Home Inspection & Appraisal for Sellers

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What You Need to Know About Appraisals

Congratulations, you have finally found the house you wanted! But you should ask yourself one question before signing all the paperwork, is the house you are planning to buy really worth the money you will invest? Can’t decide?

The asking price on the house is an amount which your lender has already approved, so you probably won’t have any issues with the mortgage. Actually, this is not always true, and there are instances in which you can have an issue getting a mortgage if the investment is not worth the approved amount. In such a case, the lender will provide you with a lower loan amount or none at all.

The situation may seem a bit complex, but this is exactly why you need a mortgage appraisal. Once you go through this process, you will find out the true worth of your house to be, and accordingly, you can make a decision on whether the purchase is a smart decision or not.

A home appraisal is a process in which an expert evaluates the house, performs a thorough analysis and then determines the worth of the home. The appraiser is hired by the lender through an Appraisal Management Company or the AMC, but you will have to bear the costs. Once the results have been prepared, they are reviewed, and accordingly, the deal is finalized.

The lender orders an appraisal when you have a house ‘under contract’. Your Realtor will establish a value of the house by performing a Comparative Market Analysis or CMA.  Negotiation is carried out on the offer and a written contract is prepared. If this is accepted, it is sent to your lender, who then gets in touch with an AMC and appoints an appraiser.

Purpose of an Appraisal

The main purpose of a mortgage appraisal is to determine the value of the house which you plan to buy. The process does incur fees, and you will have to pay them, but you should still get a home appraisal conducted considering the magnitude of the overall investment. By doing so, you will know that you are not paying an unfair amount of the property. Your lender will also be sure that they are not lending you excessive amounts, which may eventually lead to a foreclosure should you default on the mortgage.

In other words, a mortgage appraisal protects both you and the lender by ensuring that the deal you are about to finalize is indeed, worth the invested amount.

Types of Appraisals

A mortgage appraisal can be conducted by many methods, but two of them are popular. One is the sales comparison approach and the other is the cost approach.

The Sales Comparison Approach

In this method, the appraiser will compare the home with a number of other homes that are of the same size and located in the same locality. These are referred to as the comps or the comparables.  While comparing, many factors are considered such as the area, amounts of finished and unfinished space, age of the house, design features, kitchen styles, garages, fireplaces, and so on.

The Cost Approach

The Cost Approach method is primarily used to appraise new property. The appraiser will figure out an amount which will be required for reconstructing the home if it was completely destroyed. The analysis is also based on other things such as depreciation and land value. Accordingly, an appraiser determines the true worth of the house.

The Appraisal Process

When you decide the house which you want to buy, you get it under contract. This means that your Realtor performs a Market Comparative Analysis or CMA, and determines the value of the property. Using this, an offer is made and negotiated, and then a written contract is prepared. Once accepted, this is sent to your lender who then orders an appraisal through an AMC.

The appraiser will then visit the home to initiate the process. During that time, your presence is not mandatory but is still recommended so that you can get better insight.

Here are the main steps of the process.

  • The appraiser will perform a visual inspection of the home and assess its condition. He will note down details such as the construction quality, number of rooms, floor plan and the design. If there is any need of repairs or improvements, you will be notified and also provided with an estimate of the costs involved.
  • The appraiser will take photos of the property for record purposes, and conduct necessary measurements of the floors.
  • The appraiser will analyze the neighboring area and if any amenities are located nearby such as a park, shopping mall or hospital, they will determine their influence on the home’s worth.
  • The appraiser will get in touch with the local planning department or another governmental body, and determine the zoning rules and taxes for the property. This information can be used for figuring out the highest and best use, which serves as critical data in the home mortgage appraisal process.
  • All appraisers have access to a lot of data, which they get from agents and brokers. Using these resources, an appraiser will determine the average value of homes in the locality and go through recent sales report. In this step, the MLS and legal data of your chosen home is also reviewed.
  • The appraiser will then use any of the above methods to determine the worth of the home and will prepare a report. This will include a summary of the method, a review of the house’s conditions and the improvements that were carried out. The report will also contain details of problems such as cracked foundations and wet basements, a summary of market trends and their effect on the property and a complete analysis that will support the results. Maps, sketches, and photographs are also included for reference.
  • A copy of the report is sent to the lender.

The Appraisal Outcome

A home appraisal can have two results; the asking price is equal to or less than the appraised value or the asking price is more than the appraised value.

In the former case, the sale can proceed as per the plan. But what if the appraised value is lower than the amount which the seller demands? Should this be the case, the lender will not provide you with a big enough loan.

There are a number of options which you can take to deal with such a situation.

  • Negotiate with the seller and convince him to drop the price.
  • Pay the difference in amount yourself.
  • Have another appraiser go through the process one more time.
  • Forget about that home and search for another one.
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Your Inspection Rights and Approximate Costs

Finding that perfect home can be quite the task, but getting under contract begins a whole other process. Now that you and the sellers have agreed on a price, you would be wise to order a home inspection. Your Realtor can help by providing several choices for an inspector.

As a Buyer, you have the right to an inspection of the property prior to closing.  Once inspected, you then have the right to object to any conditions that are brought to your attention.  You may either ask the seller to fix them, or you may terminate the contract.  It’s important to know what to look for because, after closing, you own any problems with the property.  What many buyers don’t know is just how many inspections are available.   Below is a list of options you may want to consider before you close. Your choices will depend on the age, condition, and location of the home. Let’s cover just a few.

Home Inspection

The purpose of the home inspection is to determine the condition of your home. One usually runs between $300-$400. Price is based on age and size of your home and is pretty much a top to bottom inspection of the home. Be sure to ask your inspector what they include in the overall package.

Radon Test

The purpose of the radon test is to determine if your home has unsafe levels of radon gas within it. It is worth the extra money to determine if there are unsafe levels of radon seeping in from the ground. This test usually runs $130 and takes over 48 hours to complete.

Sewer Line Scope

The purpose of this test is to see if sewer lines are obstructed, cracked or outdated. You will want to make sure the line is working properly as the cost to repair and tap into the city main line can be very expensive. This test usually runs about $150 and most plumbers will provide a digital recording as your proof that it is working properly.

Lead-Based Paint Assessment

This test is a good idea for homes built prior to 1978 due to the fact that paint manufactured during that time contained lead. Lead poisoning could be potentially fatal to young children if swallowed. A test usually runs $300.

Meth Lab Test

If you think that your home was used to manufacture methamphetamine or it was disclosed to you that this has occurred, it is a good idea to order this test. One usually runs $600 for whole house or $1000 for specific area testing.

Mold Test

You can also see if your home contains dangerous mold which can form in basements or bathrooms and kitchens due to the high moisture content in those areas. This type of test usually runs $300.

The list of tests goes on but these are the most common and will address some major issues. Be sure to check with your lender if you are financing as they may be required in some cases. The main thing is to protect your investment and your family. You will be glad you spent the extra dollars should something be discovered that could be very expensive to repair.

*prices above are an estimate and may vary

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Everything You Need to Know About Radon

You’ve found your home, you’ve written an offer, it’s been accepted and you are “Under Contract”. Now it’s time to find out what the real condition of this property is. In order to accomplish this you are going to want to do a Property Inspection. When you schedule the inspection, you should be asked to decide if you want the inspector to perform a radon test. In all but the rarest cases the answer should be yes.

What is Radon?

Radon is a naturally occurring, inert, odorless, colorless, radioactive gas. It is formed by the radioactive decay of uranium in rock, soil, and water. So, without a test, there is no way to know if your home has it.

What does it do?

Radon is right behind cigarettes as the second leading cause of lung cancer. Radon is associated with 15,000 to 22,000 lung cancer deaths in the United States annually.

Here is a good description, written by the National Cancer Institute of what Radon does to cause cancer.

Radon decays quickly, giving off tiny radioactive particles. When inhaled, these radioactive particles can damage the cells that line the lung. Long-term exposure to radon can lead to lung cancer, the only cancer proven to be associated with inhaling radon. There has been a suggestion of increased risk of leukemia associated with radon exposure in adults and children; however, the evidence is not conclusive.

Radon is actually a controversial topic and while there are many credible sources that question the effects radon has on human beings, the evidence and research that it is harmful is too overwhelming for us to ignore, especially when representing home buyers. Here is a list of organizations that state Radon is a health threat:

      • U.S. Surgeon General
      • American Medical Association
      • American Lung Association
      • Centers for Disease Control
      • National Cancer Institute
      • National Academy of Sciences
      • Environmental Protection Agency

Testing and Measuring

Here’s the science of radon, levels are measured and talked about in terms of “Picocuries” this is an international unit of radioactivity that is defined as 1 Ci = 3.7×1010 decays per second. This is approximately the activity of 1 gram of the radium isotope 226Ra, a substance studied by the pioneers of radiology, Pierre and Marie Curie, for whom the unit was named.

The important number to remember for the purposes of radon in a home is 4 pCi/L (picocuries per liter). This is the number above which the EPA recommends mitigation.

It’s important to note that we often hear about higher acceptable levels in other countries, the point being the US is “unreasonably” low. This might be the case but as far as the United States is concerned 4 pCi/L is the magic number.

Testing for Radon is important, especially here along the front range because radon is prevalent in the entire State of Colorado but especially high right here in El Paso County.

The Environmental Protection Agency (EPA) produces a “Radon Map”. This map categorizes areas into three zones to assess radon potential. All of El Paso County is in “Zone 1”

  • Zone 1- Highest Potential: These are counties that have a predicted average indoor radon screening level greater than 4 pCi/L (picocuries per liter)
  • Zone 2- Moderate Potential: These are counties that have a predicted average indoor radon screening level between 2 and 4 pCi/L
  • Zone 3- Low Potential: These are counties have a predicted average indoor radon screening level less than 2 pCi/L

The criteria used to develop this assessment are as follows:

      1. Indoor radon measurements
      2. Geology
      3. Aerial radioactivity
      4. Soil permeability
      5. Foundation type

As far as testing methods are concerned, most certified home inspectors will use a handful of different testing methods. Some require post inspection processing therefore requiring a wait to see the results. It’s important to keep track of your inspection deadlines, you don’t want to end up with elevated radon levels but ask for mitigation after your inspection objection deadline.

How does radon get into a house

The primary entry point for radon into the home is through the foundation. If you have a basement, the gas can seep through small cracks and voids in the slab. Crawl Spaces are generally left uncovered thus providing no barrier for radon gases. Sometimes radon enters the home through well water.

Mitigation

There are a handful of different methods used to mitigate radon from a home. The most popular method here along the front range of Colorado is Active soil depressurization (ASD).

Active soil depressurization (ASD) essentially keeps radon gas from entering the home by changing the pressure differential, essentially depressurizing the force that pushes the gas from below the foundation slab or crawlspace into the home. Radon is drawn from beneath the slab by an exhaust fan that vents the radon gas through a PVC pipe up and over the roof of the home to the outdoor air where it dilutes into the atmosphere.

It’s important that radon mitigation systems vent above the properties roof. Since radon gas is heavier than air the possibility exists that the gas can be picked up and redistributed through the homes HVAC system. By venting above the roof the concentration of gas falls off significantly before it has the opportunity to be reintroduced.

It’s important to note that the active soil depressurization system is a separate system and is not related to your homes HVAC or any other system except that it draws a slight low voltage feed from your electric system. So, the cost to operate an ASD system is low as well. The system fans typically use 90 watts per fan. The cost to operate one of these units is approximately $25 to $45 per year.

The cost of installation varies based on the size of the home and the type of foundation. Here along the front Range of Colorado, systems run from $800 on the low end to $2,500 on the high end. Newer homes with perimeter drains tend to be easier for installation of mitigation systems and therefore cost less.

We test for radon during the inspection because it’s generally something we want the seller to pay for. In some cases the buyer may be willing to accept the cost of mitigation, this generally has to do with the purchase price and terms.

If the seller ends up installing the system it’s important to get documentation about who installed the system what the numbers look like on the retest and what the warranty is. All of this should be wrapped up prior to closing.

Frequently Asked Questions about radon:

Can radon levels change over time?

    • Yes, changes in temperature, Moisture and Dryness can cause the uranium levels to rise which results in an increase in radon levels. If the ground around your home becomes saturated, frozen or covered with snow, it keeps the radon in the ground not allowing it to escape. Wind can also change the pressure around your home, which could cause radon to diffuse into your home. It is recommended not to test during severe weather or high winds.

How often should we test?

    • If you have a system in your homes the EPA and IEMA recommend that you test every two years. How long do Mitigation Systems Last? Usually, the manufacturer warrants the fan for 5 years. The national average for the life of a fan is 11 years. Some last as long as 20 years.

Should we test for radon if a mitigation system is present?

    • Yes, if it has been 2 years since it was installed.

What is the cost of operating a mitigation system?

    • $25-$45 a year.

What is a Picocurie?

    • This is an international unit of radioactivity that is defined as 1 Ci = 3.7×1010 decays per second. This is approximately the activity of 1 gram of the radium isotope 226Ra, a substance studied by the pioneers of radiology, Pierre Curie and Marie, for whom the unit was named.

What’s the fastest way to test?

      • The quickest way to test is with a short-term test. These kits remain in your home for two days to 90 days, depending on the device.
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Top 4 Things you Need to Know about Appraisals

The appraisal of a home is a vital part of any real estate transaction, and the role of an appraiser is possibly one of the most critical parts of the entire transaction. See below as to how you, as a Seller, can be way ahead of the learning curve with just a few helpful hints from me when are you ready to put your home on the market for sale!

1. Appraisers are always hypersensitive to contributing to potentially over inflating any real estate market. And, with multiple offers being the norm in most price ranges here in Colorado Springs, they are even more so.  Encourage your real estate broker to have comparable sold data ready to present to an appraiser. This data should support whatever sales price the buyer and seller finally agree to…ESPECIALLY vital if that sales price is OVER what the original list price was.

2. Most real estate brokers are ridiculously busy right now, but that ABSOLUTELY DOES NOT excuse your real estate broker from not showing up to your home, with comparable sold data and a list of every improvement made to the home in hand to meet the appraiser for his or her site inspection. Your real estate broker knows your home better than the appraiser does, so make sure your real estate broker shows up and represents!

3. Your real estate broker should be as descriptive as possible about your real estate listing and include if at all possible, ALL 36 photos that the Pikes Peak MLS allows. It helps an appraiser immensely to include photos of the front of your home, the rear of your home, the street view of your home, and all major rooms in your home as well as the features of the home itself. Again, your real estate broker knows your home better than the appraiser does.

4. What your real estate broker should tell you, from the very beginning, about the role of an appraiser in a real estate transaction? The role of the appraiser is actually NOT to confirm the sales price, but to provide the Buyer’s lender an independent, objective, and completely impartial opinion of the value of your home. This value of your home is considered the collateral to which the Buyer’s loan would be based.

Happy Selling!

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Colorado Appraisals Get More Expensive

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People often confuse a home inspection with a home appraisal. To clarify, a home inspection is to determine the condition of the home and inclusions. A home appraisal is a formal opinion of value to determine what the property is worth.

If you’re getting a new mortgage your lender will require an appraisal in order to justify the sales price. Your lender will order the appraisal for you. And it will be paid by you, the buyer. Typically lenders will require that payment up front, at the time appraisal is ordered. 

Here in El Paso County, appraisals usually cost around $350-400. But I just read those rates are going up. Effective November 1st the cost for a VA appraisal is now going to be $750. That’s a big jump. But it makes sense. Our area sees so many VA loan, and those VA appraisers are swamped with the increased workload of the past few years. In speaking with a lender friend of mine, she said that there is no new set appraisal rate for Conventional and FHA loans, but she thinks they will hover around $650 and VA ones will be at $750.

Increased home sales is obviously a good thing. Our housing market has been on the upswing for the past seven years in a row. Cool! But our buyers are going to feel more of a sting when they are confronted with these new, higher fees. 

Negotiating After the Home Inspection

Negotiating After the Home Inspection

As real estate agents, we’d like every home we show our home buyers to be in perfect condition. Unfortunately, even homes that appear to be in pristine condition can have serious problems under the hood. This is why we even recommend a property inspection on every home we sell, including new builds.

Colorado’s Contract to Buy and Sell Real Estate Contingencies

Contingencies represent short spans of time that afford the home buyer an opportunity to perform investigations or “due diligence”. These are clauses within the contract that protect the home buyer and they cover the following:

  • Home inspections
  • Financing
  • Title

For this discussion, we will take a look at the “Property Inspection” contingency. In short, the Colorado Contract to Buy and Sell Real Estate provides the home buyer an opportunity to perform inspections in order to assess the condition of the property. From The Colorado Contract to Buy and Sell Real Estate:

Inspection. Unless otherwise provided in this Contract, Buyer, acting in good faith, has the right to have inspections (by one or more third parties, personally or both) of the Property and Inclusions (Inspection), at Buyer’s expense. If (1) the physical condition of the Property, including, but not limited to, the roof, walls, structural integrity of the Property, the electrical, plumbing, HVAC and other mechanical systems of the Property, (2) the physical condition of the Inclusions, (3) service to the Property (including utilities and communication services), systems and components of the Property (e.g., heating and plumbing), (4) any proposed or existing transportation project, road, street or highway, or (5) any other activity, odor or noise (whether on or off the Property) and its effect or expected effect on the Property or its occupants is unsatisfactory, in Buyer’s sole subjective discretion, Buyer.

We have discussed the real estate inspection process at length in previous articles, so we won’t rehash that here. The purpose of this article is handling the results of that inspection.

What Happens When Property Inspections Show Unsatisfactory Conditions?

If you have followed our previous advice, you will have done your inspection with a certified professional inspector. This type of inspector will provide you and your Realtor with a report of the inspection. This inspection report should contain a list of items that require attention. These items generally fall into one of the following four categories:

  • Repair/Replace: This is for broken or damaged items.
  • Mitigate-Hazardous Conditions: Radon, Mold, odors or pests.
  • Provide Historical Background: This is used when the inspector sees something that appears to have been damaged and/or repaired in the past. If the inspector cannot make an assessment without further damaging walls or flooring, they will ask the seller for more information.
  • Further Evaluation-The inspector is a generalist. If something on the inspection raises a red flag but falls outside of the inspector’s “field of expertise”, he will recommend further evaluation by a licensed professional. This usually pertains to electrical, plumbing or structural issues.

After a thorough review of the inspection report, the homebuyer should meet with their Realtor in order to formulate a plan of action.

The Negotiation

The buyer and their Realtor should sit down and go over the inspection report. The idea is to establish a couple of different things:

First of all, we are looking to establish the overall condition of the home and property. There are times we have this discussion and decide there are just too many issues and choose to terminate the contract without any further negotiation or attempt at finding a resolution, this is rare.

Once we establish the overall condition, we start to delve into those items on the inspection report the buyer feels are “unsatisfactory” These items begin to form the list which they will ultimately present to the seller’s agent. We first look at health and safety issues, things like radon, mold or asbestos. Since mitigation on things like this can be so costly, we look at them first. Next, we look at things like building code violations, construction defects, and materials that may have been part of any class action suits. At this point, we are trying to protect the buyer from getting stuck with any serious financial burdens down the road.

The next we look at things like deferred maintenance; things like furnaces, exterior grading, and roofs. These are items that can cause problems down the road due to replacement costs or uninsurability.

From these discussions, the homebuyer and Realtor will put together a list of items ranging from most serious to least serious. At this point, they decide what to ask the seller to address and what if anything to take care of themselves. This discussion is always conducted in light of the current market conditions.

Once the buyer decides on those items that need to be addressed, the Realtor puts together a document named “Notice of Unsatisfactory Conditions”. This document outlines any concerns the buyer voiced as well as proposed remedies. Many times the Realtor will include a copy of the actual Inspection Report, this helps the seller’s agent clarify any misunderstandings the seller might have as to what the request is addressing. All of this needs to be delivered to the seller’s Realtor prior to the Inspection Objection deadline.

The Ball is in The Seller’s Court

Once the “Notice of Unsatisfactory Conditions” is delivered, it’s time for the Seller to meet with their Realtor. At this point, the Realtor should break down the requested items for the Seller. In order to present this material, the Agent must have a good grasp on what repairs or remedies will cost. In many cases, the agent will need to get bids in order to realistically give the seller an idea of how much money the inspection items will cost.

Once the seller understands the cost and scope of the requested inspection items, they have some decisions to make. The seller can either accept the objection and proceed with repairs, reject the request in its entirety or further negotiate with the buyer by proposing an alternative resolution. This means the seller might be willing to do items: 2,4 and 7 but not 1,3, 5 and 8. This is negotiation is done with a form entitled “Sellers Alternative Resolution”.

If the seller accepts the Inspection Objection and chooses to move forward with the repairs, the deal remains intact and the Buyer is still ”Under Contract”. If on the other hand the seller chooses to reject the request or looks for an alternate resolution, the buyer then has the choice of:

  1. Rejecting the “Alternative Resolution”. This means walking away from the deal with their earnest money intact.
  2. Accepting or rejecting the “Alternative Resolution”.
  3. Moving forward knowing the seller will not do any repairs

Note: If the Buyer rejects the “Alternative Resolution”, they are not in default so they do retain their earnest money.

While the overall process seems clear, it is often emotional. The property is the seller’s home, and the buyer is pointing out problems. Granted, some buyers nit-pic just to get a better price but most are just trying to minimize the money and time they will have to spend once in the house.

Sellers on the other hand often feel like buyers are asking for too much. For example, if the seller came off of their price, they feel like the buyer is just hitting them for more money, or that they have already discounted for these types of issues in the asking price. In short, the process can be problematic.

A good Realtor will prepare their clients for this beforehand. Experienced Realtors will help both sides find a balance that works for each party. By being willing to help both the buyer and the seller to navigate this process, they keep the deal intact. Hopefully, both sides agree on a solution.

Smart Strategies

The best strategy when approaching a property inspection is almost always dependent on the kind of market we’re in. For example: if we are in a strong buyer’s market, (this means market times are greater than six months) it’s unlikely there is a lot of interest or multiple offers for a property. In this case, home sellers are more inclined to thoughtfully consider a buyer’s inspection objection requests. On the other hand, if we are in a strong seller’s market, the chances are pretty good there is a lot of interest in the property. In this case, the sellers are likely to be less inclined to deal with lengthy repair lists.

No matter what type of market we’re in It’s always important to treat the home sellers with respect. Buyers often forget they are looking at resale homes. It often feels unreasonable to bring a laundry list of repairs to a home seller that address normal wear and tear or cosmetic issues on a home that is 15 to 20 years old. The reason this becomes difficult is that the Realtor addressed or should have addressed wear and tear and cosmetic issues when they priced the home before listing it. The inspection is intended to discover issues that weren’t disclosed by the seller, presumably because they didn’t know about them.

Another important point to consider is structuring the items you asked for by considering how to measure quality. For example, if there is a plumbing issue the buyer’s Realtor can write in the objection: “Seller to have leaking pipes under kitchen sink repaired by “licensed plumber”. Asking for a repair like this makes a lot of sense, in the first place the house shouldn’t have leaking pipes. Secondly, this kind of repair isn’t something the home seller should necessarily do period. By stipulating “licensed plumber” if there’s a problem with the work the home buyer can subsequently ask the plumber to come back and make it right. Conversely, let’s say the buyer objects to the condition of the caulk in the shower. The Realtor can’t really put teeth in a request like this, primarily because there’s no license for someone that does caulk. This is something the homeowner should maintain. Home buyers often regret making requests like this because the quality of work isn’t something they’re happy with and they end up wishing they’d have done it themselves.

In summary, it’s important to be reasonable and pragmatic when preparing your inspection objection request. It’s also important to consider the condition of the market in conjunction with the severity of the items you’re considering asking for. Your Realtor should be able to counsel you as to what’s appropriate and what’s inappropriate. Often home buyers feel like their Realtor is advocating for the home seller during this negotiation. If you feel this way it’s really important to discuss this with your Realtor in a non-confrontational manner. For example, you might ask questions like: ”You seem to be uncomfortable with the things I’m asking for. Am I being unreasonable”? “ if this was your house what would you ask for?”

At the end of the day, inspection objections are difficult. Market dynamics and human emotions just throw fuel on the fire. All of that aside next to negotiating the price, inspection is the most important hurdle to get over in order to have what the home buyer will ultimately consider a successful transaction. We think it’s important to discuss this with your Realtor before making an offer. When it comes time to negotiate with the home sellers, you and your Realtor should have an understanding of what’s reasonable as well as what’s important to you.

One final thought, it’s essential that you have the home buyer feel like you have been treated reasonably as well. During strong seller’s markets, buyers often feel like they got the short end of the stick. Once again this is it a good topic of discussion to have with your Realtor. Ultimately, If you’re not going to be happy with your purchase, you probably shouldn’t buy the house.

Here are some additional resources from other real estate websites about property inspections:

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The Home Inspection

You’ve been out looking at homes. As a matter of fact, you’ve seen a lot of homes, so many that when you walk into the right one you know it immediately. Your Realtor writes an offer and you work out the pricing and other terms, you are “under contract”.

Then it hits you, you really don’t know much about what you are buying, you know how the house looks and feels but is it in good condition? Are you buying a “Money Pit”? Buyers assume that home sellers are keeping secrets about the real condition of their home. Sometimes they are, but most of the time they’re not. The Colorado real estate contract specifically states:

“Sellers shall disclose to the buyer, in writing, any latent defects actually known by the seller.”

Although disclosure certainly helps, it’s by no means a guarantee and still doesn’t help us with what the owner doesn’t know. This is when the homework starts, literally.

The Colorado real estate contract also has certain contingencies written into it in order to protect the home buyer. Contingencies for the purposes of a real estate transaction simply means conditions. In other words, when a condition is met we move forward, otherwise, we don’t.

The Colorado Real Estate Contract affords the buyer the opportunity to inspect the property as well as any inclusions that are part of the sale. Here is the paragraph from the contract that talks about the inspection contingency:

 

colorado state real estate inspection clause

This clause contains several important terms:

      • Inspection objection– This is the written notice to the seller from the buyer describing what they deem as unsatisfactory physical conditions they want the seller to correct.
      • Inspection objection deadline– This is the date by which the buyer needs to give the seller the written inspection objection.
      • Notice to terminate– This is written notification from the buyer to the seller that the buyer is terminating the contract. This notice can begin at any point prior to the inspection objection date.
      • Inspection resolution– The seller has a couple of options at this point. They can agree to fix everything on the list, thereby staying under contract. They can also propose addressing only certain items. For example, they could offer to fix only some of the things on the list or offer monetary compensation for the items. If the seller proposes this kind of alternative, the buyer must accept this in order to stay under contract.
      • Inspection resolution deadline-This is the day by which all of the inspection objections must be resolved and signed off on by both parties.

When you look at the language about deadlines contained in this clause, it should become apparent just how important it is to perform within these time frames. Failure to do so could result in loss of earnest money or worse, loss of the opportunity to purchase the property. For sellers, failure to meet these deadlines could result in losing a potential sale.

Now that you understand the clause, it’s time to talk about the actual inspection. The most important decision you can make at this point is who is going to do the actual inspection. Your Realtor can give you a list of good inspectors. Additionally, friends that have recently bought homes are more than happy to share their inspector’s name, especially if it went well. You can also search the review websites like Angie’s list. Please, If you take one thing away from this article, choose a professional, not a friend who has experience in the trades or building homes. It’s fine to ask your friend about a specific item that might fall into their field of expertise after the inspection but please don’t bring them to the inspection. At this point in the process, all you should be trying to do is get an over all idea of the property condition. If during the inspection, red flags show up, we would defer to a specialist (Plumber, Electrician, Roofer, etc…). You can think of the inspection like your annual physical, You go to a general practitioner for your physical, you wouldn’t go to a specialist until you know you needed one. This is how you need to look at the inspection, just like you wouldn’t allow your general practitioner to operate on your brain, your inspector shouldn’t work on your electrical system.

Although home inspectors are not licensed, they are certified. The certifying organization for home inspectors ASHI the American Society of Home Inspectors. National Association of Home Inspectors NAHI was a second organization that certified inspectors at one point in time they ultimately went under and their members moved to ASHI. Here is an interesting story on NAHI and its demise. Home inspectors with the certifications follow a strict set of guidelines when it comes time to do the actual inspection. It’s a good idea to look over those guidelines prior to the actual inspection. You can download a copy of these guidelines from the ASHI website or just click here and download them right here: ASHI Standards. If you have an area of concern and don’t see it mentioned in the guidelines, ask your inspector to take a look at it. They are generally happy to oblige unless inspecting the item puts them in danger of bodily harm or potentially causes damage to the home. Unlike the inspectors on television home shows, real-life, “certified” inspectors won’t damage a property during the inspection.

Onto the inspection itself. The best thing a buyer can do at the actual inspection is to follow the inspector, closely! The inspector will usually get to the house a little early so they can walk the exterior and get the roof inspection done before the buyer gets there. This helps expedite the entire inspection process and since they aren’t going to let the buyer get on the roof with them (liability insurance rules) it helps avoid having to say no if the buyer asks.

A good inspector will explain what they are seeing, especially when there is a problem. If you don’t understand what’s going on, it’s imperative that you ask questions and seek clarification. This will pay off especially when it comes time to put together the Inspection Objection.

At the conclusion of the inspection, the inspector will summarize their findings. Some inspectors will actually produce and print a report on site. If they don’t have this capability, they should mail or e-mail you a thorough report with enough time to put together your inspection objection.

The inspection objection is a document itemizing what the buyer deems to be unsatisfactory physical conditions they want to be corrected on the property prior to closing. Generally, we see three potential approaches when putting together this document, here they are:

The first is written without much thought and simply asks for everything and anything the inspector found. This type of request is generally met with anger and resistance by the home seller and is more likely to produce a complete rejection of everything the buyer asks for then it is at producing any kind of constructive resolution. This is why we suggest buyers actually follow the inspector, this way they get a sense of what is really a big deal, what’s not and what’s just normal maintenance. Inspection objections are the fastest way to kill a real estate transaction. And asking for everything is the best way to get nothing while losing the deal and the money you paid for the inspection.

The second type of inspection objection is the one where the buyer asks for nothing. This is fine if the buyer has participated in the inspection and legitimately believes there is nothing that needs to be done. The other reason to use this tactic is when the buyer really wants the house or feels like they are getting such a great deal they don’t want to jeopardize the transaction. So, they are essentially waving the inspection contingency. If this is the route you choose to go we think it’s important to note that it’s still a good idea to do an inspection in order to get a good sense of the over all property condition.

The third type of inspection objection is the one where the buyer participates in the inspection, thoughtfully considers everything the inspector found, seeks advice from their Realtor and any appropriate contractors in order to get a sense of how much repairs might cost. Once they’ve done this, they put together a realistic list of repairs they would like the seller to take care of prior to the closing. Having done their homework, this buyer knows how much things cost so if the seller comes back with a monetary alternative resolution, the buyer knows where they stand, what’s fair and what’s not. This type of negotiation tends to net a better result at the end of the day.

The inspection phase of the real estate transaction can be difficult to navigate but with the right preparation and a little knowledge, the inspection phase of the transaction can produce a win/win.

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