What is a Betterment in Real Estate?
Today we are answering a question from Steve in North Andover: What is a betterment? This is a great question, and it comes up occasionally in home sale situations. Today we’ll talk about what a betterment is, how it affects your home sale or purchase, and who pays for it.
What is a Betterment?
A betterment is when a municipality, town or city is doing some type of an improvement to the area that you’re living in. The most common improvement that a betterment results from is sewer lines being put in. So, in rural areas where there are septic systems on everyone’s properties, a town can put in sewer lines and tie your home into the sewer line and then assesses a betterment to you as the homeowner. This is an amount of money that is shared amongst the residents that are mostly affected by the improvement the town has made. So, it can vary in price and can vary in how you repay it. The home owner is responsible for the betterment. The city usually asks that it is paid within a year. Sometimes the city will provide a monthly payment option with a small interest rate to give homeowners who don’t have the money upfront the opportunity to pay it back over time.
How does a Betterment affect the sale of my home?
When a betterment is placed on a property it is actually a lien on the property by the town. When you go to sell your home, typically that betterment must be paid at closing out of proceeds of sale from the seller. You might say, “what if I have no equity in my home? or what if I don’t want to pay it and want the buyer to pay it?”. Well, you can certainly disclose upfront to a buyer that you want the buyer to take on a betterment. How can they take that on? Certainly a buyer can write a check at closing to pay it off. Depending on the town, they may allow the buyer to assume the betterment and continue paying it overtime.
But the most critical thing you need to look at if you’re a buyer is: ask your lender if they will allow a lien on the title that they are about to write a mortgage on. All liens have to be removed from a title before a bank will lend on a property. It must have a clear title for a bank to typically loan on it. In this case the town will not release the lien on the title. Typically the town lien will be above the bank lien which is the challenge here.
Who Pays for a Betterment?
As a seller in a buyer’s market: pay for the betterment at closing and price the property at a point where you are getting enough money to pay off the betterment. In a seller’s market, you have a little more strength to say, “I’m going to price my house at market value and I want the buyer to pay for the betterment.” Keep in mind though, your home will be compared to other homes without the betterment and a good buyers agent will say, “hey these other homes don’t have a $15,000 fee on them, so help me out with that.” In either scenario it becomes a negotiating point and is a personal plan based on your specific situation and market conditions.
Have questions about the North Andover real estate market? Need help buying or selling your home in North Andover, we’d love to help you and your friends, families and neighbors! Contact Ron Carpenito, North Andover Real Estate at Keller Williams Realty (978)494-0346.