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Wednesday, February 4, 2015

The Inspection Objection and Resolution Process Explained


[The first three paragraphs were published Feb. 5, 2015, in the Jeffco editions of the Denver Post's YourHub section]


One of the more confusing and stressful aspects of any transaction can be the inspection objection notice submitted by the buyer and the inspection resolution that is necessary in order to proceed toward closing.

The “Inspection Objection” document, signed only by the buyer, is merely a notice from the buyer laying out their requests for repairs.  The “Inspection Resolution” document is what really matters, because it spells out what both parties agree will be done. Often the buyer’s agent will attach the inspector’s full report to the inspection objection notice. This serves two purposes — one is to provide documentation (usually including pictures) of the defects which the buyer wants addressed by the seller. The second purpose is to inform the seller of all the problems found and not just the ones which the buyer wants addressed.  Because the seller and the listing agent have been informed of these problems, they would have to disclose them to a future buyer if the current contract falls due to failure of the buyer and seller to agree on repairs.  For a listing agent to refuse to accept the inspection report for that reason would raise serious questions of ethics and law.

There are several strategies available to the seller and listing agent in responding to the buyer’s demands. Take for example, the buyer’s request that everything be done by licensed professionals. If the job can be done by a qualified handyman, there's no reason not to specify that in the inspection resolution document.  The buyer usually accepts that.

Some buyers will ask for every defect in the inspection report to be addressed by the seller. When I represent a buyer, I point out that the inspector's responsibility is to point out every single defect, but that it would be unwise to request repair of any but the most serious issues -- typically described as "health & safety" issues.  Those would include electrical and plumbing issues, as well as furnaces with cracked heat exchangers emitting carbon monoxide gas.  When representing the seller, I recommend addressing only those serious issues.

When a seller has multiple offers, I try to get one of the losing bidders to agree to being in back-up position, because that can help when it comes to inspection issues.  More than once I've been able to tell the buyer's agent that the seller has a back-up buyer who has read the inspection objection and seen the full inspection report and has agreed to accept the house "as is" if the buyer terminates.  The result is that the buyer usually agrees to withdraw their inspection objection.

If a seller is reluctant to make repairs to any major issue and we are unable to get the buyer to withdraw his or her request, it's my responsibility as the seller's agent to point out that if they let this contract fall, they are still bound to disclose these uncorrected problems to the next buyer.  

Usually there are both big and small defects and I'm able to negotiate that we will fix this one big problem but not these smaller ones -- or vice versa.  Years of experience at negotiating inspection issues on the part of an agent can really pay off for the client -- whether buyer or seller. 

Often the seller would rather pay for the repairs rather than handle them before closing.  This can take the form of a price reduction or the payment of some or all of the buyer's closing costs -- or a combination of the two.  The value of these concessions can be a matter of negotiation -- not necessarily covering the full amount of all requested repairs.  Alternatively, the seller might pre-pay a contractor for a repair to be completed following closing.  A seller will prefer a price reduction over these other alternatives, because it reduces the amount of commission paid to both agents.

Since the Inspection Resolution document must be provided to the buyer's lender, it's not always acceptable to have critical repairs -- such as a new roof or furnace -- be made following closing.  The lender needs to know that the repairs are made and that the buyer won't simply pocket the money and not make those critical repairs.  As a way of hiding the uncompleted repairs from the lender, it's a common but questionable practice -- because it could be seen as a form of mortgage fraud -- for the buyer to withdraw the inspection objection and, along with the seller, sign an amendment to the contract reducing the purchase price without explaining why. 

Recently I had a buyer demand that the 20-year-old water heater be replaced, but since the water heater was in working condition despite its age, I suggested that the seller pay for a home warranty which covers the water heater, and the buyer accepted that alternative, saving my seller hundreds of dollars.  (Of course, if I had a back-up buyer, even that expense could have been saved!)

Sellers who choose to sell their home without using an agent should remember that securing a contract with a buyer is only step #1 in selling their home.  By employing a listing agent, the seller not only gains the possibility of multiple offers and a higher price for their home, but they will have the experience and expertise of a good listing agent when it comes to negotiating inspection and other issues prior to closing.
 

15 comments:

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