Does a Bad Inspection Report Kill a Deal?

This is a question that concerns both home buyers and sellers. There is no firm answer, other than that it may require some creativity and flexibility from both parties. The severity of the problem, at times, is a matter of perception and the degree of desire to complete the sale.

What's the Problem?

Each buyer brings with him or her there own experiences and background. So what is a deal killer for one may not even raise an eyebrow for another. For instance, I recently sold an older home where the inspector, without comment, noted that there were galvanized pipes running out to the street. The buyer had just spent several thousand dollars replacing the galvanized pipes in the home they had just sold. For them, this was too much for them to handle so they backed out of the deal.

I got some estimates for the replacement, however, I did not intend to do the job unless it became necessary to complete the sale. However, the numbers would have been useful if it came down to a negotiating point. Even this proved to be unnecessary as just a few days later we found a buyer that didn't care one way or another and was content with the pipes as they were.

Nitpicky Details

Often times inspectors will come up will all sorts of minor points that don't make a whole lot of difference one way or another. That is what they are trained to do. Although, it seems that some take kind of perverse delight in finding the “how did you ever see that” type of detail. 

I was buying a house a few years back and the report came back with about 12 to 14 items that needed attention. Among them were cracked outlet covers and a loose fence post. I already was aware of most of the things and it was a little annoying, but the guy was just doing a thorough job. The one thing I asked the seller to fix was a mis-sized circuit breaker. I hadn't noticed that and it was fixed without me having to do it.

Often the inspector will have a list of things you can ask the seller to take care of. If they are not major, they usually agree to most of them and it saves you a little work.

What if it Isn't Little Stuff?

Sometimes the inspection will turn up issues that many home buyers will not pick up on. This is why you hire these guys. Sometimes they can keep you out of a money pit. Suppose he finds that the HVAC is held together with chewing gum and baling wire, or the roof isn't as good as it looks and will need replacing in a year or two? Are these deal killers?

It all depends on how badly you want to buy the house, how badly the seller wants to sell the house, and how good a negotiator you or your agent is. Let's say the major repair costs around $15,000 and you really don't have the extra money to handle it. There are various options – assuming the seller is flexible and willing to talk about a solution. If he is not, it's often best to walk away and keep looking.

You could ask them to drop the price by that amount or at least a portion of it. That sounds good but probably won't help as it won't lower your down payment that much and you still won't have the money. If it is a cash deal, that can be a workable alternative, You could ask the seller to replace the roof before the sale is complete. This takes the problem out of your hands – sort of. This way you have no control over the process and you may get a good job or you may get a cheap job. You could offer to pay the full price that you agreed to with the amount for the repair held in escrow to pay for the job, That is the title company or the attorney that handles the closing will keep the money in their account until the buyer is satisfied the job is complete – then pay the bill.

These are three ways of working and there can be combinations depending on what works for each of the parties. The point is that a big bill does not necessarily kill the the deal, but it probably does require some sort of give and take to make the deal work... if you still want to,

If it is a Deal Killer

What do you do if the problem is more than you want to deal with? Any reputable agent will include an inspection contingency clause in your agreement. In my part of Florida it is usually ten days from the time the seller accepts the contract, but even that is negotiable. This gives you that much time to have the inspector evaluate the property and it is usually a no questions asked satisfaction contingency. This should be scheduled as soon as possible to give you the maximum amount of time to make your decision.

When working with investors, usually on fixer-uppers, some will want to have larger deposits and no contingencies. I understand they don't want to tie up the property and have someone back out, but personally, I tend not to deal with them.

I had one deal where we gave the place a once over and made an offer. After it was accepted but before the inspection appointment, I was giving it a much closer look since actual money was involved. The house was a brick bi-level on a lot that sloped to the back. As I was examining it closely I found a crack in the foundation at one of the back corners. As I followed it up, it ran halfway up the house – through the bricks, not just the joints. It could have been fixed, but I really didn't want to deal with it.

I talked to the agent and canceled the contract as that is the purpose of the inspection contingency – no matter who finds the problem.

Seller Surprise Protection

While it is not usually done, I have come to be of the opinion that the seller could benefit from an inspection when putting it on the market. This way you have a pretty good idea what the buyer will find, It is possible then, to fix many of the smaller issues and be prepared for the major ones if any. If it is a good report, you can show it to potential buyers. If it is not good, you can mitigate the problems so as not to scare your buyers away.

What Does A Home Inspector Do For You?

Editors Note: We looked at home inspectors a couple of months ago primarily from an investors perspective.  Since then we have had questions about their value for the average homeowner.  So we are revisiting the subject with them in mind.

If you are buying and/or selling real estate you will come in contact with building inspectors. I'm not talking about the ones from the local government that tell you what you can and cannot do with your own property along who can do it. That is a rant for another day. We are looking at the inspectors buyers hire to check out a piece of real estate before they commit to closing.

They can be somewhat annoying even when checking out a property you wish to buy, but they can also be extremely helpful. They are the ones who squeeze into crawl spaces under the house and skulk about in attics so I don't have to. In fact, you will not find me creeping around two foot high caverns dodging sewer pipes, air ducts, and the usual assortment of critters that populate the crawl spaces under many homes.

I say they can be annoying because most have a fetish about finding every real and imagined flaw in the property down to cracked switch plates and missing screws that are scheduled to be replaced anyway. However, that IS what they are paid to do. I must say that I somewhat solved this problem with an arrangement with an inspector friend of mine when I was working in the formerly free state of Virginia. We agreed that he would not give me the notebook, but would just hit the things I really had to fix. It worked out quite well. I saved a bit of money and he did not have to document every unimportant detail many of his colleagues thrive on, and he had the promise of a flow of repeat business.

You may wonder why I deal with inspectors when I buy since I seem to have an aversion to their work. The fact is, if I plan to sell the property after fixing it, I want to know what the next guy's inspector is going to ding me for when he crawls over the property. Which brings us to the question of them being a necessary evil. Here we get a little more philosophical. Nothing that is necessary is evil and nothing evil is necessary... ever!

These guys have saved me a bunch of money and they have kept me from buying a money pit at times. This is why I like to be present when the inspectors are going through a house I am looking to buy. A couple hundred dollars is not a bad price for this and I want to get my money's worth.
It is just understood, that if you are not an investor, but are looking for a home to live in, especially if you have never owned a house before, a good inspector can be your best friend. If at all possible, being there during the process and following him or her around will be an education. They will point out things many homeowners never even think of. There are things they will show you that are not bad or in need of repair but just items that you should be aware of and will make your time in the home less expensive and more enjoyable.

That is why I like a disinterested third party, like the inspector, digging around to pick up on things the seller was hoping I wouldn't see. If they find something you were not aware of, at that point, you, as the buyer, have a decision to make. You can look for an adjustment in the price or you can walk away from the deal IF you have an inspection contingency in your agreement. Any reputable real estate agent will include that in your contract. You usually have somewhere around ten days to check things out. If he tells you it isn't necessary, it is time to look for another agent, run, don't walk away. The only time an agreement with no inspection contingency is acceptable is when one investor is wholesaling a property to another professional who should be able to do his own evaluation.

If you are a homeowner selling a home you've lived in for many years, there may be things you never really noticed or have just decided to live with that may not set well with a new owner. It could well be to your benefit to have an inspector come around before you put the place on the market. If you get a good report, your agent can use it as a marketing tool to show the prospective buyers that the house is solid. If you do not get a good report, it is usually better for you to know about it than to have your buyers inspector present the problem in the worst possible light. You then have the choice of fixing the problem or telling potential buyers about it and factoring it into the price before they come back asking for an even larger discount.

When I am a seller, I don't want to be around when my buyer's inspector comes around. I don't want to give the impression that I am colluding with him or intimidating him. ( I wouldn't want Adam Schiff or Robert Mueller wasting my time coming after me.) I also don't want to be around to answer any impertinent questions that may arise. Beyond that, the practice of being absent may well keep me out of trouble and preserve the physical well being of the guy picking apart my completed work... even though, knowing they will be around helps us do a better and more complete job.

So, like them or not, inspectors are part of the real estate business and since we must deal with them, we may as well understand how the game is played and use them to our best advantage.

Inspectors: A Necessary Evil?

If you are buying and/or selling real estate you will come in contact with building inspectors. I'm not talking about the ones from the local government that tell you what you can and cannot do with your own property along who can do it. That is a discussion for another day. We are looking at the inspectors buyers hire to check out a piece or real estate before they commit to closing.

They can be somewhat annoying even when checking out a property you wish to buy but they can be extremelhy helpful. They are the ones who squeeze into crawl spaces under the house and skulk about in attics so I don't have to. In fact, you will not find me creeping around two foot high caverns dodging sewer pipes, air ducts and the usual assortment of critters that populate such environments.

I say annoying because most have a fetish about finding every real and imagined flaw in the property down to cracked swith plates and missing screws that are scheduled to be replaced anyway. I must say that I somewhat solved this problem with an arrangement with an inspector friend of mine when we agreed that he would not give me the book, but would just hit the things I really had to fix. It worked out great. I saved a bit of money and he did not have to document every unimportant detail many of his colleagues thrive on. 

You may wonder why I deal with inspectors when I buy since I seem to have an aversion to their work. The fact is, if I plan to sell the property, I want to know what the next guy is going to ding me for. Which brings us to the question of them being a necessary evil, Here we get a little more philosophical. Nothing that is necessary is evil and nothing evil is necessary... ever!

These guys have saved me some money and they have saved me from buying a money pit. This is why I like to be present when the inspectors are going through a house I am looking to buy. A couple hundred dollars is not a bad price for this and I want to get my money's worth.

When I sell, it is another story. I don't want to be around when my buyer's inspector comes around. I don't want to give the impression that I am colluding with him or intimidating him. (I wouldn't want Adam Schiff or Robert Mueller wasting my time coming after me.) Beyond that, the practice may well keep me out of trouble and preserve the physical well being of the the guy picking apart our completed work... even though, knowing they will be around helps us do better work.

So, like them or not, they are part of the real estate business and since we must deal with them, we may as well understand how the game is played and use them to our best advantage.