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Buyer Inspection DOES NOT EQUAL Negotiations Round 2

Jonathan Dalton inspired this post by his post yesterday about the Forest and the Trees.

Phoenix Arizona Real Estate

One of the things we learned quickly in real estate was to do everything possible to avoid - preclude - prevent - whatever your favorite word is - BAD surprises during the course of a transaction.

Since we were and are primarily focused on listings, we found that there were several "opportunities" for the ever lurking "Murphy" to swoop in on any transaction, all of which could be prevented in advance.

Phoenix Arizona Real Estate

One of the predominant ones "Buyer Inspections and Request for Repairs" I'll address in this post - and save the rest for another day!

Scenario A

Take a listing and put it on the market.

Along comes a Buyer and an offer is accepted by the Seller.

Phoenix Arizona Real Estate

Buyer Inspection period clock starts ticking.

Buyer completes inspections and presents a request for repairs on (in Arizona) a "BINSR" - Buyer's Inpection Notice and Seller's Response form.

Seller freaks out when seeing the request for a new patio roof due to extensive dry rot.

Phoenix Arizona Real Estate

Seller and Buyer (hopefully) negotiate repairs or credit to closing costs ILO repairs.

Seller "loses" money and is unhappy since they thought the contract price was the "final" price.

OR WORSE

Buyer refuses to close.

Repairs are so extensive that Seller cannot address them - even for the next Buyer.

Phoenix Arizona Real Estate

Goodbye listing and goodbye marketing time, effort and expense!!

Scenario B

Take a listing to be put on the market once it's "ready for showtime" - per written instructions from the Seller in the listing agreement.

Ensure the Seller completes the SPDS - Residential Seller's Property Disclosure Statement

Phoenix Arizona Real Estate

Provide a copy of the SPDS to Gary Edwards of JAG Inspections in advance of him completing a "pre-listing" inspection on the property (which we pay for as a marketing expense).

Receive the comprehensive inspection report from Gary - he checks every electrical outlet, every window, etc. - not just the "representative sample" that is a minimum requirement of the Arizona Registrar of Contractors.

Review the identified items needing attention with the Seller.

Seller has several options:

Fix the item(s) prior to activation of the listing and have the items signed off by a re-inspection
Disclose the item(s) and write them into the contract as not being subject to a request for repairs - those items are "as is".
Be prepared to negotiate with the Buyer after receipt of the BINSR

Once property is ready for show time - activate the listing and throw open the doors to Buyers! This includes placing a copy of the SPDS and the Pre-Listing Inspection Report and Receipts for Completed Repairs at the property to be reviewed by prospective buyers.

Along comes a Buyer and an offer is accepted by the Seller.

Buyer Inspection period clock starts ticking.

Buyer completes inspections and presents a request for repairs on (in Arizona) a "BINSR" - Buyer's Inpection Notice and Seller's Response form.

No surprises for the Seller or the Buyer. If there is, Gary's Errors and Omissions Insurance Policy ($1,000,000) covers the cost.

Phoenix Arizona Real Estate

Proceed to a smooth closing - barring any surprises in other areas - financing, title, etc. - which I will cover in later posts. UPDATE: Here is a link to a post about when to get the Title Company involved.

We have pre-listing inspections conducted on ALL our listings, at our expense. An ounce of prevention is worth a pound of cure - and then some.

Posted by Suzanne Marriott, Associate Broker, CLHMS, e-PRO on 12/29/2006 10:42 AM

Comments (37)

prelisting, inspection, buyer inspection, repairs, binsr, spds

This post has been included in Arizona Information Maricopa County, AZ Information

37 Comments on Buyer Inspection DOES NOT EQUAL Negotiations Round 2

DEC

2006

Excellent post! Boy do I ever remember the days when we didn't do this and all the fun times I had explaining the options - all poor - to the Sellers!

I've not gone the route of the pre-listing inspection though I've contemplated it from time to time. I can see the benefit as long as the seller is willing to make the repairs needed. Otherwise, they suddenly have a lot more to disclose than they first knew about and are backed into a corner. So it can be good or bad.

Jonathan - We wrestled with that decision for quite a while - but on the theory that the Buyer will find it if the Seller doesn't the decision to make this a "standard" tipped the balance. Also - if it's fairly recent construction and still under Builder Warranty then often the Seller gets the repairs done at the Builder's expense!

Suzanne,

Thanks for the post. I recommend to my sellers that they conduct a pre-listing inspection. I sell them on the benefits of doing so and what it means to their bottom line. They pay for it and offer it to the buyer upon going under contract.

I have not gone the mandatory pre-listing inspection route either. I have suggested it on a few of my listings. But the Seller always declines. In which case I always tell them that when the inspection is done there may be some surprises that they will have to address one way or the other. How many times have you walked away from a listing based on your pre-inspection report?

I always tell my sellers, Disclose, Disclose and Disclose when you think you have Disclosed enough then Disclose some more. I also tell them my job is to look for surprises and explain to them the process that the buyer will go through and not only the time table but the buyers rights. So we might as well get a pre-inspection and see what the buyer will see. Then we either deal with it or be prepared when the buyer asks for repairs. In Calif. by default ( unless changed in the offer ) the buyer has 17 days to inspect and can cancel for any reason in that time frame.

Suzanne:

I'm sold on the pre-listing inspection. I was sold before I joined the team when The Marriott Group helped me with the four homes I bought and sold last year (as a private investor/buyer). Now when I use this with my existing clients, it's an easy sell based on personal experience.

Ken

Your posting title threw me. The posting was much better than the title implied it may be. I had expected you to say "buyer inspection does not mean negotiation round 2". If buyer inspection does not mean negotiation round 2 then it means deal or no deal. I never EVER make an offer without it being subject to inspection and appraisal and I always ask for 14 days for both. If the offer is not accepted with those conditions that's fine I move on to the next property. However if I make an offer and then during the inspection process I discover, oh I don't know FOUNDATION or WATER DAMAGE, you can bet if I am still interested we're hitting negotiation round 2. However, even if the buyer did take the time and cost to have a pre-listing inspection done I would still make my offer subject to my own inspection. It may be that the property is already listed at bottom dollar and if the inspection uncovers horrendous issues I can choose to proceed or walk. Since most properties are not listed at bottom dollar (being an industry insider and having access to pay-offs is a huge plus for negotiating) I may counter with an offer allowing (a) myself room to make the necessary repairs or (b) an offer including that the repairs be made prior to appraisal. Happy new year! Then again I'm an investor - homeowners can be easier to "get things past". And now I know how to spell "kumquat"

I always, always, strongly recommend to my sellers that they have all inspections done prior to the home going on the market. Typically, they save time, money and frustration by avoiding any surprises during the contract period. This provides the sellers the option to make the repairs, or disclose the issues and adjust the price accordingly. While some sellers have balked at having an inspection done prior to going on the market, every one of them has thanked me for forcing the issue afterwards.

As an aside, one of the nicest houses I've ever listed turned out to also have the most hidden damage. The sellers were able to take care of these issues prior to marketing the home, and they had the time and convenience to shop around for contractors whose work and prices they accepted. Buyers then walked into a home with all major items taken care of. Buyers and sellers were all very happy!

William - Thanks for the comment - do they offer to "sell" the inspection to the Buyer - or do you encourage the Buyer's Agent to have the Buyer get their own independent inspection?

Debi - we have not - so far - had to walk away from any of them. The Seller's see the sense of fixing or disclosing the issues ahead of time - otherwise they'll run into them anyway.

Doug - Default time for Buyer Inspection is 10 days in Arizona - but can be changed if Buyer and Seller agree in contract.

Ken (Spencer) - Thanks for the vote of confidence in how we do business!

Ken (Cook) - Precisely why we have our Sellers enter into Negotiations Round 1 fully informed!

Don - We've run into that with newer construction - a $850K home had 28 items needing repair - all were covered by the builder warranty!

Thank you for a great way to provide more service to our clients. I lost , the buyers lost, and the seller lost, when a 'lovely looking' home turned out to be a disaster structurally. Neither buyer nor seller was willing to negotiate the repairs needed after disclosure by the inspector. This could have been saved perhaps by a pre-listing inspection. The house remains on the market today.

Joan Snodgrass, Realtor,

Goodman Realty

Shell Knob, MO

Joan - Thanks for the comment and glad to hear it will prove useful for you in the future. Too bad about the deal falling apart. Suzanne

Great post, Suzanne. Pre-listing inspections are such a good idea, esp. when the seller has been in the home for an extended period and there may be lots of surprises. Since buyers in this market are being so much pickier around inspectional issues, why not be proactive and take care of these things, or some, and disclose. Fewer surprises that way.

Jeff - Thanks for the comment and have a Happy New Year!

Very interesting topic! Thanks for the post. Question - if you side with the approach mentioned here (the pre-listing inspection) - how many agents (outside the Marriott Group) PAY for said inspection?? Very curious about this, thanks!

That is why it is important to pick your listings, don't let them pick you! Great Post!

I enjoyed reading your post. The pre listing inspection is fine but you can't get around home inspections no matter how hard you try. I certainly wouldn't count on a Home Inspector's Error and Ommission policy in the first place and I definitely wouldn't want to deal with it as a Listing Agent in the course of a transaction. I would rather test the motivation of the Buyer by offering them further inspection of a problem item with a reputable contractor. If they are serious about purchasing the property then they will but if they don't then let them withdraw. The Seller will then see the real need to make the repair in order to obtain the sale.

DEC

2006

Kaushik - I don't know of any other agents currently taking advantage of this "differentiator".

Jennifer - Thanks for the comment. You are right on target. List "saleable" properties at the market price - avoid most - if not all - others!

Michael - Make sure you are logged in to get points for your comments! Curious to know why you wouldn't count on the E&O policy. Many Home Inspectors avoid liability by limiting their obligation to a refund of the inspection fee. Not this one!

Our pre-listing inspection is for the benefit of the Seller - to give them critical information to avoid surprises during Buyer Inspection period. We ALWAYS encourage the Buyer to have their own independent inspections performed.

Do you disclose on the Seller Disclosure Form, EVERYTHING you learned at the pre-inspection? Could be detrimental to the seller to know too much before the buyer's inspection and before the home is listed.

We think highly of doing pre-listing inspections. We have not yet come to the point where we require them of our sellers, but we definitely address the pros during the listing presentation. Thanks for the great post.

Nice post... Re Williams's comment:

I recommend to my sellers that they conduct a pre-listing inspection. I sell them on the benefits of doing so and what it means to their bottom line. They pay for it and offer it to the buyer upon going under contract.

I don't know about all parts of the country but in CA the report belongs to the person who ordered it.. and that is where liability ends if inspector missed something.. so if buyer received or bought the report and there was something in error buyer would have no recourse against inspector... The buyer should definitely see the report but buyer should also complete his own inspection with his own inspector of choice... would hate to stand before the judge and tell him we gave or sold an inaccurate report to buyer and didn't have buyer get independent report... that sounds like lots of bucks from someone to a buyer..

Whoops... I cleared my computer cookies and didn't realize I wasn't logged in....

Nice post... Re Williams's comment:

DEC

2006

Ardell - Absolutely - anything known about the property that is "material" to a Buyers decision always should be disclosed.

Jim & Maria - You may want to test the waters once or twice to see what reaction you get from your potential Listing prospects.

Kaye - The Seller would have recourse against the Inspector if they missed something on the pe-listing inspection.

The Buyer should always order their own inspections and rely on those for an requests for repairs.

The bottom line is that the Seller may be liable to the Buyer for undisclosed material defects - so why not get that off the "surprise" list?

Suzanne,

I agree that we need to get rid of as many items as possible from list and yes seller would have recourse against inspector.. my comment was directed toward William's comment about giving buyer report.. which is fine as long as buyer gets an additional report.. sometimes agents and sellers think they are doing the buyer a favor by giving them report as then buyer won't need to spend extra money for another report but that is never a good option.. and if buyer doesn't want another report I would have them sign a waiver stating that they know they are entitled to their own report and have chosen not to btain an additional report.

Kaye - You are right on target - that's the way we do things here in Arizona too.

JAN

2007

Ah Suzanne, what a breath of fresh air you are! If only the listing agents in my market took your approach. Instead, I am cursed as the "Buyer Beware" guy (God forbid I actually represent and protect my buyer clients), and the home inspectors we use are cursed as "deal-killers" by lazy listing agents and sellers who are caught with their pants down when numerous defects are discovered. As far as I am concerned, every undisclosed defect is on the table for negotiation during the inspection period, and it is to everyone's advantage to know what the problems are upfront to avoid the nasty surprises of which you speak. Bravo!

JAN

2007

Stefan - Thanks for the comment - sounds like you take great care to protect your Buyer's interests!

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