I’ve been thinking about this for quite awhile, but have hesitated to write. Human nature dictates that we try to forget negative experiences as quickly as possible. But today I am re-inspired to share my knowledge to try and address this often abused aspect of today’s purchase and sale agreements. There are multiple aspects to consider.
When you accept an offer to sell your property that is “subject to inspection”, what does that really mean?
It means that the seller has agreed to allow a buyer to inspect the property. presumably to make sure there are no deficiencies in the property’s important health and safety systems i.e., furnace and related systems, smoke detectors, proper electrical wiring, plumbing, roof condition, ventilation for kitchen and baths, crawl space condition, insulation, window seals, etc. It is not an opportunity to see if the family room fireplace tile matches your sofa covering.
There are many issues that are not clear under the terms of the current, and only, available Northwest Multiple Listing Service Form No. 35. And there are other problems with the form that most buyers and sellers, and many real estate agents, are not fully aware of:
1. It is not required that a buyer hire a licensed professional home inspector. Problem: The buyer may perform the inspection on their own, or have a friend or relative perform the inspection. How does the seller know that these people are qualified to perform an inspection? Without an inspection license and attendant insurance, what protection or recourse does a seller have from possible damage incurred in the course of an inspection?
2. It is not required that the buyer perform, or pay for, an inspection at all. Problem: The Northwest Multiple Listing Service [“NWMLS”] rules require that the listing status for any property that has been sold “subject to inspection” be immediately changed from Active to Active-STI. The terms of the current form allow a buyer to simply walk away from a property, and retain their earnest money deposit, without ever performing an inspection. This just happened to one of our sellers, and it was difficult for them to comprehend how this could occur. The seller was in effect damaged because the status change on their listing told the world that their property was sold, so other buyers stopped looking at it. To add insult to injury, when we changed the status from Active-STI back to Active prospective buyer’s agents call us to ask, “what’s wrong with property that your sale failed?” To which we have no answer except to say that the buyer was insincere and never performed an inspection. It is up to the caller whether or not to believe us.
3. It is not specified that the buyer has the right to re-inspect the property to verify that the work has been completed, nor who is authorized to perform a re-inspection. Problem: Experienced agents know that they must add language to give the buyer the right to re-inspect. Why this isn’t included in the form is not clear. If it isn’t addressed, the buyer may be seriously disappointed when they take possession of the property only to find that agreed-to repairs were not performed, or were done poorly.
4. It is not specified who may, or may not, be in attendance during the course of an inspection. Problem:Just with as No. 1 above, it is not specified who is allowed onto the property for inspection. We have seen this become problematic where a buyer’s friends or relatives are allowed to come along and sometimes provide negative input on the property, killing the buyer’s incentive to finish the sale. The buyer then uses the inspection contingency to terminate the sale, even if there is nothing technically wrong with the property. Our policy is there should be a professional inspector, the selling real estate agent, and the buyers. It is further recommended that children not be in attendance during inspections due to the hazards that may be encountered while the inspector is opening structural, plumbing and electrical access points.
5. it is not specified how long an inspection may take to perform. Problem:Without a set time frame I have seen inspectors take up to 8 hours to complete an inspection on an average sized house. A thorough inspection should never exceed 4 hours. Some inspectors think that this is a way to impress buyers, in the hope of obtaining more business through referrals. That may be true, yet it is unfair to the seller to be imposed upon for such an unecessary length of time. In addition, it is required by NWMLS rules that the selling agent be in attendance for the duration of the inspection, so it is not fair to waste their time either. My opinion is that an inspector that needs that much time is either short on work or incompetent. Either way, it should be specified in the inspection contingency form how much time is allowed to perform an inspection.
6. It is not specified what the scope of the inspection may entail, as specified above. Problem:Inspectors sometimes venture into areas that are subjective and/or beyond their level of expertise. There are more than a few inspectors that will go far beyond the extent of their knowledge of structural techniques, tolerences, use and life expectancy of materials, systems, and building codes. A particular concern are inspectors that require older homes be altered to meet current building codes for the benefit of the buyer, at the seller’s expense. My opinion is that if the condition met the code at the time it was constructed, it is not incumbent upon the seller to update it for the buyer. I advocate that the inspector should inform the buyer about such issues and instruct the buyer that they may want to consider code related upgrades once they own the property. But it should in no way be implied that a seller owes the buyer such improvements. The most common items of this type is ground fault circuit interrupts [“GFCI”]. It seems that a majority of inspectors believe these are owed to the buyer. Another is the safety sensors that are required with new garage door opener installations. There are many openers that work, but predate this requirement. It is my opinion that the seller does not owe the buyer a new garage door opener system because of such a deficiency any more than they owe the buyer all stainless steel appliances because that is the current color preference. Another is the spacing between handrail ballisters. Current code is 4″, or small enough that a child’s head cannot fit between them. Should a seller be required to rebuild handrails to accomodate this code because the inspector says so? I don’t think so.
7. Who will the inspector be? Problem: Just as important as knowing where the buyer intends to obtain their financing, the listing agent and seller have an interest in knowing who the inspector is going to be. If the name of the inspector is included with the offer, the seller has the opportunity to verify that the inspector is licensed, may ask for references from previous customers, or may elect to counter with a list of inspectors known to be fair and unbiased, from which the buyer may choose. Without naming the inspector, it could be anybody, or worse yet, nobody.
It is my hope that the deficiencies in this form will someday be addressed. In the meantime we are going to attach our own addendum to any offers that we receive, or write, which will mutually protect both buyers and sellers from the potential misundertandings and disappointments associated with inspection contingencies.
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Comments 2
The ability for buyers to effectively take a listed house “off the market” by parking it in the “subject to inspection” status gives buyer’s great power.
In realty, the purchase agreement is really an option to purchase, and buyers can walk away, with little or no recourse, any time they want.
Here’s another BIG problem. Per NWMLS Form 35,”Buyer shall be responsible for all damages resulting from any inspection
of the property performed on Buyers behalf.” What! If an
inspector fails through the ceiling, breaking an antique table and a Ming Dynasty vase, the Buyer is liable for damages? Addendum attached to protect Buyer.