Home inspections! Just that phrase alone can raise the hairs on the back of any Buyer’s, Seller’s, or Agent’s neck. Why, you ask? Because most frequently, the home inspection contingency is the highest and most painful hurdle that the parties to a Real Estate transaction will have to leap. The good news is that there are many ways that you can successfully handle a home inspection report in a way that works for both the Buyers and Sellers. In this blog article I’ll discuss why you may or may not want to get a home inspection and what you can do once you receive your home inspection report.
First off: Should you get a home inspection? My Answer: It depends. Generally, I recommend home inspections for home Buyers and pre-inspections for Sellers. The reason? If you haven’t owned a home before or if you aren’t a DIY/handy person, you can learn a TON about your home in your inspection. The home inspector is a licensed professional who will go through your home with a fine toothed comb, search out any defect, and will do a fantastic job educating you on your home. They will inspect the exterior, roof, windows, plumbing system, HVAC system, electrical system, attic, and many other things in the home. They will also be able to show you where the main water shut off is and other helpful things that you should know as a home owner.
Sometimes though, it might make sense to not have a home inspection. If the home is new or nearly new, then it might not be necessary. Or, if you have bought and sold many, many homes, and are very experienced in the structural and mechanical systems in a home, then you might not need to. My dad is a residential contractor and has bought and sold many properties. He probably wouldn’t need to get a home inspection, given his knowledge base, but.. he still does most of the time! Also, if the home is very competitive, as in there are multiple offers on the table, you may consider forgoing the inspection to make your offer more desirable to a Seller.
Perhaps the most important reason to consider getting a home inspection (and including a home inspection contingency), though, is that it gives you recourse to ask the Sellers to make repairs or potentially cancel a contract if a defect/adverse fact/material adverse fact is discovered and a suitable “fix” cannot be agreed upon. This is the best insurance you can ever get. I’ll give you a quick example. I once had a home under contract that had a bulging wall in the basement. The Seller said the issue had been cured by doing extensive (and expensive) landscaping. He even had the paid receipts to prove it. We decided to make the purchase contingent on the home inspection. In the inspection it was determined that the issue was not resolved and that there was a MAJOR structural design flaw that would have haunted my buyers for potentially decades and could have cost them tens of thousands of dollars. They cancelled the deal and purchased a different home. So, yes, that $300 home inspection was absolutely worth it many times over!
With that being said, however, the home inspection does not serve as a means to incite panic or beat up the home’s Seller. It is an educational report that gives you leverage to ask for necessary repairs, but that should be taken with a grain of salt. If you are buying an older home, there will be defects and you have to be okay with that. Sure, a Buyer can ask for some more significant defects to be repaired, but it’s not a method to force the Seller into “rebuilding” the home. In fact, the Seller doesn’t have to cure anything. They have the right to, but not the obligation. It’s good for Buyers to remember that. They can always cancel the deal and sell it to someone else. As I always tell my Buyers, “Ask for the things you care about the most, and plan to repair the remaining items yourself.” The reason for this is that typically a Seller and their Realtor will have priced the home according to the condition it is in!
So, let’s assume that you did get a home inspection and there were defects on the report that you would like cured or fixed. How is this handled? I typically recommend these three methods:
- Ask the Seller to fix the items prior to closing. Often times this is written in an amendment and is written like this: “Seller agrees to and shall have a licensed plumber fix the leak above the water heater prior to closing and provide a paid receipt for the work completed.”
- Ask the Seller to credit you money to fix the issue yourself after closing. This can often be extremely attractive to Sellers, especially if there is not time to get a qualified or licensed professional to cure the defect prior to closing. A Seller credit will keep more cash in your pocket in the short term because it will lower the amount of “closing costs” or down payment money you need to bring to closing. This way, you can pick your own contractor and have the work completed after closing.
- Ask the Seller to lower the price. This is attractive in the same way a Seller credit is to Sellers. They don’t have to “do anything” other than adjust the price of the home and you can fix it after closing. This will lower your mortgage and save you money in the long run, but will likely not significantly affect your out-of-pocket cash in the short term.
The risk for Buyers with options #2 and #3 is that if the defect ends up costing more than anticipated, you are on the hook for paying the extra expense. The benefit is you can pick exactly what contractors, repairs, materials used, etc that you want.
The last thing I would like to cover is what events happen when a defect is uncovered. If a defect is uncovered that a Buyer would like cured, the first thing that is typically done is the Buyer sends an Amendment to the Offer to Purchase requesting for the defect to be cured, a Seller credit be given, or the price reduced. Think of an Amendment as a “polite request”. The Seller may or may not want to do any or all of the things that are requested. If the Buyer and Seller cannot come to an agreement, then a Notice Relating to the Offer to Purchase must be sent to the Seller regarding the defect. Think of a Notice as a “direct demand” for the defect to be cured. The Seller then needs to decide if they would like to cure the defect or not (in Wisconsin it is typical to give the Seller the “right to cure”). If they will cure the defect, then they cure it, and both parties move on to closing. If they will not cure it, typically a Cancellation and Mutual Release will be signed by both parties and the earnest money will be disbursed to the agreed upon party. The goal is to always find an agreement to somehow cure the defect that is acceptable to all parties. One caveat: If the Sellers disclosed a defect prior to the offer being written, then the Buyers need to address that defect in the offer, not after the inspection, because they had prior knowledge. For example, if the Seller disclosed on the Real Estate Condition Report that there was knob and tube wiring in the attic, and the Buyer does not address it in the offer, there is no recourse for the Seller to cure it after the home inspection reiterates that there is knob and tube wiring in the attic. The knob and tube wiring would have had to be addressed and negotiated in the initial offer. Another simple example is this, if a Buyer notices on the initial showing that there is a broken window in the living room, they do not necessarily need an inspector to tell them that the window is broken. They can write directly into the initial Offer to Purchase, “Seller agrees to and shall have a qualified professional replace or repair the broken window in the living room” or something of that nature.
So, as you can see, Home Inspections can be a source of discomfort for all parties, but if you have a professional, proven inspector and a competent, experienced Realtor almost all issues can be resolved in a manner that suits all parties. Having realistic expectations is also critical. As a great Realtor who helped train me once said, “I tell all of my Buyers to expect to have to make $1,000 worth of repairs once they purchase the home, and each of my Sellers to expect to have to make $1,000 worth of repairs prior to closing.” While this is not universal, it does set a realistic expectation for what you will likely experience in your home buying or selling experience.
I hope you enjoyed this week’s blog article. If you have any other insights or comments, please feel free to share them. And remember, a home inspection report is just a tool to make you a more informed and prepared home owner! It’s not meant to be a deal breaker! A home inspection is a wonderful investment and tool that should give you lasting confidence and reassurance in your home and purchase. Happy house hunting!
Until next time… Happy Thanksgiving!
~ Tim Nelson | RE/MAX Affiliates | 715-529-0239