The Home Inspection: Do's and Don'ts, and How To Keep It On The Real....
Sharing this great article written by BY RALPH GORGOGLIONE.
During a home purchase and/or escrow process, the physical inspection of a home takes on MANY different purposes. There's the obvious of having a discovery process on what the current state of the home is in.
But it goes above and beyond that. Many buyers use this as a fork in the road, and depending on the profile of the buyer, many times the physical inspection serves as a decision-making point on whether or not to proceed with the sale.
This is probably one of the most important real estate blogs I will write regarding the home purchase process. I've seen many a transaction fall apart after the physical inspection, and a good amount of time it is for reasons that could easily have been circumvented.
1. A HOME IS MADE OF ORGANIC MATERIALS - It's so important for you to realize that a house or condo is made out of organic materials: wood, concrete, metal, plaster, brick, etc. All of these materials are subject to the elements. And by that, I mean they are subject to wind, rain, sun, earth settlement, insects, etc. These are things that naturally occur on a daily basis. You can praise or curse them all you want, but they are what they are. Don't fool yourself into thinking you can stop Mother Nature. You cannot. Now that's not to say that you can make a big difference in the condition of your home by being attentive to ongoing preventative maintenance. But the important point is: Know that the home you're buying is and has been subject to the elements. It's a fact of life. Don't fool yourself into thinking that the only way you're going to be happy after the home inspection is if everything is cast with gold and in "squeaky-clean, pristine, never-before-touched-by-human-or-animal" condition. Get over it! If you're not on the real when it comes to this, not only will your life be eternally cursed with unnecessary stress, but you will likely NEVER become a homeowner. And if you are a real estate agent reading this blog, then prep your buyer with this important outlook going into the physical inspection so that they are realistic about the process.
2. THE CERTIFIED HOME INSPECTOR HAS A JOB TO DO - It is so important to realize that the certified inspector themselves are there because you are paying them for their services. You are hiring them for their expertise. What does that mean? It means that since they are commissioned to perform their service and provide you with their expertise, they can't just "phone it in" so to speak. They can't just do the inspection and state "Yea, this is a good house. Cool, no biggie" Even if the house is the most perfect, pristine piece of real estate on the face of the earth, they will still need to find something wrong with it because at minimum they need to show that they were actually in attendance! Once more, they know that they are responsible for their opinion. If they say it's a great house and nothing is wrong with it, their reputation and liability is at stake, so if anything they are likely going to err on the side of caution. Even if it's brand new construction, expect them to find things wrong with the house and don't stress out about it. That's what the inspection is for - it's an opportunity for discovery.
3. SHORT SALES AND BANK OWNED PROPERTIES HAVE AN ENTIRELY DIFFERENT APPROACH TO THE PHYSICAL INSPECTION - When you have a standard sale at hand, meaning it is not a distressed or bank-related property, then the seller is in the picture and is readily accessible to discuss and negotiate the possible repair or credit for repairs to the property for most things that are substantial, anyway (see section 4 below).
On bank-owned properties you must realize that even though the bank or mortgage holder is on title and legally owns the property, they have never lived in the property and have no ability to become involved in the negotiation for repairs nor do they have any first-hand, primary knowledge of it's condition or prior work done to the property. In fact, you'll likely come across some documents in a bank-owned transaction that state something to this affect.
When you are involved in a short sale transaction, it is just about the same type of situation as a bank-owned property, but even more far-removed in that the mortgage-holding bank does not even legally have the right to negotiate on the condition of the home because the borrower is still on title to the property and they do not own it. Above and beyond that, they are already calculating their losses, so they will flat out take the "as-is, no repairs" approach to issuing the written approval for the sale.
So the most important thing for you to realize going in to a short sale or bank-owned transaction is that the physical inspection is for your sake only. The bank will not be doing any repairs nor issuing any credit for repairs, so just know this in advance and be prepared to have to deal with any issues financially. Also, if you are using a loan to purchase a property, it is SO important that both you and your agent understand the guidelines related to the condition of the home for YOUR particular type of loan prior to viewing homes (see section 14 below).
4. FOCUS ON THE MAJOR AND SUBSTANTIAL ISSUES - You do not want to "nickel and dime" the seller in the case of standard sales. It is SO important that you focus on just those issues that are substantial. These usually are the areas of plumbing, heating and air, electrical, structural issues, extreme health or safety issues, and roofing. The inspection is your opportunity to discover anything substantial, NOT the opportunity to have the seller do a remodel or renovation to the home. It's generally not a good idea to include something like a $2 gasket on the request for repairs. It's only going to hinder and make the upcoming transaction tasks become that much more difficult psychologically between you and the seller. Be smart about it: is it worth it to ask for credit for the $2 gasket when you have a possible appraisal issue or closing date extension or some other issue coming up down the road? Submitting a request for repairs that looks like a laundry list has it's "price" (pun intended). Believe it or not, there is a sustantial mathematical value towards staying on good faith terms with the seller rather than come across as someone with entitlement issues.
5. THE TECHNICAL SKILL SET AND "PEOPLE" SKILL SET OF YOUR CERTIFIED INSPECTOR ARE CRITICAL - A good inspector really needs a combination of skills in order to be most affective. It's a given that they must understand the intricacies of home construction. One of my top inspectors actually has a degree in engineering. Of course that's not a requirement, but it sure does give him the depth of knowledge and analytical skills that make for a great inspector. But the other element required for a great inspector are their people skills. You can be a rocket scientist on the technical side and know construction inside and out, but if you have inadequate people skills it could really throw a wrench into the inspection (pun intended, again). A couple of good examples are if your inspector comes across as an "alarmist", or provides major overkill to the buyer just for the sake of showing how much he or she knows. Neither of those approaches are what the inspector is really paid to do. In fact, it's pretty self-deprecating and does not serve the buyer well in their goal of becoming a homeowner. Finding that inspector with the right combination and balance of skills is a find. When you do find that inspector, definitely keep them in your "rolodex".
6. EMPATHY AND THE ABILITY TO WEAR THE OTHER SHOE IS CRITICALLY IMPORTANT - One of the keys to successfully negotiating repairs or credit for repairs is to not only identify what your goals are as a buyer, but to think from the standpoint of a seller. What if you were a seller? What would your boundaries be? From a buyer's standpoint, it's very easy to take the approach to hand in a request for repairs that looks like a laundry list. You may be thinking "This is the biggest purchase I will make in my life and I've worked hard for this money, etc." or some other kind of viewpoint that I will fall "this" short of calling "entitlement issues". Keep in mind that a request for repairs is NOT an opportunity for you to have the seller pay for upgrades. You need to focus on major health or safety issues, or if you are using a loan to purchase, those items that may be lender requirements needed prior to funding the loan. Trust me, getting through the physical inspection contingency of the purchase agreement is just one of many elements. There are many others that you'll want to stay on fair grounds with the seller. What if your lender can't close by the closing date on the contract? What if you need to close early in order to lock in your interest rate? What if the kitchen makes absolutely no sense without that island (which is personal property) and you want to purchase it from the seller? These are just a few of many scenarios where it would be to your advantage to have stayed on good, fair negotiating terms with the seller. If during the course of the contract you've conveyed an attempt to gauge the seller, then you can probably expect that they may tell you to "fold it four ways" when you need a favor from them with something during the remainder of the transaction.
7. UNDERSTANDING THE SELLER'S CAPACITY TO DEAL WITH REPAIRS AND MAINTENANCE - Are you issuing a request for the repair work to be done, a request for credit towards repairs, or a combination of both? It's important to understand what the capacity of the seller is prior to issuing a request for repairs. This is just another reason why working with a good, seasoned agent will lead you to becoming a successful home buyer and not fall by the wayside and become a statistic due to a canceled transaction. What is the seller's situation? Are they even in a position to deal with actual repairs? Are they elderly? Are they able to deal with contractors for getting the actual work done? Do they not have liquid cash available to pay contractors? Do they not have the mental capacity to deal with contractors due to work, stress, etc.? Handing in a list of actual repairs to be completed may just kill your deal if the seller is on the verge of having a breakdown. Selling your home is highly stressful, and that laundry list of repairs may just end up being the straw that breaks the camel's back. Know your environment, and make sure your agent has dialogue with the listing agent about the seller's situation prior to issuing any type of substantial request for repairs.
8. CHOOSING A REQUEST FOR REPAIRS VS. CREDIT FOR REPAIRS - 9 times out of 10 your best bet is to ask for credit towards repairs for this reason. Why? If they agree to getting actual work done prior to closing, their main concern is getting the work done, and getting it done as cheaply as possible. They will not be putting much emphasis on the qualifications of the contractor(s), nor the quality of their work. Who knows? You may just end up having to correct some shoddy work that will end up costing you more later on. At least with getting credit for repairs (usually towards your closing costs or purchase price), you have the ability to select and screen your own contractor, and have them be accountable and accessible for the quality of work, and/or style you choose.
9. KNOW THE LAWS IN YOUR STATE REGARDING DISCOVERY AND DISCLOSURE - Don't stress about "Buyer Beware". A good agent will know what the discovery and disclosure legalities are for your state. In California, most people do not know that there is a 2-year window of disclosure that follows the closing of your transaction. What that means is that for whatever reason, during the 2-year period following the closing of your transaction, if you find something that was not disclosed to you that affects you financially, you have the right to recourse against the seller through the judicial system. SO many times as soon as a new resident moves in and gets to know the neighbors, good ol' Gladys Kravitz next door tells you about the flood the seller had last year or how the city will be replacing the faulty sewage lines on the block, etc.! If those items were not on the transfer disclosure statement and they affect you, you have the right to pursue the financial offset from the seller. Know the laws in your state by using a qualified real estate agent to represent you in your purchase. This will help you become at ease knowing that you don't have to become stressed out should a non-disclosure issue arise.
10. KNOW THE TYPE OF MARKET YOU'RE IN WHEN MAKING DECISIONS ABOUT THE INSPECTION - When negotiating and putting a dollar amount on repairs, it's SO important for you to put things in perspective by knowing the type of market you are in. Where are home values headed? How many other offers were there on the property? Are there backup offers in place? If you're in an up market, if you submit a laundry list of repairs to the seller, they are more apt to just pass on you and move on to the next backup buyer. If you're in a down market, they will probably work with you a little more. But keep in mind - is it really worth it for you to cancel the transaction and have to hop back on the saddle and look at dozens more properties all over again? Are those repairs substantial enough to justify that? In an extremely up market, believe it or not, the fair market values could have increased a substantial amount during the 30-60 or more days it's going to take for you to cancel the transaction, get back out there looking at properties, and have to write over asking in a multiple offer environment before getting another accepted offer. Do the math! Most times that will translate to you paying a lot more on a property you like a lot less just because you were getting greedy with the request for repairs.
11. USE THE INSPECTION DATE AS AN OPPORTUNITY - If you are planning on doing renovations, add-ons, etc., have your contractor show up on the day of the inspection. But remember, they are NOT the qualified professional you've hired for the inspection. Having other opinions will not allow your inspector to be objective and work freely. Do your measurements. Have your contractor or designer use the time during the inspection to discuss your options with you. Many times, what may have been thought of as a necessary repair may become a moot subject because your designer or contractor is going to get rid of it anyway due to your remodeling plans. Use the time wisely during your physical inspection appointment.
12. KNOW THE DIFFERENCE BETWEEN "REPAIRS" AND "UPGRADES" - I mentioned this before, but I want to discuss it in detail. The purpose of a request for repairs is to address substantial concerns for repairs or safety hazards that are usually due to deferred maintenance or improper installations. For example, your inspector states that the water heater appears to be working just fine but that it is nearing it's expectancy life. In this case, you don't ask the seller to replace the water heater. In other words, don't submit a request for repairs based on a "coulda-shoulda-woulda" theory. Another example would be asking to replace an appliance that is not energy-saving. Just stick to the facts and be objective about actual repairs.
13. IF YOU ARE USING A LOAN TO PURCHASE THE HOME - Know what your lender's guidelines are for your particular type of loan and/or type of property. For example, conventional loans versus FHA and VA loans have an entirely different set of guidelines when it comes to the condition of the home that must be existing before they will fund a loan. And beyond that, there is a big difference in lender guidelines and requirements between a single family home and a condominium. Knowing these guidelines well will help save you a lot of grief because you'll know which properties are likely to be approved based on their condition through your lender's set of guidelines. You don't want to find yourself 29 days into the transaction, having conceded your deposit, just to find out that your lender cannot fund the loan because there is something about the property that does not meet the guidelines for your particular type of loan. This becomes even more critical during the inspection period because you'll have to figure out the best solutions if there are lender required repairs that arise that need to be completed prior to funding your loan.
14. WORK WITH AN EXPERIENCED REAL ESTATE PROFESSIONAL - There are quite a few buyers out there that have the disposition in which they have everything they need on the internet and all the information about listed properties is out there on the major websites, and all they need is someone to open up the door for them.
That has nothing to do with your ability to not only get an acceptance on a property, but the ability to get through the transaction with the issues discussed above. What I'm saying is that there is tremendous value in working with a seasoned, competent, knowledgeable real estate agent because they've been through all of this dozens, maybe even hundreds of times before, and they know how to deal with all of this. They understand the process, and they understand your lender's guidelines if you are using a loan. An experienced agent also has a network of professionals that they have developed that will become part of your "team" during the purchase process.
Also, there are cases where buyers choose an agent that is a "friend" or family member. Well that's fine, but if they are not an experienced agent, is it worth losing the property over because they really don't have the experience or aptitude to be able to get you through all of this? If you don't believe that to be the case, then you may want to consider having the friend or family member create a referral agreement with an experienced agent. In this case, the friend or family member will receive some compensation and yet you will be in the hands of a competent real estate professional.
Use your gut. Be smart. Be real. It will lend itself to your success.
Happy House Hunting,
BY RALPH GORGOGLIONE
Real Estate Broker/Owner with Maui Life Homes / Metro Life Homes RS-78439 / BRE #01708344
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April 11, 2014 01:51 AM