Tips and Traps When Negotiating Real Estate: Why Would Sellers Want a Home Inspection?

Leverage the Inspection Report – Why Would Sellers Want a Home Inspection?

A not so obvious reason for a home inspection is that sellers also want it. This is largely due to the fact that we live in a litigious soci­ety, and buyers have successfully sued sellers for either damages or rescission (when the deal is rescinded and the seller has to return the buyer’s money and take back the property) because of undis­ closed defects. With a formal inspection, however, the seller can point out that every effort was made to reveal the true condition of the property and, therefore, the purchaser has less recourse if a problem is later discovered. (Agents likewise love inspections because without them the broker is frequently the one blamed when the buyer discovers a defect.)

Dealing with Lenders

There are important financing considerations that need to be taken into account whenever the price is lowered after the sales agreement has been signed because of a professional inspection. Basically, they revolve around the fact that lenders do not want to make loans on properties that need repair work. In order to get the financing, the work normally has to be completed first. For example, the inspec­tion report may say that the chimney has to be rebuilt. If the buyer and seller now sign an addendum to the sales agreement saying that the seller will have the chimney rebuilt, the lender will normally want proof of the work having been done before the loan can be funded. This will be a contingency the lender will add to the loan.

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On the other hand, if the addendum says that the seller will pay $8,000 back to the buyer (or give the buyer credit for that amount) to compensate for the work that needs to be done on the chimney, the lender may not fund at all, again insisting that the work be done before the deal is concluded and escrow closes.

In other words, any time the sales agreement reflects a repair to the property, the lender will usually insist the repair be done before the deal is concluded. This could preclude a reduction in sales price as compensation for a broken or damaged part of the house.

TIP

Many times the cost of the repair work is variable. Two contractors may have widely differing bids. And if the owners do the work themselves, the cost may be only that of building materials. This is one good reason the seller may want to seriously consider doing work in lieu of reducing price.

TRAP

Whether work reported as necessary on an inspection report needs to be done or not is often a matter of opinion. The buyer may say, “Yes.” The seller, “No.” In such cases as these (like the roof noted above), it is sometimes preferable to reduce the sales price of the property without reference to the specific reason. In other words, having looked at the inspection report, buyer and seller have renegotiated and determined the original price was too high. As a consequence, they have set it lower. The sale no longer is contingent upon the roof being repaired. In some cases this will satisfy a lender.