With the buying or selling of real estate there are a lot of forms to review and activities to be completed before a sale is complete. Among these are a number of inspections. The inspection process is often misunderstood by buyers, sellers, and even sometimes agents. It can also be different from state to state. Some states require some type of inspections in order for title to pass from buyer to seller. For instance, in Iowa there is a state mandated septic inspection.
Since the inspection process is so complex, and yet so important for both buyers and sellers we are doing a four-part series in which we break it down to make it easier for you to understand.
Inspections should not be used as a negotiation ploy to get a lower price. I’ve actually had buyers whose attitudes were; we will make an offer and then beat them down when we get the inspection results. This not only doesn’t work, but can backfire. Many of these buyers lost out on some very nice properties.
Remember, there are different inspection forms used in different parts of the state or country. One of the key things in getting the most out of an inspection is understanding the process and the language used in a particular inspection document. For this discussion I’ll focus on a form that is commonly used in Dubuque. We won’t go over it word for word but will concentrate on important points.
Be aware that any inspections a buyer requires will need to be completed within the required time frame recited on the document. Sellers need to respond to buyer’s requests for repairs within a required time frame as well – “time is of the essence”. If neither buyer nor seller meets these deadlines, they will be out of luck as we’ll see.
One of the first statements in the inspection addendum is “any inspection(s) only cover conditions of the property not previously disclosed”. This means that if the seller or their agent has already disclosed a defect or condition of the property, then the buyer can’t ask for this to be remedied if it shows up in the inspection report. They also can’t void the purchase contract for the same reason. The only way they could remedy a pre-existing problem is if they had made the original offer contingent on the repairs being made.
The document also states that “items that have reached or exceed their normal useful life, so long as they are in working order that is not a basis for finding those items are defective”. For example, the inspector notes that the furnace has reached its normal useful life (it’s old) but that it is in good working order. The buyer can’t require the seller to install a new furnace nor can the buyer void the contract because of that (age) condition.
Both buyers and sellers will be asked to initial the document verifying that they acknowledge the above information.
I can’t emphasize enough that buyers only have a certain time period in which to have the inspection ordered (buyers order their own inspections), completed, and submitted to the seller. Likewise, sellers, when asked by buyers to complete certain repairs etc. will have a similar response requirement.
The document states that if either the buyers, or the sellers, do not respond on a timely basis then each could be impacted. The buyer will be required to take the property in “as is” condition while, if it’s the sellers that is late, then they will be required to make all repairs requested by the buyer.
If an inspection reveals a defect that has not been previously disclosed, and which the buyer considers serious, then the buyer should ask the seller to remedy the problem. Again since “time is of the essence”, the seller only has a certain time period to respond to the buyer’s request. They will have three choices:
- Make the repairs as requested
- Not make any of the repairs requested
- Offer some other solution – like make only some of the repairs, or pay a cash amount at closing to allow the buyer to make the repairs, etc.
If the seller chooses 2 or 3 as their response the buyer can:
- Accept that response
- Reject the response and declare the purchase contract void
- Submit another response requesting different procedures for the seller to complete in order for the buyer to move forward.
The objective of the inspection response form is to keep negotiations open between the buyer and seller until they reach an agreement. Or one of them makes the decision to cease negotiations.
If done right it will work smoothly
In part 2 of this series we will take a look at the addendum