June Q&A: Home Inspections

Not too long ago, a three-syllable word could kill a home sale that seemed to be in the bag.

The word: Inspection.

During the Great Recession, one out of every five homes that went under contract was falling apart after the inspection, according to estimates from some real estate agents in the field.

In today’s hot market, the inspection is rarely a deal killer.

In fact, some real estate agents are alarmed that home sellers are demanding buyers ignore the findings of an inspection, as they have no intention of negotiating at a time when bidding wars are common in hot neighborhoods.

Having a home inspected before a home closes is the topic of this month’s question and answer session between Lane Hornung, CEO of 8z Real Estate and John Rebchook of Denver Real Estate Watch.

The Q&A is part of 8z’s Real Estate 101 series.

John: Lane, let’s get really basic. Why do buyers typically have an inspection after they place a home under contract, but before they close?

Lane: The purpose of an inspection, first and foremost, is to identify any health and safety concerns. The No. 1 priority is that you buy a home that is habitable.

Fortunately, really big issues like a crumbling foundation, are relatively rare.

John: How do you choose an inspector?

Lane: Good real estate agents should be able to provide a list of competent inspectors they have vetted.

John: I know when the market is soft, or even in a normal market, sometimes a buyer will get cold feet and use the inspection as a way to get out of a deal or renegotiate the terms.

But what about in areas like the Front Range and Northern California, where demand for homes far outstrips the supply?

Lane: Clearly, the buyer has far less leverage in a strong seller’s market. Some sellers, in fact, are basically saying they are selling the home “as is.”

The sale price is non-negotiable, no matter what the inspection or the appraisal finds.

You can typically still have an inspection, of course; it’s just that either party might not be inclined to negotiate on any repairs.

John: Should a buyer agree to that?

Lane: I chuckle a bit when people make blanket statements that you should never do something. It all depends on the buyer’s individual situation. There may be times when there are rational reasons for buying the home under those circumstances. For instance, a buyer might be planning a complete remodel of the home, making inspection items less relevant.

John: Should a buyer ask for a price reduction after an inspection, even if the seller says they won’t budge on price?

Lane: Some people will ask. They figure the seller can always say no, so there is no harm in trying to get the seller to come down a few thousand dollars to repair items found during the inspection.

But in inventory-constrained markets, the seller may have backup offers.

The seller may decide to sell it to someone else who will buy it as is. It’s a risk a buyer has to consider.

John: How about the seller? Should the seller get an inspection?

Lane: In Northern California, sellers typically have their homes pre-inspected.

Why not? This avoids any surprises down the road for the seller.

I recommend disclosing everything. Real estate transactions work best when both sides have as much information as possible.

Even in a seller’s market, it is smart to disclose everything.

John: Should a buyer freak out when they get the inspection report?

Lane: I think it is a good idea for the home buyer and the real estate broker to be present when the inspector presents his or her summary of issues at the end of their inspection.

John: Why?

Lane: Some things may come across as Armageddon in the report, but are really minor.

The inspector is just doing his job. He has to cover all of his bases.

That hairline crack in the concrete driveway may sound ominous in the report, but may look less daunting in person with your own eyes.

Remember, no house is perfect. If it is a resale home, it means that it will have some wear and tear. Even a new home won’t be perfect. In fact, I would recommend even if you are buying a new home, you have it inspected.

It is important to have as much information as possible in order to make a rational, informed decision on whether to buy a home.

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