How to Handle Your Buyers' Inspection
How to Handle Your Buyers' Inspection
Most sellers dread the home buyers' inspection! I suggest you don't worry too much about it, it is common practice and if you prepare yourself properly you should know ahead of time what you're going to face and how to address it. Read on;
What Exactly is a Home Inspection?
Think of it as a complete check-up, or in medical terms, a full physical. Just like your doctor, a home inspector will run tests on every major system; the electrical system, the gas, the plumbing, the heating and cooling etc. He will also visually inspect the house inside and out for defects or signs of wear and tear. After a thorough check-up, the inspector will write up a detailed report, usually between twenty and forty pages, outlining his findings.
A good inspector never fails to make it seem like the house is about to fall apart. I have an ongoing joke with my inspector that he is the most anal retentive individual I ever met. It doesn't matter whether the house is new, old, big or small, if you read his report you can't keep from wondering how come it's still standing.
Why do Buyers do an Inspection?
The obvious reason is that the buyers want to make sure they know exactly what they are buying in order to protect themselves. Second, many buyers will also use the inspection report as a negotiation tool in an effort to renegotiate the price. And third, the inspection period gives the buyer the time to back-out in the event that they change their mind about buying your home.
What is the "Inspection Period"?
The inspection period is a negotiated time frame in which buyers have the opportunity to conduct their due-diligence on the property. As mentioned above, the purpose is to give the buyers a "free look," so to speak. If the buyers don't like what they see, they can re-negotiate the terms of the contract, or cancel it altogether.
It should be noted that not all real estate contracts call for an inspection period. The buyers have to ask for it in their offer. In Arizona, the Arizona Association of Realtors' (AAR) standard residential contract calls for a ten day inspection period. For residential properties - providing all utilities are turned on ahead of time - seven to ten days is generally enough time for a buyer to figure out what they need to know. Commercial property inspections generally run upwards of thirty days and vary in length, depending on the type and size of the property.
Be a Step Ahead
It is good business practice to be preemptive where possible. As the seller, you have a couple of options; first, you could hire an inspector yourself and fix the items that promise to be an issue. Or, you can get contractor bids on all the items in question and have them ready to present to the buyer during subsequent negotiations. The bids would also serve their purpose if you were to agree to repairing such items before close of escrow.
If hiring an inspector is out of the question you can, at the very least, make a list of items yourself in order to form a good idea of what issues may be raised. In this case you can still get contractor bids for the same purpose as above. Once you have gone through this exercise the dreaded "buyers inspection" will seem less intimidating.
Three ways to handle requests for repairs
Naturally it is impossible to predict exactly what is going to happen but after having gone through a couple of hundred of these, one learns that, with few exceptions, it's pretty much the same thing over and over. The following are common ways to handle the buyer's inspection;
You can sell the property "as-is" meaning you let the buyers know ahead of time that what they see is what they get. This means that the buyer can still do an inspection for their peace of mind but that you are not going to fix anything. This strategy is not recommended if you are looking to get top dollar for your home, this is mostly used for short sales, pre-foreclosures and otherwise distressed properties that need work.
You can give the buyers money "in lieu of repairs," meaning instead of repairing the requested items yourself, you offer to take "x" amount of dollars off the purchase price against those repairs. Or you can agree to leave "x" amount of money in escrow as cash back to the buyers in lieu of repairs. The advantage of this strategy is that you don't have to deal with contractors and you don't have to worry about whether the work is done to the buyers' expectations which can be peculiar at times. The buyers will hire their own contractors and deal with the consequences if the work is unsatisfactory.
You can agree to fix all or part of the requested repairs. This will involve you hiring licensed contractors to complete the work. In most cases, buyers will specifically request the work be performed by licensed contractors that offer some degree of warranty on their work. You will also be responsible to oversee the work and make sure it gets done correctly.
Conclusion
Once the inspection is handled favorably, it should be smooth sailing to close escrow. Keep an eye on the buyers financing. Most contracts have a "financing clause," which means that if for some reason the buyer no longer qualifies for their financing, they can cancel the sale and receive their escrow deposit back. This means you get to start over.
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