Monday, March 19, 2018
Tour now to learn about some common problems found during a home inspection.
Why use a Home Inspector? When is the inspection done. What about having an inspection done on a home you've already purchased? Choosing your home inspector. How to find a competent, experienced inspector who will take the time to do the job right. The allure and the danger of low-priced inspection companies. Getting the Most from the Home Inspection. Advice on negotiations after the Inspection. What to do when the inspection reveals problems with the home. Using escrows. When to walk away from a home
The Massachusetts Home Inspector Licensing Bill was inacted in Nov 1999, and according to Chapter 87YY a traditional real estate agent cannot recommend a home inspector to you. He/she must provide you with the entire list of home inspectors in the state and offer no more advice on the matter. Only a Buyer Broker can recommend a specific home inspector.
What is a Home Inspector?
A home inspector is a trained professional who comes to your home for the purposes of performing an inspection on all the major systems and components of your home. An inspector's trained eye allows them to file an honest, objective opinion as to the overall condition of the house. Everything from the foundation to the heating, plumbing, and interior structure is inspected. Some possible reasons a home inspection would be ordered include:
The process of home inspection is roughly analogous to that of an auto mechanic inspecting a used car. No one would buy a used car without paying a mechanic to peek under the hood and determine the car's mechanical condition. Likewise, it would be foolish to buy a used home without first knowing what kind of a nightmare...or, aaah dream home...one is buying.
A home is the largest single purchase most people make in their lifetimes. It only makes sense to know as much as possible about the purchase before the papers are signed.
Buyer's Choice Realty recommends using an ASHI inspector.
The Home BuyerŽs Handbook
Read this if you are considering doing your own inspection
THE BOOK ON HOME INSPECTIONS
Getting the Home Inspected... and other investigations
This chapter is going tell you how to get more out of your home inspection, how you can follow up on the inspection with various specialists, and how you can put the inspection findings in the proper perspective.
The importance of this chapter lies in the fact that a home inspection can be one of the most valuable things you can do when buying a home - or a waste of money. Most important is your choice of inspectors. The reality is that all too many home buyers choose their inspection companies for all of the wrong reasons - and end up getting shortchanged in the process.
Getting a qualified and rigorous inspector - as opposed to getting an inspector who doesn't take the time to do the job right or who minimizes problems found - may save you thousands of dollars. The unfortunate fact, however, is that the majority of home inspection companies do a very 'generic', non-informative - and often non-thorough inspection. At the least, the quantity and quality of the information you receive from inspection companies will vary widely. A good inspector will tell you how to maintain the home and can provide lots of information that will get you off to the right start. An inspector who specializes in one-hour inspections won't give you this type of information.
This chapter will also discuss several of the critical limitations of the inspection. Importantly, a lot of these limitations can be overcome by bringing out other construction professionals or by doing other types of investigations. This chapter - as well as chapter 2 through 4 - will provide advice and information on who to use and when to do these other evaluations.
And lastly, this chapter will cover the subject of post-inspection negotiations. Many buyers have problems deciding what to do when their home inspection (or other investigations) reveal that the home they are purchasing has unanticipated problems. I'll provide you with some 'common sense' guidelines to help you make decisions in this area.
While it is possible to do your own home inspection, this is not something that I advise. To do an inspection properly you need to have a working knowledge of literally dozen several construction fields ranging from roof surfaces to heating systems, from electrical systems to home maintenance. Even if you are knowledgeable about construction - and if you are in a construction-related trade you may know more about your field than the home inspector - nevertheless, the home inspection profession has its own body of knowledge and its procedures to identify problems. Its hard to do a proper inspection unless you have been trained, have done a number of inspections (the more experience the better), and are knowledgeable about the various disciplines that are relevant to the inspection.
Another argument against doing your own home inspection is that you will purchase a home, on average, once every eight years. You have to ask yourself if its worth spending major amounts of time, effort, and money learning how to inspect a home if you going to use this knowledge once every eight years.
And despite the popularity of books on how to inspect a home, you really can't learn from them either. Several 400 + page manuals have been written on how to inspect a home - and they don't even cover all of the same topics. In my opinion, books that tell you how to inspect a home are a waste of time. Like most things, if you were inspecting homes all of the time, you may get pretty good at it. But trying to save yourself a couple of hundred dollars on a purchase for which you will typically be spending over $200,000 (by the time you add your interest payments, closing costs, broker fees when you sell), is penny wise and pound foolish. Importantly, as the home inspection does not cover a number of critical systems and concerns, you are better off concentrating on learning about these items. That is what the Handbook is about.
Normally you will have the home you are purchasing inspected after you have had your offer to purchase* accepted. This will generally be the case whenever you will use an inspection contingency clause in your offer to purchase, giving you the right to have the building inspected and the right to withdraw your offer is (serious) defects are found.
Can you do the inspection before you make your offer? The answer is 'yes' - but in most cases you are better off waiting until your offer is accepted before you do the home inspection. After all, why spend good money on the inspection before you know whether your offer for the property will be accepted by the seller?
The exceptions to this are when you suspect the property has major structural deficiencies or other serious problems such that, if confirmed, you would not want to further pursue this property. With these types of homes, its sometimes worth doing the inspection before you make an offer.
Also, in states where, for whatever reason, you cannot insert an unrestricted inspection contingency clause into your Offer to Purchase, then you could have an inspection done prior to making your offer. If substantial, unanticipated problems are identified by the inspection, you could use these findings in your negotiations to get a better price on the home.
Another reason to have the inspection done after you have had your offer accepted lies in the fact that you should negotiate a price based on what you feel the property is worth, based on your assessment of the market value of similar homes in the community and neighborhood. Determining if the price is fair involves looking at the overall condition, size, and amenities of the home; the age of the major systems; the size and quality of the lot, and comparing these with other homes that are for sale or that have sold recently.
The home inspection is not useful to determine the market value of a property or what you can get the property for. This is an appraisal matter - whether done formally or informally. In any case, you want to make your offer based on what you think the property is worth - and just as important, what you think you can get it for - and you'll get the best deal for yourself.
As a final point: using the inspection to try to negotiate a lower price may not always work. I once had a buyer who insisted (against my advice) of having an inspection done before making an offer so that he could use this information in his negotiations. As it turned out, except for a few hundred dollars in correctable problems, there was nothing wrong with the home. In this case, I felt he would have done better to negotiate a lower price first.
Another exception: while normally you will have the home inspection done after your offer is accepted, you often need to do a number of investigations and assessments of the home prior to making your offer. As an example, suppose that you find a home that you are really interested in: you love the community and neighborhood but the home isn't large enough or just doesn't quite meet your needs. In this situation an architect or a contractor may be able to tell you if can expand or alter the home into what you want. If the cost is too high or you find out that your plans are not feasible, it may not be worth pursuing this property further.
What about having an inspection done on a home you've already purchased?
Note. due to problems with home buyers purchasing severely deteriorated homes at auctions where they had no idea of what they were getting into, the FDIC in the past has had a pre-inspection period in which you can view the homes. I urge you to look into this. This option is not typically available, however, if you are purchasing a home at what is called a 'marketing auction'. Although this subject will not be covered in this Handbook, you need to be extremely careful about buying a home at an auction.
Choosing your home inspector is important. Getting an inspector who does an exceptional job over someone who does just a good - or worse, mediocre job - can sometimes save you a few hundred dollars, a few thousand dollars, or occasionally tens of thousands of dollars in repair costs (or lost value) over the period you own the home. The difference can also be getting an inspector who takes the time to give you a thorough education on the home and how you should maintain it, versus one who does just enough to rule out that the home has serious problems.
Unfortunately, people all too commonly choose their home inspector based on all of the wrong reasons - and consequently get burnt in the process.
The most common way that people choose their inspector is to rely on their real estate agent either for a recommended inspector or a list of inspectors. The problem with this is that you have no way of knowing (without further checking - which I'll get into) whether they have given you the name of an inspector who truly does a superior job or an inspector they like because he never 'kills the sale' or never takes longer than an hour to do the inspection. While many brokers want their buyers to have the best possible inspection, all too many still steer their buying customers towards home inspectors who aren't overly thorough or critical. Many of these companies won't take more than one hour for most single fancily homes. The result is that easily identified problems are overlooked and you know little about the home you are purchasing.
But there are real estate agents who want their buyers to have only the best inspection possible and make their referrals accordingly. Many agents are highly professional and many will not compromise the buyer's interests - even though they are, technically, agents of the seller. Some offices recommend that their buyers use ASHI members only (which is what I recommend - see below). Successful brokers work hard for their buyers, and for many this extends to the inspection also. Many are accepting of the fact that inspections may take longer than two hours, and the really good brokers can accept the occasional loss of a sale due to problems found at an inspection. (A good broker will occasionally lose a sale due to an inspection - but they rarely lose a client).
Also, an argument for not automatically rejecting your real agents recommendations on an inspector are that many know who does a good job and who doesn't. I know brokers who tell me they cringe when they hear their customer has picked a particular inspector - not because that inspector is good at what he does - but because they feel he does not do a thorough job.
On the other hand, as I stated previously, in a great number of instances you will not get the names of the best inspection companies from your real estate agent - and in some cases you'll get an inspector who works more for the broker than they do for you. Its an unfortunate fact that some real estate agencies 'steer' their home buyers to companies that do what I would call 'quick and easy' inspections. While these agencies provide you with a list of home inspectors - which appears to give you a choice - the most thorough and rigorous inspectors in that area may not be on it. This is the reason why Massachusetts now only allows Buyer Agents to recommend a home inspector.
In many cases the steering will be subtle: a broker may say 'you can use any company but most people are happy with 'such and such' an inspector and they do the inspection for $50 less than everyone else'. The consequence is that you get a second rate inspection.
Also, there are brokers who believe that inspections should never take over an hour to do. I've had many instances where the brokers were incredulous that I was going to be spending two hours at the property. The fact is that most properties require at least two hours to inspect properly. A larger home or a home in really poor condition may take 3 + hours. The low cost inspector isn't going to spend this amount of time.
As an aside: during the 1980's a lot of unethical stuff went on in real estate - and it wasn't just a real estate agents, attorneys, appraisers, and bankers who occasionally played fast and loose. A lot of very shoddy inspections were done by inspection companies who were more interested in getting the referrals from real estate agents than they were in doing a proper job. One large inspection company in Massachusetts - in fact, at one time it was the largest company in New England, with over 50 inspectors , oriented its business around broker referrals and never 'killing the deal'. I have been told that this company actually fired inspectors when real estate brokers complained that they took too much time or were too critical. This company, despite its enormous success in the marketplace (they were a very effective from a marketing standpoint), ended up suddenly padlocking its doors one morning and going bankrupt due to literally millions of dollars in pending lawsuits arising out of the problems their inspectors did not reveal. The customers of this company, meanwhile, were stuck.
So to cap this discussion off: what should you do with your broker's recommendations?
First, given that the inspector your broker recommends may do a good job, I would talk to the inspection company(s) and find out how long they take to do an inspection. If they say anything less than two hours I would go elsewhere. There are very few competent inspectors who can work this fast and do a good job.
Second, I would find out if they are members of the American Society of Home Inspectors, known as ASHI (see why this is important and how to find this out in the below section). If they are not members of ASHI I would not use them. If they are members, then you probably have a broker who is really looking out for your interests. Be careful though. Just about every inspection company out there says they follow ASHI Standards (or sometimes NAHI, a competing and lesser organization). Anyone can say they follow ASHI Standards. To become a member of ASHI requires years of experience, passing rigorous exams, ongoing educational credits, and following a strict (and enforced) code of ethics.
I recommend above, use an inspector who is a member of the American Society of Home Inspectors (ASHI). ASHI is the largest professional organization of inspectors and to become an ASHI member requires completing several hundred paid inspections and passing rigorous exams on construction disciplines. ASHI members also follow a Code of Ethics that says the inspector will look out for your interests only. Importantly, to maintain their member status ASHI members must also complete 20 hours of technical education each year.
The reason ASHI membership is so critical is that there is no licensing of home inspectors (and if there were licensing, it still would not eliminate the bad inspectors). Inspector's ads that provide license numbers, by the way, are highly misleading; these are trade licenses. ASHI inspectors, on average, are much better qualified than the low-priced, high volume inspectors or someone who has just 'hung out their shingle'. Also - and I can only speak from experience here - you just don't find the inspectors who compete only on the basis of bargain basement prices or 'quick and easy' inspections in ASHI.
Also, there are other inspector organizations. None of them require much more than sending in your check to say you are a member.
How can you find an ASHI member? Easy. In New England call 1-800-248-2744 to reach the regional office. They'll provide you with the names of ASHI inspectors in your area. Outside of New England call the national headquarters at (708) 290-1919 and they should be able to refer you to offices of the regional chapter in your area. The regional offices can provide you with the names of ASHI members in your locality.
One point to note is that most inspectors will travel up to a fifty mile radius from their home office - and sometimes farther. You are not tied to the inspectors in the town you are purchasing in. If you've heard good things about an inspector from another area, you may want to see if they will do an inspection where you are buying.
One of the big mistakes people make is to choose their home inspection company on the basis of the price they charge. The problems is, home inspectors either compete on the quality of their service or the price. An experienced and diligent inspector knows that he may have to spend three hours on-site at an inspection. Add in travel time plus the hours doing the report, and you have a substantial time investment. To make enough money to stay in business, a good inspector must price his services at a certain level. Inspection companies that offer minimal fees tend to spend a minimal time at the inspection and generally provide less substantive reports. So while you do pay slightly more, there is no comparison between what a good, thorough inspector (who generally will charge more) will tell you versus what most low-cost inspectors will tell you.
Problems you can run into.
What kind of problems can you run into? A couple of examples... I recently did an inspection for a buyer who had already had an inspection done on the home they were purchasing. The previous inspector, however, spent less than one hour at the inspection and refused to go in an accessible crawlspace. The buyer was so disgusted they backed out of the deal until they could have the crawlspace properly inspected. When a second inspection was done, it turned out the conditions were not extremely bad, but sections of the sills did show extensive decay and insect damage that the owner agreed to take care of so the sale could go through.
Another example: last year I inspected a home for a relocation company. Upon arriving at the property it was immediately apparent that this 15-year-old home was built on top of a swamp. A marsh was present just the rear of the back yard and the yard was at the same level as the marsh. Standing water was present all over the yard, the driveway was sunk six inches along the tire tracks, and the front stoop was severely tilted to one side. Fortunately, the home was a split-level where the bottom floor was not substantially below the exterior grade. But even so, the current owner had had to install an expensive drainage and sump pump system to keep the lower level dry. Interestingly, the owner of the home was present while I was there and had their inspection report from when they purchased the home - an inspection performed by a low-priced, high volume inspection service recommended by their broker. The report made no mention of the fact that the home was built over swamp land, nor of the likely problems this would cause any future owner of the home. The worst problem, of course, was that this home would be difficult to sell at anywhere near what the homeowner paid for it. The time spent by the inspector at this property was reported to be less than one-half hour.
This list can go on and on but my point is, trying to save $50 or $100 by choosing a low cost inspection company can be disastrous to your financial health. Low price companies have to do a large volume of inspections to make money. Many of these companies arbitrarily limit their inspections to an hour or an hour and one-half - although they may not tell you this ahead of time. Most of their inspectors never climb roofs, get into tough crawlspaces, or do the little things that could save you a lot of money. Due to the type of job they do, many of these low-priced companies get hit with lots of lawsuits. All they do is chum out more inspections to stay ahead of the game.
Another point: your home inspection, when done properly, should provide you a wealth of information about home maintenance, home repair options, and even ways to save on energy bills. Most of this information is conveyed verbally at the inspection. And, as the majority of inspections do not result in the buyer walking away from the deal or undertaking major negotiations, getting an inspector who will take the time to provide you with an education about the home is well worth the extra dollars youll spend. In general, you won't get this from your low-priced companies.
As a final comment: a third problem that high volume, low-priced companies have is that, because they depend on a large stream of referrals from real estate agents, this affects, either subtly or overtly, how they do inspections. At some point, these companies stop working for you and work for the agent instead.
Note: there are exceptions to my warnings about low price companies. Inspectors who are new to the business, even if - well qualified, sometimes have to set their prices lower to get established. I've also found that in areas where price competition is rampant - which unfortunately includes many areas in Massachusetts and most of New Hampshire - even established companies have been forced to cut prices. In rural areas or communities where real estate prices are low, the prices charged by inspection companies are generally lower.
A final warning on prices: you need to look at the total price for what you get from the inspection company. Some companies that charge low prices for their inspections charge a lot more money for the termite inspection, radon or water testing, and other services. In other words, you can end up paying more in the end than for a company that costs a bit more but whose add-on services are less expensive.
Getting the most from the inspection comes down to doing several things. By following the below advice and the recommendations in the following section, you'll get the most out of the inspection process.
#1 Attend the inspection. Although most people do attend, nevertheless, I occasionally run into people who are just too busy or don't see the importance of attending their inspection. The fact is, however, that you will never get the full benefit of the inspection unless you are there. The report you'll receive can be valuable, but its difficult to fully understand what it is saying unless you were present to hear the inspector's verbal comments.
Reports just document the visible condition of the home. They won't provide you with repair options, time frames for future work, and other critical information. Nor do they include a discussion of the subtleties of the conditions found. They can sometimes make a relatively minor problem sound major - and vice versa. In other words, you need to hear the inspector's verbal comments to put things in perspective.
Another reason to attend the inspection is that the inspector should take the time to go through the home with you, answer your questions, and provide advice on maintenance, repair options, etc.
When you cannot attend the inspection - and this happens - I recommend that you have a telephone consultation with the inspector within a day or two of the inspection. If possible - and it will cost a bit extra - arrange a post-inspection consultation on the property with the inspector. By doing this you can go over some of the areas of concern and the inspector will be able to review the inspection findings with you.
Note: if you cannot attend the inspection it is preferable to find an inspection company that provides written reports. It is difficult to understand checklist or on-site reports unless you were present for the inspection.
#2 Ask questions and take notes at the inspection. Almost every buyer, I've found, has questions - and there is no such thing as a 'stupid question'. Occasionally, a buyer's questions have led to further problems being revealed. Also, you may know things about the home due to the owner's disclosures or your previous investigations. This information can be helpful to an inspector. In most cases, you will have looked at the home a couple of times already and may have spotted things that you feel may be a problem. Ask the inspector about these concerns at the inspection.
#3 Keep your eyes open. You may spot something the inspector doesn't see. This is especially true for defects present on surface finishes. Minor sheetrock cracks, evidence of past water stains, etc. can be 'hit or miss' items. Look for and bring these items to the inspector's attention, if seen. Even good inspectors aren't perfect and you may spot something an inspector doesn't see.
#4 Pin the inspector down on what deficient items will cost to repair. Most inspectors (including myself don't like to throw out estimates on what the repair costs will run. You just never know what the repair costs will run, due a whole lot of reasons (which I won't get into here). Nevertheless, if you are not familiar with home repairs and what things cost, it is useful to try to plug in cost estimates for the repairs that are needed. [Note: renovation or improvement costs, such as installing a new bathroom, are not something that the inspector can help you with].
#5 Realize that, in some cases, you will have a different set of concerns than your inspector. Not only are no two homes alike, each inspector has their own opinion as to what they regard as important or not important. Interestingly, each buyer, I've found, has his or her own specific concerns that may be very different from another buyer. I've had buyers who simply could not accept that a home had a sump pump or even a minor water problem in the basement. I've had other customers who would routinely reject any home that has had termites. In other cases, problems I thought were a real concern meant little to the buyer. I may not always agree with my customer's opinions on these matters, but the fact is, you are free to reject your inspector's opinion if it is different than your own.
Everyone has different concerns, abilities and standards as well as their own level of risk-tolerance. You don't have to agree with your inspector on every matter.
#6 Read the report and the supplemental materials provided by the inspector. While this advice sounds like common sense, nevertheless, many home buyers just do not read their inspection reports carefully. Inspection reports may provide a new slant on conditions found at the inspection. This is especially true for those conditions where the extent of the problem could not be resolved.
You should plan to call the inspection company if you have any questions after reading the report. Its even important to read the fine print on contracts (as these explain a lot of what the inspection does not cover) and to read supplemental materials that are provided with the report. These materials can sometimes help you avoid problems after you move into the home, as well. Perusing all of the information provided will help understand the home better and save you a lot of aggravation later on.
I think the issue of post-inspection negotiations follows the 80/20 rule (the derivation of I will not provide): 80% of home buyers have few problems putting the home inspection in the proper perspective while 20% of all buyers have trouble figuring out what they should do with the inspection findings. The problem works both ways too: some people fail to renegotiate or have problems resolved prior to the sale (or fail to walk away when they should). Other home buyers walk away when they shouldn't, or alienate a seller by being completely unrealistic about minor defects or the routine types of conditions that typically go with most homes.
In my years in home inspection I've had buyers who were in such a rush to get into a home that they just did not bother to follow up on what I indicated as possibly serious conditions. In one case, I told the buyer that the shutdown heating system may have failed and that they have the system checked out. They didn't and thereby moved in and found out that, indeed the heating system was in need of replacement. But I've also had customers who walked away from homes due to relatively minor or fixable conditions. In some cases, I question whether this was the prudent course of action.
The difficulty in the whole subject of post-inspections negotiations is that...
there are no absolute ground rules.
What is appropriate in one situation may not be appropriate in the next. There is nothing that says you cannot negotiate any condition that you are concerned about (whether it arises from the inspection or your other investigations). It is completely up to you to decide whether, after the inspection has been done, you decide to accept the home as is, have the seller fix or resolve certain items, ask for concessions on the price, or simply walk away from the deal. Depending on the situation, all of these options can at times be appropriate. Its just a matter of doing what's right... and what's right for you.
So what you should you do if the inspection reveals problems to be present with the home. Below are some common sense guideline's on negotiations that may help you. (Note: the advice provided will, in some places, be contradicted by the next piece of advice).
#1 Act on the inspection findings...
If the inspection revealed the need for critical repairs and you just do not feel that these conditions are warranted and you should not have to pay for these, then speak up. The worst that can happen is they will say 'no'.
#2 Follow-up on the inspection with specialists or tradespeople, where the inspection has revealed possible problems, or where the inspector cannot define the degree of the problem.
This advice is important. A home inspection is a limited, visual survey of the home. Its covers an immense amount of ground in terms of the systems and areas it includes. An inspector, no matter how well qualified, acts as a generalist for the purpose of the inspection. The home inspection may not be able to tell you what caused a particular condition or what the extent of damages will prove to be once an area is opened up to full scrutiny. Please realize that inspections may not elaborate on repair options nor what the eventual cost of repairs will run. (This information may be provided, but it is not a required part of the inspection).
To get this type of information you need to bring out one or more of the specialists discussed in Chapter 2 through 4. For instance, if your inspector finds evidence of decay or substantial damage on the home, you may want to bring out a carpenter to determine what the repair costs will run. If the heating system was not working properly or is extremely aged, bringing out a heating system person who can pull off the burner and look inside may reveal that the system has failed or needs major repairs. If the electrical set-vice or wiring is older and possibly marginal and you are considering upgrading the system, you may want to bring out an electrician to find out what this will involve and what it will cost, etc. This list could go on for several pages but my point is this:
you need to be diligent about pursuing further investigations on anything where the inspection revealed a problem or where the extent or cost of repairs cost could not be determined.
If you are purchasing a home where the mechanical systems appear to be antiquated or present a high risk, you may want to routinely bring out specific contractors or service people to examine these 'high risk' systems during your contingency period. You could bring out a carpenter, air conditioning technicians, heating system technicians, structural engineers, or any of the 'specialists' noted in the next few chapters. Obviously, however, do this where you have a reasonable expectation that these evaluations may reveal important information. Otherwise, you'll go broke before you purchase the home.
Note: you may have a friend or relative who is a heating system service person, an electrician, or other tradesman. Consider bringing them out to look to look at their area of expertise. Good inspectors generally do not have any problem with this. Licensed tradespeople and construction professionals can occasionally give you valuable information about specific systems that an inspection cannot provide you with.
Also, IŽII review in chapter 2 a number of the construction professionals you may want to consider bringing out to evaluate the home. I'll also try to define where inspection procedures are limited so that you'll have a good sense of when further evaluations are likely to be fruitful.
#3 Be reasonable... The majority of inspections do not reveal the major deficiencies or serious problems with a home that would necessitate walking away from the deal or undertaking negotiations. If you thought prior to the inspection that the home was in good condition and the inspection did not reveal any major surprises, then that's fine. You've probably got a home in good condition. If you knew that the home needed work but you are getting it at a good price, and yes, the inspection does confirm that work is needed - but no more than expected, then renegotiations would not be in order.
The question to ask is: to what degree were the problems revealed by the inspection (or your other investigations) reflected in the asking price of the home? And second, to what degree did the inspection reveal problems that were a total surprise to you. Its the major surprises or the significant problems you didn't know about - or think through the implications of - that you want to look closely at.
If you really like a home and feel it meets your needs (and wants) better than most others you have looked at, then I would think twice about walking away from the property - assuming the problems revealed by the inspection are correctable at a reasonable cost. After all, you may have chosen this home above all of the others on the market due to its combination of location, price, space, features, special amenities, etc.. This may be the home that is best for you. You may be better off simply renegotiating for the cost of those repairs that are either urgent and/or fairly large.
If you are getting the property at a great price, then you may want to let even larger problems go. For instance, I inspected a home recently that showed superior quality construction, had been extensively improved, and that had literally had money poured into it over the years. The home was also located on a street of expensive, well-maintained properties. The only problem was that the home had some fairly significant decay on the porch, for which the repair costs would probably run over $1500. In this case, however, the buyer (wisely) elected to do let this go. He stated to me that they were getting this property for such an attractive price that they did not feel it would not be 'in good faith' to renegotiate for the porch repairs. In this case, the buyers made a sensible choice.
'There is no such thing a perfect home (as real estate agents like to say) and every home will come with some work, some conditions that are less than optimal' and possibly some areas that will need repairs or maintenance. You can get homes that are in nearly perfect condition: but expect to pay a lot more for them. (On these homes you can be far more picky).
#4 Keep things civil ... If the inspection reveals problems that are not reflected in the price of the home and you feel you have to renegotiate, then use the brokers as intermediaries. Part of their job is to smooth out differences. Many brokers, I've found, are fairly accepting of the need to have adjustments made in the price or have conditions repaired or resolved by the owner. Brokers would rather have the seller compromise or accept a slightly lower selling price than lose the sale completely.
#5 Be diligent about looking out for your own interests ...
Get the best inspection you can possibly have done. Have the appropriate environmental assessments and testing done on higher risk items. Bring out specialists to evaluate systems excluded from the inspection, systems of major importance, or suspect conditions. Take an investigative approach. Read this manual. In other words, do everything you can to look out for your own interests.
If you have some strong reservations about whether you want this property either due to the inspection findings or for any other reason, then use your right to withdraw your offer by the end of your contingency period. (Again, assuming you have included this clause in your offer to purchase). Don't worry about offending your broker. If (s)he has been good to you then have her (or him) find you another home.
Important: if you are in a state that does not have unrestricted inspection contingencies, you had better be completely sure about the home before you make your offer. Otherwise, you may not be able to withdraw from the contract.
#6 Look at every defect in terms of the urgency for repairs, the risk the item poses, and seriousness or the expense it will pose. This is a bit of a formal breakdown but it can be useful. For instance, if the roof surface is aging but still should provide several more years of useful life, you may not be as concerned as if the roof needs immediate replacement. Ideally, you will want to take into account older components and systems when making your offer on the property.
In terms of items' needing urgent repairs, these may or not be 'acceptable'. Certainly, if the sink drain is leaking and will cause further damage by the time you move in, you would like to have that item fixed as soon as possible. Major systems that are simply not working represent items that need urgent repairs. For instance, if a heating system is not working or individual zones would not come on, it is critical that the nature of the problem be resolved.
Unless the house is being sold in 'as is' condition and clearly needs major work, you may not want to have to do a lot of immediate repairs just to make the home habitable.
Also examine the risks that go with the property. A good example of when you need to evaluate risks is when the probability of there being a problem is small, but the expenses involved in correcting the condition will be enormous. For instance, I've had inspections where buyers determined that, if the septic system failed, there would be no way to replace that system, except by spending tens of thousands of dollars. Even though the septic system was functional at the time of the inspection, they decided they could not live with this risk.
Environmental risks can often be large. For instance, when the home has an underground fuel oil tank, the actual risk of having a failed tank may be small. But if the tank has been leaking then you may face tens of thousands of dollars in repair costs. It may be prudent to avoid any home with large, unknown risks unless they are completely resolved prior to the sale commitment.
Note: an arbitrary but useful distinction for repairs is to categorize them as minor (less than $100 repair costs) ... moderate ($100 to $500 repair costs) ... major $500 to $5000 ... and serious (over $5000).
#7 When the market is hot and sales are brisk you may not have as much leverage on negotiating smaller or less critical defects. In hot real estate markets you will have much less leeway on renegotiations than in a slow real estate market. But this also applies to individual homes. Properties that are desirable due to their location, type, or price may receive a lot of interest after being put on the market. Even in a slow market these homes may have one or more back up offers. In this case, trying to renegotiate the price due to a problem found by the inspection, is much more difficult. In these cases you may have just two choices: accept things as they were or walk away from the deal. Note: some things are almost always negotiable. If the home has termites this is something the seller takes care of. As most banks will not issue a mortgage on a home with active termite infestations, these normally get treated prior to the sale. Defects such as a failed heating system and other 'non-deferrable' expenses usually never go 'with the home', unless previously disclosed.
#8 It all depends on the price... Ask yourself: does the price of the home reflect the conditions found at the inspection (and through other investigations)? Sometimes the answer will be yes; sometimes 'no'. As an inspector, however, I have no way of telling you whether the home was priced to reflect its condition. This is something you will have to determine prior to making your offer for the home. An independent appraisal, in some cases, can be useful.
#9 That which was disclosed prior to the inspection probably is not going to be negotiable later on. If the seller told you the roof needed replacing, and you made your offer knowing this information, then its a lot harder to turn around later and try to renegotiate based on this condition. If they told you the roof is aging but O.K.. and it has really failed, you may be able to renegotiate part of the price, but probably not the total replacement cost.
#10 Understand the seller. If you dealing with a seller who is close to losing their home and has no extra money, squeezing them for extra concessions over minor problems, or asking them to spend money to do needed repairs, is not a good idea. In many areas of the country, sellers are getting significantly less money than they paid for the home. Also, most homeowners are very proud of their homes and many have spent thousands of dollars on improvements and renovations. In general, when you have elderly or less well off owners, it may be difficult to have them take care of repairs.
Even while always working to get the best deal for yourself, try to maintain a good relationship with the seller. There is nothing to be gained by extracting every last possible concession from them. You have to remember, you will be in their position someday. The home buying experience is much more rewarding when you maintain a good relationship with the seller. I've known sellers who, antagonized by the petty or inappropriate demands of a buyer, stripped the home clean of everything that they legally could, even though these items would be of little use to them while they would be useful to the buyer.
#11 Look at your abilities and those of the seller. If the homeowner you are buying from is an experienced handyman or builder and you are not, its a bit reasonable to ask that they complete work that has been started or to fix items that need repairs. On the other hand, if you have the skills to do home repairs and won't have to pay someone to do everything, then you may want to take care of the minor or routine problems yourself. Much of the time, you will not be able to get a seller to do anything.
Note: I find that many buyers will accept the need for significant repairs, simply because they know they can do this work themselves - or have it done at a reasonable cost by a fancily member or friend.
#12 If major systems were not operable at the time of the inspection or if they showed potentially significant defects, it is normally reasonable to ask the seller to resolve the condition of these items. For instance, if the heating system was not working or if it showed evidence of serious defects, then you can either hire your own heating system technician or you can have the owner take care of the problem. In most instances, it is the owner's responsibility for making sure that basic systems are operable. If they knew something was not working (or not working properly) they should have disclosed this, so that you could factor in the cost of repairs or replacement.
Advice: you may want to bring in your own specialist, on occasion, to get a completely unbiased opinion on a system you have major concerns about. But unless you want to bear the cost of repairing some item, it is better to ask that the owner get the item repaired or certified to be "in good working order". This advice is applicable to systems that the owner has stated to be in working condition or that would you assume to be in working condition, but aren't.
Note: with real estate owned property or homes that are vacant and/or winterized, the plumbing will sometimes be off, the electricity disconnected, or the heating system will be shut down or inoperable at the time of the inspection. While it is always best to try to have these made operable by the day of the inspection, this is not always possible. In this case, you (or your attorney) should stipulate that the owner have the major systems in the home in "good working order" at some date prior to the closing. Note: talk to your attorney about protecting yourself further in these types of situations.
#13 Decide how comfortable you are with negotiations...
You also have to evaluate the seller on this issue. Some people you just would not negotiate with. Also recognize that most homeowners are proud of their home and may have spent many years there. In your contacts and negotiations with the owner, you should be sensitive to this.
Important: if you are not comfortable with negotiations or are unsure of what to do, then you should review the inspection findings with an attorney. Attorneys can act as advocates for you and can help to protect your interests.
#14 And finally, decide what repair or course of action in dealing with problems, will be appropriate to your abilities, time, resources - and standards. Similarly, carry everything one step further and look at the implications of each problem or condition found on the home.
This advice is a bit subtle but it can be very important. For instance, suppose that the inspection revealed a number of the windows to be functional, but older and loose fitting. You have the home tested for lead paint and you find the windows are covered with lead paint. Now suppose you have young children, or are purchasing in a state with extremely strict lead paint laws. In this situation, you have to decide whether you can simply live with the older windows and just clean them up, re-putty them, install weather-stripping, etc. Or, do you need to install new windows, given the concerns with lead paint and young children. Which is the appropriate repair: fixing the windows for $10 per window plus some time, or replacing the sashes/units for $200 to $400 per unit.
Another example: suppose the systems and areas in the home you are looking at may not be in need of critical repairs. They may be functional, but they may be substandard - and sometimes seriously substandard. Extremely loose stone foundations could be an example. Unless a component or system is non-functional, however, it will be 'acceptable' from the standpoint of the inspection. It will not be indicated as something needing "repairs". Driveways can be an area where standards are important. A worn-out and cracked driveway may be 'functional' but it may not be acceptable if you hold it to a higher standard.
The upshot is that you have to decide what standard you want to apply to the home. You have to think through what repair or renovation would produce the result that is desirable given your circumstances and your standards. In some cases, this will mean far greater repair and renovation expenses than what your home inspection will indicate. Note: a good inspector will, in general, have much higher standards than a 'quick and easy' inspector who may only make sure that the home is not going to fall down tomorrow.
Escrows are commonly used in real estate when making an offer - but less commonly in post-inspection negotiations. The down payment made when making an offer is typically held in escrow. If the offer is not accepted or all of the conditions of sale are not able to be met, the money is returned to the buyer.
Holding money owed to the seller in escrow, obviously, will not be very popular with sellers. Many will flatly refuse to go along with this. From their perspective, they lose control of this money and they really can't be sure they will ever see what is owed to them. An unscrupulous buyer could, for instance, claim repairs are needed when they really aren't; or they could claim that moneys spent on normal maintenance represents a 'repair'.
Nevertheless, when you have a situation where some major system or concern cannot be evaluated until after you have moved into the home, you may want to think about having moneys set aside to cover the cost of repairs. The systems/concerns where ideally you would like to escrow money include: septic systems that could not be evaluated prior to taking ownership; radon problems (see Environmental chapter); central air conditioning systems that have not been in use or show signs of problems or advanced age; and pools that are shut down where you have no information on its condition or recent history. You may have to have a strong bargaining position and a compliant seller to be able to use escrows.
When to walk away from a home
I should note that many home buyers also get 'cold feet' or back off for all kinds of other reasons: financing difficulties, the parents don't like the property, difficulties with the seller getting clear title, etc.
It is important to realize that, except in the most dire circumstances, inspectors will not tell you to walk away from a home. We may list 15 major deficiencies and indicate repair costs in the tens of thousands of dollars, but the decision to 'walk away', ultimately, is yours. In some cases, I've seen buyers purchase homes that I wouldn't own if you gave them to me for free. But I've also seen some of these buyers make out fine in the end when they were able to do most of the needed work themselves.
But I guess I would have to say that there are several situations where you had better consider whether purchasing a particular property would ever be a good idea. In general, these would be properties that carry what I previously defined as "serious defects" (as defined earlier). These would encompass, as a partial list: homes with underground fuel oil tanks where the owner will not have them removed prior to the sale, homes where coastal or riverway erosion are leading to a serious erosion of the property, homes that would be subject to periodic flooding, homes with serious structural deficiencies that just cannot be fixed without spending tens of thousands of dollars, homes with little redeeming value where the original construction was poor and everything went downhill from there. You have to be careful with serious fixer-uppers, as those at the bottom end of the scale sometimes are so far gone they are not worth putting money into.
In other words, in situations where you can't begin to calculate how much it will cost to repair the problems (or potential problems) then no amount of renegotiations over the price will account for all of the risk and problems you are buying into.
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