Congratulations. If you are a buyer or a seller of real estate in 2021, you may have recently signed an agreement of sale or are about to do so. Great. You found the home you love. You have a meeting of the mind between buyer and seller on price and closing date. Ah, what a relief. All the hard work is done; right? Wrong. There is a tricky little thing called a home inspection. Virtually every buyer will want to hire an independent inspector to conduct a full inspection of their new home. This is all part of the buyer due diligence process. From this, a 40-page report will be generated by the home inspection company. Your first thoughts are holy cow, what did I get myself into? Look at all the stuff that is wrong or needs to be addressed. Who is going to pay for that? Every seller thinks their house is worth a million bucks and every buyer wants the house to be perfect. Is this reality? No way. Now is where all the negotiations truly begin. You’ll need to start with an open mind. If not, the deal is in trouble. We have seen many deals fall apart during the home inspection and negotiation process.
For a seller, this can be an extremely stressful time. Let’s face it, as sellers we all think our home is just fine. We’ve lived there a long time and often overlook small seemingly insignificant things as we go about our lives. However, you can count on a home inspector to find just about everything wrong with your home. They will generate a report often 40 pages in length with pictures to document their discoveries. Often times this is where a seller can become insulted and frustrated and a buyer can begin to have second thoughts. Having a strategy in place and remaining calm is very important.
That’s not all, in addition to a home inspection, your local municipality may also require very specific inspections on things like chimney, fire places, septic systems, smoke detectors, carbon detectors, building permits for work that was done on your home, sidewalks and more. So, getting an understanding of what the process is and how to prepare for it is very important. Townships call these mandatory inspections either their Certificate of Occupancy or Use and Occupancy inspections. There is always a fee to the local township for filing the paperwork and for their inspector to come out. Sellers will usually receive a list of items that the township will inspect. Often these items are safety related items, but understand that not all township requirements will be listed on their list of requirements. This can be a frustrating time. Items identified in these local township inspections are mandatory and must be addressed and corrected in order to have a house settlement. If the seller does not get a clear Certificate of Occupancy, then settlement may not happen. Lastly, in addition to the township certificate of occupancy requirements, many townships also require an inspection by the local fire marshal, who will check for smoke detectors, carbon monoxide detectors and the placement of fire extinguishers. Again, every township is different so you will want to check your local requirements.
This is part of our 2021 best in class series of articles by Nick Santoro and Joe Santoro of Personal Property Managers, who service Pennsylvania and New Jersey and specialize in real estate, property management, home content downsizing and estate sale services. These tips and insights are especially important and true in the environment we are in today, with the global economy turned upside down, massive job losses, and the need for extreme social distancing due to the Corona Virus, which causes the COVID-19 disease. Additionally, during this challenging time in the Corona Virus and COVID-19 era, we help families that are unable travel or tend to their property needs by providing a true one-stop resource. We are focused on making life just a little easier for families during often difficult times. With Personal Property Managers, one call does it all.
Just to give you a little more insight, buyers and sellers often think the negotiations are complete as soon as both parties sign the purchase agreement. The fact is that another round of negotiations is frequently needed after the house is professionally inspected. The inspector’s role is to make the buyer aware of any problems that may not have been known previously so the buyer can make an informed purchase decision.
Risks of Waiving a Home Inspection
In this strong sellers’ market, it can be tempting for the buyer to waive the home inspection. This can make your offer look stronger if the seller has multiple offers to consider. But it is a huge risk for the buyer. In a seller’s market, which we have now, the buyer has probably submitted a top-dollar offer. Do you want to pay top dollar and then have to make expensive repairs that weren’t known about? Do you even have the money to make those repairs? Besides the additional expense, the buyer also risks that the lender will not approve the mortgage without an inspection or that an insurance company will not issue a homeowner policy. Even a strong sellers’ market is not a good reason to waive a home inspection.
Your Options After the Inspection
Following the inspection is a time that real estate agents typically play an important role. Emotions run high when the seller and buyer believe a deal has been struck but both learn there are more issues to be resolved. A good place to start is for both agents to go over the report separately with their clients. They should make it clear that generally five options could result from the report:
What Probably Can’t Be Negotiated
Although there will be professional opinions involved, the report can be prioritized into issues that must be corrected and issues that the buyer would like to have corrected. There are no hard and fast rules about what has to be corrected. The deal might fall apart but both parties are free to refuse the demands of the other. For instance, the seller should not be expected to make repairs or improvements to items that were visible to the buyer when he or she viewed the house.
Items that are generally not negotiable after the inspection include anything that was accurately described in the Seller’s Property Disclosure Statement. Also non-negotiable are cosmetic issues like worn carpets and peeling paint that was visible. Anything visible that the buyer wanted to be corrected should have been part of the already signed purchase agreement.
Older homes can present unique challenges in this area. An inspection could report that an old but functioning furnace should be replaced within a year. If the furnace is functioning correctly, this is more opinion than fact. Either way, the condition of an older home and the probability that future repairs will be needed should already be built into the sales agreement. It’s the surprises that are more negotiable.
What Might Be Negotiated
It doesn’t happen often but there can be issues that the seller’s lender will make the loan contingent upon. This could be a damaged roof that was not detected by the buyer. The seller can’t be forced to make the repair but chances are they won’t be able to sell contingent on a loan until the repair is made.
There can be other major problems that only come to the buyer’s attention via the inspection report. This could be a roof nearing the end of its useful life, a damaged electrical system, foundation damage, crumbling chimney masonry, a poorly constructed deck, etc. These surprises can warrant a price reduction. In many cases, the seller will have to include this information in the Seller’s Property Disclosure Statement for a future sale.
Just because a problem needs repairing doesn’t mean the seller has to make the repair. Often it’s in the best interest of the buyer to get a price concession and arrange for the repairs themselves. The seller is still looking at the bottom line that he or she will walk away with. The seller is likely to have a minimum repair made rather than consider the long-term consequences.
Local code violations such as missing handrails almost always have to be repaired. However, upgrades to revised codes that were grandfathered are negotiable. The home inspection is not a code compliance inspection. While the inspector might make recommendations based on code changes, the buyer needs to look at the big picture. Rarely are houses that met code when built required to be upgraded at a later date. If the buyer wants a house complying with the new codes, he or she should probably be looking for a newer house.The buyer obviously wants to purchase the house if a purchase agreement has been signed. They should approach the house inspection as a relationship with the seller rather than a need to be right about everything. This is what makes a “must fix” and “nice to have” priority list good from the beginning. Final negotiations aren’t complete until the house inspection has been accepted.
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