The home inspection report is usually made available to the buyer and his agent 1-2 days after it’s conducted. Most inspectors will highlight any areas of concern with the buyer’s agent. In the best case, the inspector won’t find any issues and the buyer’s agent will let us know that we can move on to the next phase of closing (also known as “removing the due diligence contingency” in legalese).
In a previous post we outlined the home inspection process and what sellers can do to make sure it goes as smoothly as possible. As much as we wish that advice would resolve any potential issues, in many cases the home inspection still turns up a number of issues that can launch another round of negotiations just after the exhausting process of finalizing and accepting the offer.
If the inspector does find issues, however, the parties have 4 options:
1. The seller can do nothing.
The seller isn’t required to fix any issues found in the home inspection report, but most purchase contracts allow the buyer to back out of the deal if the due diligence contingency isn’t resolved. Unless a seller has an extremely strong negotiating position, this option can often lead to the property being relisted.
2. The seller can make repairs themselves.
If the inspection issues don’t require much work to correct, the seller may elect to make repairs himself. The seller can agree to all or part of the required improvements – this can be negotiated between the parties and is captured in an amendment to the purchase agreement
3. The seller can offer a price reduction.
In lieu of making repairs, the parties can negotiate a price reduction to compensate the buyer for repairs they’ll have to make after closing. The buyer and seller jointly determine the cost of the work necessary and sign an amendment to the purchase agreement reducing the sale price of the home.
4. The seller can agree to pay additional closing costs.
While this seems a lot like the previous option from the seller’s perspective, it makes the buyer’s life easier (and thus the seller’s as well) in finalizing the mortgage package. By having the seller pay closing costs instead of reducing the sale price, the buyer can avoid lengthy re-approvals for their loan package which can end up delaying the closing.
At Properly we almost always recommend options 3 or 4. With many inspection-related issues, the buyer and seller may have different perceptions of what “repaired” means. To avoids disputes down the road, we recommend that the parties agree on a fair value for the repairs and let the buyer resolve the problem to their liking.
This is also the area where having an experienced agent can help sellers avoid paying unnecessary costs. In one recent transaction, the inspector reported that our client’s furnace was over 15 years old and near the end of its lifespan. The inspector estimated the replacement cost would be $4,000. Instead of acquiescing to the buyer agent’s request for a price reduction, we did a little research and discovered that the property itself had only been built 10 years prior, meaning that the furnace couldn’t possibly be as old as the inspector thought. Instead, we negotiated a $450 home warranty that would replace the furnace if it ended up breaking, saving the seller over $3,500.
As we’ve mentioned before, the closing process requires experience and patience to navigate successfully. Our goal at Properly is to take care of these issues before you have to worry about them. Our team is always available to keep you updated as you move towards guidance and provide expert guidance as issues arise.