What to expect in your inspection

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What is an inspection?

An inspection is a part of a real estate transaction where the buyer hires an independent, licensed inspector to do a full walkthrough of a subject home either before making an offer (this is known as a pre-inspection).

Home inspectors are licensed in Washington State and don’t work for either the buyer or seller.  They give a neutral opinion of the home, to the best of their abilities.  Like all professionals, some have 30 years experience and some have 30 days, so choose wisely.   They do carry licensing and insurance, and are held to professional and ethical standards.

They will look in crawlspaces, attics, on roofs, in electrical panels, under sinks and more.  They will not cut away walls, and cannot disassemble the house in any way, so if you have suspicions of mold, pests, etc, you’ll have to call in a specialist. Typical inspections run $400-$600, with additional fees for sewer scopes, infrared scans, pest or mold tests, etc.  Some are structural engineers, or have a background in contracting and construction, and some are not.

What are my options with an inspection?

Unless you pre-inspect, the offer contract will include an inspection contingency.  This means that the inspection must be satisfied by both buyer and seller for the transaction to move on to the next stage.  If it is not satisfied, both parties will return to the legal and financial position they had before the contract.  (ie, the earnest money is returned, and the contract is rescinded.)
In the contract, there are two time periods that are important: The inspection period: ie “how long you have to make and inspection” and the response period:, ie “how long you allot to resolve the results of those inspections.”
During the inspection period, the seller has holding costs (like a mortgage, taxes), risk (vandalism of an unoccupied property), and the risk of going back on market (which always makes the next potential buyer nervous, even if the inspection was relatively benign).  You can make your offer more attractive by tightening these items up.
Talk to the inspector BEFORE making the offer. See if you can go ahead and get penciled in on their schedule for next week so you can shorten the inspection contingency period to 5 days instead of 10. Make the resolution period 2 days instead of 5. Let the sellers know you are serious, and make decisions quickly. The top 10% of homes have buyers that are willing to take them with all their problems as-is, so the better the home in terms of location, etc, the less the seller will typically concede.
We have a network of trusted professionals that we often use, but ultimately it’s the buyer that drives what inspector is used.

Setting up realistic expectations

All homes have issues.  Even ones that are brand new will have some minor issues.  If hearing a 15-20 page report detailing small leaks, items in need of repair, rotting siding, a stove burner that doesn’t work, etc is more than you’re prepared for, then that’s exactly what new construction is for. The older the home, generally the more items will need attention. Most new homes come with a warranty (and we do offer a one year home warranty to most of our buyers), so that you can at least have a few years of worry free ownership.

Seattle has tons of water (rain) so leaks and mold are common issues.  We have lots of trees, and roots (while mostly harmless) are often in sewer pipes. Our hills make settling a common issue.  Gutters clog with leaves a lot.

A typical home needs about 1-2% of it’s value in maintenance a year..  If you are buying estate homes, fixer uppers, and former rentals, it’s likely that the 1-2% annual maintenance level has not been maintained, and there’s going to be things that need done.

In most transactions, you have 5-10 days to complete the inspection.  We recommend not waiting until the last day, so that you can have some time to think things over.  What often seems like a big deal when you first hear it is $100-$500 in repairs, and it takes some time to let the shock value of an inspection come back to reality.

Should I attend a home inspection?

As a buyer, you are welcome to attend any or all of the inspection.  You should give your inspector space to do their job, and get a summary at the end.  We don’t recommend following them all over the house.

They will provide you with a written report (and often an electronic copy), which you and your Realtor can use to get bids, price out work orders, and make a more informed decision on the home.

What should I negotiate?

In our opinion, repair requests should be safety concerns or large issues that were no known at offer time.
  • Exposed wiring.
  • inoperable smoke alarms.
  • GFCIs.
  • Plumbing leaks.
  • Large maintenance items inoperable at time of inspection.
  • FHA or VA required repairs (typically handrails or radon)
It’s not uncommon for some buyers to come in to an inspection and use them to reduce price.  We consider this to be petty and borderline unethical, but nevertheless we do see it from time to time.  It goes like this: Seller gets an offer and starts making plans to move, and the buyer knows this AND they know that the seller might not be in a position to put the home back on the market.
This is not the way we operate, but we do mention it since we also want our sales clients to be aware of what the possibilities are. This is why the highest offer is not always the best offer.

How do we determine a price for negotiated items?

The jumping off point for price negotiations is the price of the repair times 150%. For instance, let’s say that as a seller, you need an attic to be re-insulated.  If your agent gets a bid for $5000 for this work, the initial ask will typically be $7500. This is for the time, inconvenience, and the contingency of a potential cost overrun in the process.

However, you should be prepared to see less than $7500 in such a case. And with things where there may be some life left (for instance let’s say you are asking for $1500 for a new refrigerator, but the old refrigerator is mostly still working), then you might get less than the total cost.

Can I rescind my offer?

Absolutely.  After an inspection, you have four options

  1. Do nothing, proceed with the contract (nothing about the home will change)
  2. Ask for money to address some of the issues that came up. This is faster than repairs, generally.
  3. Ask for repairs to be made.  In some cases, this is your only option.  For instance if a home is missing stair rails, or if a balcony is dangerous and represents a significant danger to occupants and guests, the seller will need to fix this before the bank will take a risk on loaning money on the house.
  4. Pull out of the contract, no questions asked, and get your earnest money back

Sellers know that you can pull out after the inspection, and for this reason the buyers that seems most likely to close are often the ones that win in a multiple offer situation.  For instance, if you have a buyer at $550k who is in love with the home, and writes a letter to that effect, it may be more attractive than a $565k offer from an investor who is known to be very shrewd in the inspection process.

As a seller, what do I need to know?

As a seller, it’s in your best interest not to attend an inspection.  The main reason for this is that any defects in your property that you become aware of (even if they are of indeterminate origin, questionable severity or are possibly not even a defect) need to be revealed in writing to other buyers .

Also, it has been our experience that having the sellers in the home at any time makes buyers uncomfortable.  It causes them to be distracted from the home… they feel that they are invading someone’s space.  Uncomfortable buyers tend to walk away — and that isn’t in your best interest.

As agents, we’re experienced with keeping an eye on your things, locking up, and answering all the buyer’s questions with honesty and context that will help to move the deal along.  We’re also experienced in negotiating the prices, organizing the bids, and putting repairs in context of safety issue, remodel issue etc.  Inspection is where the home sale hangs in the most delicate balance, and the value of the asset is more accurate than when the offer was made, and for this reason, it’s probably the most important part of the whole transaction.

What’s next?

While this is a brief rundown, most inspections get fairly complex. No blog could cover everything, and each transaction is unique. The bigger the home, or the more dramatic the architecture, the more things there are to look out for.  We’re here to help you protect your interests, ask for what is fair, and to make sure that the deal is right for you.

Let’s have coffee and begin the process.  The next step is up to you!

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