HOA Docs also include a master insurance policy that provides coverage for the entire community for incidents involving fire, public facilities, and human error.
• Termite Inspection Report (TR): California homes are mostly constructed out of wood and termites can cause extreme damage to both the interior and exterior. A buyer can request that the seller pay for a TR. This report shows whether the home is currently, or has ever been, infested by termites. If the TR indicates proof of a termite infestation, the report will also include a quote from the inspection company for the cost of a termite treatment and damage repairs. If a buyer needs a loan to complete his or her purchase, then the buyer’s lending bank may require a Termite Clearance to issue the loan. This clearance is issued by the termite inspection company, after the home has undergone treatment, indicating that the property is officially free of any active termite infestation.
• Home Inspection Report: To get a better understanding of his or her future investment, a buyer should hire a licensed home inspector to conduct a detailed review of the property. The inspector will provide a report, illustrated with photos and diagrams, of the areas inspected within the home and any problems or defects found. After receiving this report, the buyer can request the seller to make repairs or provide funds for addressing the issues shown in the Home Inspection Report. If the report shows major defects present in the home, the buyer can also utilize his or her right to cancel the transaction and request a deposit refund from the seller. The home inspection is one of the most powerful tools available to a buyer and should be reviewed carefully.

In addition to these five major reports, two other purchase disclosures provided by the seller are equally important to the buyer’s review process—the Seller Property Questionnaire (SPQ) and real estate Transfer Disclosure Statement (TDS). Due to space limitations, I will discuss the SPQ and TDS in a separate article. Together, these documents help the buyer assess the specific risks involved in purchasing a home during the 7 to 21-day Contingency Period. If a buyer decides not to purchase the home, due to major defects or concerning information, then he or she can cancel the transaction and request a deposit refund from the seller.

Since California law is designed to protect the buyer’s rights and interests, the legally required disclosures reflect an abundance of detailed property information to inform the buyer. A savvy buyer interested in a home should carefully read all relevant documents in accordance to his or her executed Purchase Agreement contract.

If you have more questions, please feel free to call me at (760) 715-8496 or email me at vkung@cox.net to schedule a personal discussion.

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