Our proposal: We propose to require a statement disclosing the operating expenses a potential homebuyer may expect when purchasing a specific single family residence (SFR).
Why: Prospective homebuyers — especially first-time homebuyers — need to be informed about the full cost of owning and operating a home prior to purchase.
Some dollar amounts are readily available to a homebuyer, such as their potential mortgage payment, taxes, insurance and any homeowners’ association (HOA) fees. But other information is unknowable without the seller’s willingness to share their personal knowledge of the property. This information includes the average costs of:
- monthly utilities in each season;
- landscaping;
- pool maintenance, if applicable;
- water, sewage and trash;
- any bonds or assessments; and
- optional services present in the home, such as:
- a home security system; or
- a solar lease. [See RPI Form 306]
Since these costs can vary depending on the property, the true monthly cost of homeownership may affect how much a buyer is willing to pay for the property. In other words, these costs ought to be considered material facts and thus disclosed.
In practice, this disclosure would be similar to the Annual Property Operating Data (APOD) Sheet ubiquitous in transactions for income-producing property. [See RPI Form 352]
We propose this disclosure be delivered to a potential homebuyer as soon as practicable, and at latest upon commencement of negotiations.
Under our proposal, it is the seller’s agent’s role to guide their seller client through the process of collecting this information and filling out the disclosure, as well as ultimately delivering it to the prospective buyer.
While the disclosure of operating costs is not currently mandated, real estate agents and brokers may choose to use RPI Form 306: Property Expense Profile to disclose this information in any transaction. Seller’s agents may elect to include it as part of their marketing package to potential buyers. Alternatively, buyers will find it useful to request the seller fill out a property expense profile in order to get a firmer grasp of the true costs associated with owning a particular home.
Greater transparency will ensure more informed — and more successful — homeowners in the future.
Related article:
California’s hidden homeownership expenses are a tough sell for buyers
A much better approach would be for every lender to require a first time home buyer attend a first time buyer class either in person or online that will cover in great detail the difference between being a tenant and being a home owner. The items you cite are important but they are not the only ones a buyer needs to understand and I agree with those who say there are too many variables and too much opportunity for claims of misrepresentation in your proposal. If this type of disclosure is shifted to the course content where the first time buyer can actually build their own budget it will be much more meaningful to the buyer. We assume buyers realize the implications of transitioning from tenant to owner. They don’t. We had two buyers this year withdraw from the market when they realized that if they own the property they have to make and pay for property repairs. These were not kids. They were middle aged people who have rented all their adult lives and just never thought the whole thing through. So I am not in favor of your proposal and offer a mandatory home buyer’s class with specified content as an alternative.
Overkill. The important information is disclosed in escrow. The Property tax bill lists bonds. Whether the pool runs at 69 or 75 degrees, or you run grow lights, or your cable T.V. has a thousand channels or basic internet only, are personal choices. I just installed solar, the life cycle costs are readilly available at the OEM. The difference between a retired couple and two adults with three teenagers. Apples and oranges.
Those costs are variable. For instance, does the current resident turn every light off when not in a room as opposed to those who leave every light on. How about the resident who runs hot, so the furnace is almost never on in the winter, but the A/C runs full blast in the summer. And water consumption? How about the resident whose guilty pleasure is a 15 minute hot shower, vs. the quick 5 minute in and out cool shower? These are all personal use issues, not to mention number of residents vs. the selling household makeup. Not a good idea. Someone could actually try to sue for misrepresentation, simply because the use is different. Definitely not a good idea. It has no basis in how a new owner utilizes the property. Asking for averages and countering that with disclosures about current use has been going on for years.
What an idea! Forget the opinions and focus on the facts. What is the purpose of disclosing variable costs in an APOD vs. SFR? Big difference. An APOD is a preview of estimated expenses to determine what the current costs of occupants (who are staying and utilizing). It helps a potential owner decide where to invest to either improve the property. However, these variable costs would inevitably change when occupancy or people/pets/ condition (new appliances?) change. So why waste time on useless, private, personal info.?
Your suggestion for a statement of monthly expenses is a good idea. It will give a potential buyer some idea of what they can expect in home maintenance. However, there are a few flaws in such a statement. Examples would be owners who likes to keep themselves “very warm” during the winter months and have excessively high heating bills. Or owners who work from their homes, and don’t need to go to outside offices. These type of situations can be quite different for new owners. And these are only a few examples.
Buyers can personally estimate how much of their own cost of maintaining themselves with water, electricity, etc., and add that amount to the PITI & HOA purchase allocation. A completely new or remodeled home with different occupants would cost more or less, depending on what type of pet moves in too.
Wonderful suggestion. Especially for 1st time homebuyers the actual expense information would be a big help in the purchase decision. This would also help highlight the huge potential savings from owned residential solar systems. [We have already recovered the cost in 5 years, and the savings will only increase as PG&E rates jump). There is an understandable reluctance in the agent community to talk too much about all of the expenses beyond the mortgage. So full disclosure of actual expenses will help prevent later “sticker shock” and buyer regret.