How to be a buyer in this crazy hot Ottawa real estate market!

The Ottawa real estate market has exploded. We are down in inventory something like 40% from five years ago and around 20-27% year to year depending on the area. As a result, anything that is decent is getting snapped up in multiple offers. Even not so nice properties are finally being sold after languishing on the market for months.

That makes it a very frustrating process for buyers. They can find themselves in bidding wars over and over without any guarantee of success. It’s frustrating for realtors too: there is a lot of work involved in showing properties and preparing offers, and we work on commission, so we only get paid if our buyers can actually buy something. In a market like this, it’s great to be a seller, but it’s emotionally draining to be a buyer.

So here are my tips for success in a challenging market.

Work with a realtor. If you are relying on Realtor.ca, by the time you see a listing you are interested in, it may be too late. As realtors, we get those listings before they  hit Realtor.ca. That allows us to  arrange to get in to see them right away.

Get your own realtor. A multiple offer situation is not the time to be working with the seller’s agent: it is fraught with conflicts of interest. Believe me on this one: you need  independent advice. An agent who double-ends is not required to do any research for you on comparables and they will not be able to advise you on price, which is precisely the information you need.

Work with a mortgage broker. You need to be pre-qualified, not just pre-approved, for financing. You need to know going into this process what you can afford. (Besides, a good listing agent is going to ask your agent if you are pre-qualified: the last thing the seller wants to do is accept an offer that could fall apart over financing.) Pre-qualification means gathering together a bunch of paperwork like Notices of Assessment going back two years for the broker, and getting together bank statements and so on, but it’s important to do that upfront.

Get in to see the property fast. This is not a market where you can afford to wait even a day or two to see a listed property. If the seller is holding off on offers until a specified date, you may have a little time, but if they haven’t specified a date for reception of offers, you need to get in ASAP. If it’s a decent property that is reasonably priced, it will probably be conditionally sold within a day. I’ve seen listings that popped up at night and by the next morning the agent had three offers.

Make decisions quickly. Time is of the essence. You do not have time to dither, or to come back with your family and friends, or to have third showings. This isn’t that kind of market. If you see a property you like, you are going to have to probably make a decision within hours.

Be sure your agent asks to be kept in the loop. A property that gets 10 or 15 showings within the first day is going to get multiple offers for sure. Your realtor can ask the listing agent to keep them in the loop re. activity and offers so that they know how many offers are coming in.

Don’t wait. Sometimes getting your offer in quickly will scare off some of the other would-be bidders. The fewer offers there are in a bidding war, generally, the less you will have to pay.

Make sure your realtor has the information they need before they need it. One of my clients and I went to see a property yesterday. The agent told me he had an offer in hand and was expecting several more by the time we got there at 6 PM. Presentation of offers was scheduled for 9:00 PM. Because of the tight timelines, I brought an offer with me with some blanks to fill in. My client decided she wanted to put in an offer  and we completed it on the spot: what was important is that we could act quickly.  I had all the information I needed  for the Buyer’s Representation Agreement. I had also talked to the listing agent and knew what closing date the seller wanted.

I had pre-populated the form with the information from the listing and standard clauses that we could either keep or strike out. All we had to figure out on the spot was price. (And yes, she won the bidding war.)

Have as few conditions as possible. An unconditional offer, even at a lower price than a conditional offer, will usually beat the higher offer unless the disparity in the prices is so great as to justify the seller taking a risk on the deal falling through. We are seeing more and more unconditional offers.  I have myself bought properties without home inspections or financing because I knew what I was getting into, but I work in this business, and have a high comfort level with risk.

Home inspections.  I don’t encourage waiving home inspections, because it’s very risky. There are a few options: you can do a home inspection (if time permits) before the time for presentation; include a home inspection in the offer and hope for the best; delete the clause, but at considerable risk, or tighten up the timelines and hope the seller goes along with the time required to do one.

Some buyers get the inspections done before the time due for presentation of offers. That’s great, but they may not be the successful buyer, in which case they will be out of pocket probably $ 450-600, and more if they had to have a wood burning fireplace inspected as well (this is called a WETT inspection and you will need it for insurance).

I always include a home inspection clause in an offer, even if my clients decide to strike it out, so we can discuss it and they understand it’s not something to waive lightly. Most prudent buyers decide to go with the home inspection, but  not all. I had one client decide, despite my advice to the contrary, that she was ready to take the risk.

We’d been through the home pretty carefully and there was nothing obvious that was problematic. She knew she may have to replace the furnace and A/C sooner than later and that we couldn’t ascertain the age of the windows. I made it clear that I am not a home inspector and that she should have an inspection to determine electrical, check attic, etc. but the home is new enough that she felt she’d be okay. However, she’s decided she will do one before closing so she knows what she may have to do, but she wanted to go into multiple offers with a clean offer.

In that situation, you want to make sure you have as much disclosure as possible. Be sure you’ve taken a good look at the property, that your agent has requested disclosure of any prior issues, and you can afford to fix whatever may turn up later. A seller does have an obligation to disclose latent (non-obvious) physical defects, but you don’t want to rely on that disclosure alone: if it’s not provided, and a problem arises, no one wants to have to sue.

Financing conditions. A cash buyer will have an advantage over a buyer who needs financing in this kind of market. So, if you have to put a financing condition, you will want to keep the time lines very short when it comes to approvals. If two offers are similar otherwise and you are asking for eight to ten days for financing approval because you haven’t bothered to apply yet, and the other buyer is asking for five days, guess which offer the seller is going to accept?

Don’t let emotion drive you too far. Consider the home you are buying and its re-sale potential down the road. Life changes. Anything can happen. Even in a multiple bidding war, you don’t want to go crazy. There are some buyers making offers that are so far over the market value of the properties they are buying that if they have to sell in a hurry, they will absolutely lose money. Let your realtor advise you as to what the range of fairness is and what they think it will take to secure the deal. If you are overpaying, which is likely, you need to have a sense of by how much.

My rule of thumb is that as soon as there are two offers, your offers needs to be at least at or over asking price. (This applies unless it’s a Power of Sale or needs a ton of work and sometimes even then.) Your offer is going to depend on the value of the property and the comparables, bearing in mind that what has sold in the last 60 days is more important than what sold last year: prices are moving up quickly.

There are no deals. Know ahead of time that you are going to overpay. However, as long as you are not overpaying by too much, you’ll be okay. Until the market cools down, you’re going to run into this situation over and over, and there are no deals. On the other hand, if prices keep on going up, as long as you haven’t overpaid by too much, it won’t take long before your purchase price corresponds with fair market value.

An example: I looked at an end unit in Riverside South a couple of months ago. It was lovely, but nothing there had sold for more than $ 375K. At $ 400K, I thought it was a little over-priced. It sold for full price within a week. And now that very same unit would easily go for $ 420K or more. The person who overpaid two months ago now has a property worth more than they paid for it. That’s how quickly things have changed.

Because of this, I don’t think paying a few percentage points over asking is a problem, and agents who price for multiple offers usually price at least 5% below what they think market value is anyway. Besides, if there are multiple offers in play, the market is saying the list price was too low to begin with: the more showings, activity, and offers, the lower the list price is relative to what the market thinks is good value in this market.

But when you start offering 10 per cent or 20 per cent over asking, it’s going to take quite a while for market value to catch up. I’m hearing stories in my office of buyers paying $50-100K over asking price for homes that aren’t worth anywhere near that and won’t be for years  That’s a little nuts. You’re not going to get a break on price in this market, but you don’t want to be gouged either.

Come in with your best offer. In a multiple offer situation, you rarely get the opportunity to deal with a counter-offer from the seller. The seller has choices, and they will pick the best offer, usually right on the spot. (Sometimes there are two offers that are so similar they will send both back to improve them, but that’s rare.) You cannot rely on having an opportunity to revise your offer. There is absolutely no point in coming in with an offer below list price: all you do is help drive up the price for the successful buyer without any prospect of success yourself. Why bother? (Pro tip: I usually add an extra $ 100 to an offer price just in case two turn out to be exactly the same. Yes, you can lose a bidding war by $ 100.)

It’s not always about money.  In one of my recent listings, we had seven offers. One was much higher than the one we accepted because that buyer did not give us the closing date we’d asked for. My clients had bought a new house and needed an early closing date as they couldn’t afford to carry two properties, even with bridge financing. They went with the lower offer that gave them their preferred date.

If you can give the seller the closing date they want, you have a much better chance of getting the property. For my sellers, having more money down the road with a higher sale price later on didn’t help them now: they needed to get the money out of their current house to pay for the new one within their time lines.

Be persistent. There are still great houses out there. Yes, it’s frustrating, I know, but if you have a good realtor and move quickly, and are smart about it, you will eventually find a home. My last five deals for buyers were all multiple offers and my buyers got their dream house every time: they’re delighted. And they went in with their eyes wide open.

 

 

 

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Before and after – this gorgeous Hunt Club townhouse is now staged (and listed for sale!) SOLD! $ 15k OVER ASKING!

Here are some of the “before and after” shots of the lovely freehold townhouse I’ve been getting ready for sale:  it’s now active!  I listed it this afternoon around 3 PM and we’ve already had four requests for showings, so it’s going to be a busy listing!

By the time I first saw this house, this wonderful shell light in the living room had been moved over to the dining room and hung above the dining room table. I thought it was a great  light fixture, but it was a little too big for the space. I suggested we replace it with a drum shade chandelier instead, and you can see that below. The owners had also moved that storage unit downstairs to use as a TV stand. Here’s the before:

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And here’s the after. The biggest transformation was simply re-arranging the furniture (and of course, replacing that carpet with hardwood). We got an incredible bargain on the hardwood at $ 2.75/sq ft at Home Depot (for solid birch). I purchased the carpet from SmartChoice Furniture in Vanier for $ 150 — I had been renting it from them for all my stagings and finally decided I should buy it. Art and cushions are all from HomeSense.

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The dining room really didn’t need much except for that new light fixture I mentioned. I hung a painting over the fireplace, instead of the mirror. The mirror was a great size and would have worked as well, or even better, but we had just painted this room with Behr Mortar (a light blue grey) and I didn’t want to have to use big screws and damage the wall to hang a  heavy mirror. Here’s the before:

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And here’s the after. The small oil painting is by a local Ottawa artist and it’s rich with saturated colours, like a little gem on the wall. (Those ottomans under the window were moved to the basement.)  I would have put something on the wall beside the dining room table but there isn’t much room behind the chairs, and I didn’t want the kids bumping into it.  And there’s the light fixture – around $ 100 at Rona. I love it.

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In this before shot, the kitchen was really just cluttered, and the ceramic tile floor had cracked, so we replaced it with that same gorgeous hardwood that is elsewhere on the main level. (This picture was taken before the sellers reconfigured the space to move the fridge where the microwave was – it’s a much more functional space than it was.)

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Here’s the after: huge improvement! (That photograph on the wall was a gift from a friend who knew how much I love Prague.)Royal 8

The master bedroom really surprised me when I first saw it – it had the biggest bed I’d ever seen! That king size bed was  pretty much overwhelming the space. I suggested taking off the foot board and the owners agreed: that change alone was incredible! Here’s the before:

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And here’s the after. The lamps came from HomeSense – at $ 60 each, they were a bargain and they carry forward that drum shade theme that you’ll see elsewhere in the house for cohesion. Those are my curtains; they have a Moroccan pattern on them that also carries through another  theme I’ve used in this staging.

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Now, here is that  ensuite I’ve been blogging about. This is what it looked like the first time I saw it — notice the wood trim at the top. When Alex, my tradesman, and I saw that, we knew it spelled trouble. You can’t have something porous like wood in a shower. That whole surround had to be pulled down and sure enough, it had leaked.

Royal Oak tub surround BEF

I won’t repeat all the stages involved in fixing the surround — I’ve blogged about the work Alex did on this shower in my previous posts — but it’s nice and watertight now, and look at the transformation! I pulled in the dark blue from the bedspread in the accent towels and art. That bedding is from Quilts — around $ 70 including shams–and also has that shade of tan that’s on the bathroom walls in the pattern,  so the ensuite and MBR work beautifully together now. Here’s the after. Gorgeous!

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The foyer felt very cramped and dark to me. I don’t have a “before” picture, but the closet doors were old vinyl sliders that had seen better days (the tracks were rusted out) and the light fixture wasn’t doing anything for that space.

I asked the owners to install a new ribbon light I picked up for them  (it was $ 97 at Lowes), and Alex installed new ceramic tile flooring I picked out (I think it was around $ 1.00 sq ft from Home Depot). Mirror Works installed these wonderful mirrored doors (around $ 450, including installation). Beautiful – and it looks and feels twice the size!

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And remember those two big ottomans from the living room?  What do you think of them now? Pretty nice basement, I’d say! The art and cushions are all from HomeSense except for the two black and white pillows. I picked up the covers at Fabricland for $ 8 each. I can’t remember where I got the inserts, but they weren’t expensive.

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And there’s that storage unit I mentioned. Much  better down here, I think!

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I also staged the mantel. One of the prints is by Rene Rivard, a local artist; another was done for me by Lauren Amelia Redding, who does silver point  drawings (the drawings tarnish over time, it’s lovely!), and it’s a picture of a character from one of my novels. The black iron crow is a favourite of mine; I brought that one from home. I think this whole room looks amazing!

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We had seven offers on this property, which sold for $ 15K over asking, so the owners’ investment in updates more than paid off! They’re thrilled!

 

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Bathroom renos are almost over – tile is grouted!

We’re almost done the renovations to this bathroom, and after that, and some other small tweaks, I will be able to stage this home and get it on MLS for sale. But here’s the “before and after” so far – Alex has finished grouting the tile, so all that’s left to do is put up a shower curtain rod and paint the walls.

Here are the “before” shots of that leaky tub surround and the work Alex did to get it properly waterproofed before he tiled it.

And here’s the “after”: the grouted surround.

 

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We used Bone White grout, sanded, from Home Depot. (Sanded mean it’s smooth; you use narrower grout lines for a sanded grout.)

Re costs: the Gloss White subway tiles were about $ 300 at Home Depot and Alex’s labour cost for the tile alone was about $900.)But as you can see, everything was done properly and it’s beautiful.

This property will be listed soon: it’s a lovely 3 bedroom freehold townhouse in Hunt Club, close to everything. Keep an eye out if you’re in the market or contact me. I’ll put up staging photos as soon as they’re done; the homeowners are still busy getting things ready.

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The bathroom renos continue – tile is up!

So, here we are on what is essentially day 3 of this bathroom tub surround reno (day 1 was removing old tile, drywall & insulation; day 2 was installing new greenboard and waterproofing and day 3 was installing new tile)! Here is the before-and-after so far:

 

 

(We think that white spray on the drywall was primer. Might have been the painter checking his spray before he sprayed the ceiling.)

Anyway, here’s the new tile! I love stacking subway tile — it gives a clean, modern feel to a space. Alex is meticulous as well: lovely job!

We’ve decided to use Bone White grout from Home Depot so that the grout lines won’t be as noticeable as they are here – we don’t want the surround to clash with the paint and floor tiles. I’ll be staging this bathroom this weekend – stay tuned!

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Completing a reno to get ready for resale – work on the bathroom continues!

As you know, I am helping to get a clients’ townhouse ready for sale. I posted a couple of weeks ago about the bathroom tub surround in the ensuite that we had to redo because it hadn’t been installed properly.

Instead of tile going all the way to the top of the surround, the tradesman they used had installed a strip of wood. And since wood is porous, as soon as Alex Martinez, who was working at the time to install hardwood, pointed it out to me I agreed it was a problem, and so did the clients. He pulled off the tiles and this is what we found.

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The black parts of the fibreglass show the water damage; it was already leaking.

ayesha 13There were several other problems with this installation. First of all, drywall had been used  instead of a mold-resistant board, and drywall is porous, as is grout, so eventually, if you use it, you’ll have water damage.

Also, there shouldn’t be fibreglass insulation behind the tile/drywall. Fibreglass insulation absorbs water and isn’t normally used in an interior wall at all. In a bathroom, you might want to have insulation to muffle noise, in which case you wouldn’t use fibreglass but styrofoam or spray in insulation.

And finally, the jacuzzi tub hadn’t been secured properly either. It rocked from side to side, and eventually the plumbing attached to it would have leaked.

We had some delays while the homeowners got a quote on what it would cost to replace the tub altogether and install a new one, but they finally decided to keep it. With that decision made, Alex removed the insulation and I was happy to see that there was no water damage to the drywall behind it.

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He secured the tub properly (it was a bit tricky because of where the studs were), and then he put up greenboard, which is a mold-resistant board; waterproofed the corners and sprayfoamed the cracks. Tomorrow, he’ll get started on tiling! Here’s where things are at now:

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I picked out a 3″ x 16″ white subway tile that will be stacked instead of staggered. There it is, along with the new hardwood and tile we installed elsewhere. We have yet to make a decision as to what colour grout to use; I’m tempted to go with a light gray and show off the grout lines. But it’s going to be nice. Stay tuned for more pictures!

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How does the mortgage stress test affect first time buyers?

I am working with a first time buyer right now, and I admit, I was a little startled when she told me that if she proceeded with a condo offer on the modest condo we were looking at (600 sq ft), it would cost her $ 2300/month, including taxes and condo fees. And that was with a hefty deposit!

That was at a 3.09 per cent interest rate, but to get the mortgage at all, she had to qualify for 5.09 per cent under the mortgage stress test. (The new rules now apply to those with a 20% down payment as well, and  require that you establish you are able to pay your mortgage as if the interest rate was a full two per cent higher than whatever you can actually secure.)

It got me thinking about how the mortgage stress test impacts new buyers. Here’s my hypothetical:

Let’s assume a first time buyer has saved $ 16,500 as a down payment. They want to buy a modest home: in Ottawa, a one bedroom  downtown condo or a three bedroom townhouse in say, Hunt Club, runs about $ 350,000, so they have the 5% minimum down payment they need. We’ll assume that our hypothetical buyer has no student debt and that they don’t have a car.

You can find a 3.09% interest rate right now if you have a good mortgage broker for a five year term with monthly payments. As mentioned, the stress test requires that you qualify at 5.09 per cent, or two per cent over your actual rate. When I plug those numbers into a mortgage calculator, I get this:

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Now add condo fees (anything under $ 350/month and I’m concerned that the building doesn’t have enough money in its reserve fund) and taxes, let’s say around $ 300/month, and my hypothetical buyer has to have an after-tax income of $2,439/month. Add utilities (some of which may be included in a condo but not a freehold), and we’re up to around $ 2700/month. If they have a car payment or student debt, they will be well over $ 3,000/month. That doesn’t include credit card payments, clothing, food, phone or internet.  Not too many first time buyers that I know are earning that kind of money after taxes. And that’s without setting anything aside for contingencies.

So what’s the impact of the  stress test? Well, it’s probably going to take longer for higher priced homes to move because those same considerations apply to all buyers who apply for financing.  It’s a whole lot harder to get a mortgage than it was a year or two ago. (I’ve read in other analyses that a buyer with a 20% down payment who qualified for  a $ 720K purchase last year  qualifies for $ 570K this year, under these new rules. That’s a huge drop in buying capacity!)

As long as our housing inventory stays low –we’re down around 27 per cent, year over year in terms of the number of overall listings– I think we’ll still see a pretty brisk market. Right now, we have so few properties to sell that anything decent is selling quickly, often with multiple offers. Ottawa is also seeing an increasing number of foreign buyers and buyers from other provinces, because it’s so affordable by comparison to places like Toronto and Vancouver.  Many of them are cash buyers, so the new mortgage rules don’t apply to them at all.

But for first time buyers, it’s getting a whole lot tougher to purchase, and every time the interest rates go up, it gets even  harder. Which means  the rental market is likely to tighten, so I expect rents to go up. We may see more purpose-built rentals as developers realize that they can rent more easily than they can sell to this demographic but that takes time so it’s probably going to get harder to find nice places to rent as well.

Those small condos and townhouses priced at $ 350K are going to get snapped up quickly, which will drive the prices up, making them even less affordable for first time buyers.

The federal government announced a policy last year of wanting to make housing more affordable for first time buyers. As I’ve shown, the new mortgage stress test has the opposite effect in the very price range that first time buyers need access to. It’s that old law of unintended consequences. The stress test assumes that interest rates will go up (I agree). But it ignores the fact that after five years, most first time buyers will have see their income increase and their monthly mortgage payments decline, as they pay off principal. And surely someone with 20% down has enough equity to protect lenders — there is absolutely no reason that I can see for the new stress test to apply to them too.)

With the spectre of higher interest rates ahead, and prices still relatively low, I do think this is the time to buy, but man, I feel for those first time buyers who really want to get into the market and just can’t get there.

 

 

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Aluminum wiring – what should I know?

Sometimes you’ll see a reference in a listing to a property being “pigtailed.” Or you’ll be doing a home inspection and the home inspector will point out aluminum wiring. What does that mean?

A lot of homes built in the 1960s and 1970s have aluminum wiring. Copper was expensive at the time, and aluminum is a good conductor. The problem is that it can oxidize. It is incompatible with devices intended for copper wiring. It’s very malleable and can come loose at the terminal screws. It can overheat. And so it’s considered a fire hazard. Some warning signs to look out for include sparks from light switches when you turn them on or off; warping of cover plates, weird smells around cover plates, flickering lights.

It would be very expensive to have to pull all the wiring in a house out and replace it, and so the solution that is most commonly used is pigtailing. This involves inserting a copper wire — the”pigtail”– between the aluminum wire and the device connection screw. It’s not that expensive (I had clients who paid around $ 1000 to have all the switches and plugs in their homes pigtailed a few years ago) but some insurance companies are still nervous about the fact that there is aluminum wiring in the home at all and won’t insure.

If you believe that there is aluminum wiring in a house you are interested in making an offer on, don’t just include a home inspection condition in your offer, but include a condition to deal with insurance as well. The offer should be contingent on your being able to find an insurance company that will insure you on terms that are acceptable to you in your sole and absolute discretion. Otherwise, if the home inspection reveals that there is aluminum wiring in the house, you may discover you can’t find insurance that you are comfortable with, at a premium that you can afford.

If the home owner or listing agent tells you or your agent the property has been pigtailed, have your realtor ask the seller to provide ESA certification that it’s been done: your insurance company will require proof that the repair has been done properly.

ESA means Electrical Safety Authority: only one of their approved electricians should be contracted for this kind of work. You’re not changing a light fixture, you’re trying to prevent a fire.This is not a DYI exercise, it should be left to the professionals.

I had this question from a client this week:

In general, if a house has aluminum wiring, and insurance company doesn’t cover, what’s the standard protocol? Do we include a condition that seller covers the cost of replace/pigtail in our offer?

This was my answer:

Some insurers won’t cover homes with aluminum wiring even if it is pigtailed. It is prohibitively expensive to pull out all the wiring in a home to replace it, so it means finding an insurer who will insure pigtailed wiring.

If there is no pigtailing done, we either try to get the seller to get it done before closing, and/or the insurance company will usually give the buyer 30-45 days after closing to provide proof it’s been done.

Since pigtailing isn’t that expensive to do, it depends on the purchase price (and whether you are in a multiple offer situation) as to whether you try to get the seller to do it at seller’s expense. Better usually to negotiate a lower price and do it yourself so that you know it’s done properly and have the ESA certificate that your insurance company will want to prove it’s been done properly.

Here’s a link to an ESA Bulletin that explains everything you need to know about aluminum wiring.  This is one of those things that really has to be dealt with, and can often only be determined on a home inspection, so don’t ever waive a home inspection on an older home — it could put your whole purchase at risk.

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