What You Need to Know About the Inspection Process When Selling Your Home

Getting your home under contract is just the beginning of the long and complicated process of successfully reaching the closing table. Of the many hurdles that lie between contract and closing, one that typically comes early in the process, and that can require deft negotiation, is that of the home inspection.  

From the buyer’s perspective, the cost of a professional home inspection is definitely money well spent. A good professional inspector will identify hidden defects that the layperson is likely to miss.  With an inspection report in hand, the buyer can then, with sound advice from their agent, determine which issues they believe the seller needs to address (by repair or monetary consideration). The buyer’s agent will then prepare an “Inspection Objection” document and present it to the seller (through his agent), who then decides which issues, if any, he is willing to address. These are expressed in an “Inspection Resolution” document which, once signed by both parties, gets the parties past inspection. If they don’t reach agreement and the buyer doesn’t withdraw the “Inspection Objection,” the contract terminates at midnight on the resolution deadline.

From the seller’s perspective,  he doesn’t have to fix “a damn thing.” It’s all a matter of negotiation, and this is when the seller benefits from having an agent with good negotiating skills on his or her side.

When contracts fall, it’s usually because of inspection issues, so it’s important to get the inspection done as quickly as possible after going under contract, ideally within 7 days. In addition to a general home inspection, buyers should consider a sewer scope and a radon inspection. Each costs about $100, but given that sewer line repairs are typically multi-thousand dollar affairs, a buyer would include a sewer line repair among his inspection demands and reasonably expect the seller to cover the cost of such repairs.  Radon mitigation systems typically cost  $1,000 or so and are called for about 50% of the time, in my experience.

Sellers should always seek a reasonable settlement to a buyer’s demands; first because the objective is to get to the closing table, and, second, because if the contract falls, all defects revealed by the first buyer’s inspection have become known to the seller, who is then obligated to disclose them to the next buyer.  A skilled listing agent can often negotiate downward many of the demands made of his seller.  I’m proud of my own track record on both sides of these negotiations.

A seller can create a stronger position by accepting a back-up contract for the same price, which can often be achieved when multiple bidders are involved. The listing agent can share the buyer’s Inspection Objection, plus the full inspection report, with a back-up buyer, asking for a waiver of inspection in the event the current buyer terminates. If the back-up buyer agrees, the seller is now able to refuse to make any repairs. This creates a no-lose situation for the seller because if the current buyer opts to terminate there’s another one waiting in the wings who has waived inspection.

Research Shows That 3 to 4 Days on Market Yields Sellers the Highest Price

I have written many times — and told my clients — that in a seller’s market like we are currently experiencing, you’re likely to leave money on the table if you accept the first offer, and that you should wait 3 to 4 days before deciding among competing offers.

While this “rule of thumb” was based on my personal experience, I hadn’t done the research to support it — until now.

Using data from REcolorado (the Denver MLS), I studied MLS sales for the last 180 days to create this chart.

 The chart shows that the highest number of listings went under contract on their fourth day on the MLS, and that 62.9% of those homes sold for over their asking price — the highest percentage on the chart. Generally speaking, homes that went under contract on days 1 through 6 (after which there is a significant drop off) performed similarly well.  Still, the analysis bore out my long-held belief that the highest numbers typically fall on days 3 and 4.

 

Take a good look at the numbers for homes that went under contract with zero days on market. Zero days on market (”DOM”) means that the listing agent put the home on the MLS only after it had already gone under contract. Not surprisingly, only 17.5% of zero DOM listings sold for more than their asking price — a lower figure than for listings that were on the MLS for anything under 10 days.  Also not surprising is that 18.6% of zero DOM listings sold for less than their asking price — a higher percentage than for homes that were on the MLS for 1 to 5 days.  The numbers seem clear: by denying other buyers the opportunity to even submit an offer, agents who employ this tactic are more likely to leave money on the table (specifically, their Seller’s money) because they effectively take the market right out of “seller’s market.”

 

Not shown on the chart is whether or not the buyers of these listings employed an agent with whom the listing agent had to share his commission, When a listing agent doesn’t share his commission, he doubles his or her earnings on that transaction. We refer to this as “double-ending” a transaction.  An analysis of the 1,523 transactions that sold with zero days on the MLS, reveals that over 50% of the listings under $200,000 were double-ended by the listing agent, while the percentage was 40% or lower on higher priced homes, and for homes priced at $1 million or higher, the percentage fell to under 10%. The number of double-ended transactions for homes that were on the MLS 1 day was about 10%, and it dropped to 5% or less for homes that sold in 2 days or longer.

Just Listed: Buildable 20-Acre Lot North of Golden

 

22801 Indian Head Road, Golden

$425,000

Narrated Video Tour at www.GoldenAreaLand.info

This lot is 2½ miles west of Highway 93 at the very end of Indian Head Road, behind a hogback but high enough to see over the hogback, with 180-degree views from Golden to the right, Boulder to the left, and to Denver, DIA and the plains beyond. There's an improved gravel driveway with switchback from the property line up to the home site. Well and electrical service are in place at a cleared homesite. Indian Head Road is across from Leyden Road on Hwy 93. The lot adjoins the White Ranch Open Space Park on its south and west sides.  It’s so quiet here that the loudest noise you’re likely to hear is the breeze in the trees or an airplane 20,000 feet overhead. Visit the website for more pictures and to view a narrated video tour from Hwy 93 up to the homesite and back, then call me at 303-525-1851 for a showing.

Just Listed: Accessible Brick Ranch in Arvada

6482 Owens Street, Arvada

$405,000

Narrated Video Tour at www.ArvadaHome.info

This large updated ranch-style home is on a quiet Arvada street with 5 bedrooms, 3 bathrooms, and a fully finished basement. It is 2 blocks from Campbell Elementary School and 7 blocks from Arvada West High School. In addition to the oversized 2-car garage (which is heated, cooled and has 220-Volt power), there is an RV parking space on the south side of the house. This  home has a new roof, new siding and new windows. The updated kitchen has granite counter tops, new cabinets and new appliances, all included. You’ll like the hardwood floors, cedar paneling, and updated bathrooms. The home has several accessible features, including ramps, a large 3/4 bathroom with roll-in shower, and extra wide doors. The patio has a gazebo with a hot tub. The backyard has an 8’x11’ shed and 8’x8’ greenhouse that stay with the home. See the video at the website above, then call your own agent or listing agent Jim Swanson at 303-929-2727 for a private showing. 

 

This 6th Ave. West Home Has It All, Even a Man Cave

 

14317 W. 4th Place, Golden

$479,900

Narrated Video Tour at www.6thAveWestHome.com

 

This lovely bi-level home is located in walking distance of the light rail station serving 6th Avenue West and Red Rocks Community College. It has been beautifully updated with hardwood floors, maple cabinets, granite counters, vaulted ceiling and updated appliances. A heated and finished bonus room (or “man cave”) is located behind the 2-car garage. The home sits on a large cul-de-sac lot adjoining Flora Way. The fenced yard includes a dog run with dog house and large wood deck. Top-rated Kyffin Elementary, which has a Gifted & Talented program, and the community swimming pool are a few blocks away, as is a vest-pocket park for the neighborhood hidden from street view. There are 4 bedrooms, 2 upstairs and 2 more downstairs, with 3 baths. You’ll love the master bathroom! Watch a narrated video tour at the website above, then come to the open house this Saturday, Oct. 28th, 1-3 pm.

4 Colorado Home Builders Honored by Dept. of Energy for Construction Innovation

The U.S. Department of Energy (DOE) presented its 2017 Housing Innovation Awards to 24 of the nation's leading builders recently at the Energy and Environmental Building Alliance's High Performance Home Summit in Atlanta. Four Colorado builders were among the national honorees, one of them for homes being built in the Denver metro area.

Thrive Home Builders (Denver) was the Grand Winner in the Production Home category. The Custom Home category had no Colorado honorees.  Thrive Home Builders (Lone Tree) was the Grand Winner in the Multi-Family category. Revive Properties (Fort Collins) was also honored in the Production and Multi-Family categories, and Mantell-Hecathorn Builders (Durango) was honored for Innovation in Custom Homes (Buyers), but not as the Grand Winner in that category.

These innovation awards are part of DOE’s “Zero Energy Ready Homes” program.  According to Sam Rashkin, chief architect at DOE's Building Technologies Office, “Zero Energy Ready Homes are designed to provide a whole new level of home owner experience, including ultra-low utility bills, ensured comfort, comprehensive water protection, whole-house fresh air delivery, high-capture filtration, contaminant control, and enhanced durability.”

“These winners are leading a national movement to Zero Energy Ready Homes, providing better places for Americans to live, stronger communities, and a more economically and environmentally resilient nation,” said Rashkin.

The judges also selected homes for honorable mention in each category.  Winners and honorable mention recipients will be featured on the DOE Tour of Zero, a virtual tour of Zero Energy Ready Homes across the country. A list of previous years’ winners (going back to 2013) can be seen online at https//energy.gov/eere/buildings/doe-tour-zero. Thrive Home Builders won this award in 2013, 2014, 2015 under the name New Town Builders and in two categories last year, as they did this year, under their new name.

From attending builder booths at various Realtor events, I have observed that builders  active in the Denver market are highly competitive regarding the energy efficiency of their new homes. Energy efficiency is measured by the builders’ average HERS scores.  HERS stands for Home Energy Rating System, where a score of 100 equals the energy efficiency of a home built to current code. Thus, a HERS score of 60 would signify that the home uses 40% less energy than one built only to code. The lower the HERS score, the more energy efficient a home is. Almost all builders active in the Denver market boast average HERS ratings of 70 or lower. Thrive Home Builders is building homes with HERS ratings under 10.  

 

According to Susan Elovitz from Thrive, “All Thrive homes go beyond the Zero Energy Ready Homes program to also include Thrive’s premium performance 9½” walls filled with energy saving insulation, PV solar, LED Lighting, tankless water heaters and more. Indoor airPLUS certification is also standard, which means they meet rigorous EPA guidelines for improved indoor air quality, but again, it’s only a starting point for Thrive. Innovations in clean indoor air include active radon systems, advanced air filtration, continuous fresh air ventilation, corn-based carpeting and drywall that absorbs and breaks down formaldehyde to ensure that indoor air pollutants are reduced in the air you breathe.”

That’s impressive. Our agents were also impressed by Meritage Homes’ new subdivision at Richards Farm, where we got a pre-construction tour and could see that builder’s approach toward insulation.

Meritage showed us how they use sprayed foam insulation instead of fiberglass insulation in their walls. Closed cell foam is a far better insulator than batts made of fiberglass. Meritage is the only builder I know that conditions their attic, meaning that they insulate the ceiling of the attic — that is, the underside of the roof — instead of the floor of the attic. Other builders typically blow in cellulose insulation that rests on the floor of the attic The attic above the insulation is then ventilated with outside air. If there are heating ducts in an unconditioned attic, the warm air in those ducts could lose a lot of their heat, but if the attic is conditioned space, that doesn’t happen. If you have gone into your floor-insulated attic during the summer months you know how exceptionally hot it can get.  By comparison, temperatures in an attic with an insulated ceiling are greatly reduced.

Here Are Some Things to Consider When Hiring Your Listing Agent

Notice that I used the verb “to hire.”  This is a job, and the job is to handle one of the largest financial transactions in your life, so first of all you need to establish qualifications and criteria before even interviewing candidates for this job.

Becoming a licensed real estate agent is probably easier than it should be, considering how important our job is. Appraisers, by contrast, have to study more, pass harder tests, and even apprentice before they can get their licenses. For real estate, you need only take 168 hours of licensing class (which you can do online) and pass a 3-hour state exam, plus survive a criminal background check from the Colorado Bureau of Investigation. This is why we have so many part-timers in this business, and why the average real estate licensee earns less than $50,000 per year.  You’d be surprised at how many licensees have zero or one transaction per year. Those agents are living off another income or a supportive spouse, and their small number of completed transactions means they have limited experience to serve you.

 

So, qualification number one for the job of listing your home should be the number of completed transactions the licensee has had within the past few years.  You can get this information on Denver’s MLS, www. REcolorado.com. I’ve created a shortcut that goes directly to the agent look-up page: www.FindDenverRealtors.com. See screenshot at right. (Keep nicknames in mind when entering your candidate’s name. I’m Jim, not James, but some Jim’s may be under James, etc.)  When you find the agent, click on “View My Listings” where you’ll see a number for “Properties I’m Selling” and “Properties I’ve Sold.” This is not to say that a less experienced agent working under good supervision (like my broker associates) wouldn’t be a good candidate, but experience does count, so find out how experienced he or she is. With proper supervision, a newer, hungrier agent might do a great job and be more attentive.

 

While you’re there, take a look at how the agent is presenting his/her listings. Are the all-important photographs high quality, or do the rooms appear dark and are the windows a white blur? Study the details of each listing. Does the agent describe each room in detail, including dimensions, or do they just have barebones public remarks? Click on the “virtual tour” (if you see a link for it above the main picture). Is it just a slideshow of the same pictures but with music, or is it a narrated video walk-through of the property?

 

Remember, the best predictor of how your house will be portrayed is how this agent has presented his or her prior listings.

 

 Any employer (which is your role in this situation) would Google the candidate’s name and see what comes up. Look at their Facebook page and other social media to see if they’re serious and successful and have good reviews.

 

Appraisers are required to have “geographic competence” when accepting assignments, but not so with real estate agents. You are perfectly free to hire an agent who hasn’t had a listing within 20 miles of your home and doesn’t know your market. But should you?  All too often I see instances where a seller fell in love with a home far from their current home and hired the agent for that home to list their current home. Do the opposite. Hire the best qualified Realtor to list your current home and let that agent represent you in the purchase of your replacement home — and have that agent discount your listing commission because of what they will earn on your purchase. That’s what I do.

 

If you’re like most people, you have a friend or relative with a real estate license, or a friend who recommends their friend or relative. Subject that candidate to the same qualifications and criteria as any other candidate.  This job is just too important. Hire wisely.

Reflections on Home Construction From Visiting Italy

Rita and I just returned from 3 weeks vacationing in Italy, and of course I couldn’t help but to look at homes and how they are built. I came away with the following observations:

They don’t build wood frame homes in Italy (or elsewhere in Europe that I know of). The concept of building walls with 2x4 wood studs and covering them with half-inch drywall, as best I could tell, would probably seem a bit strange to an Italian (or perhaps any European). They build homes to last, using concrete or tile blocks, which are then covered by stucco. As for roofs, I suspect an Italian home builder would scoff at the idea of composition shingle roofs with 30 to 50 year lifetimes, easily destroyed by a hail storm. In Italy, virtually every roof is tile, and many of them look as if they are hundreds of years old.  I imagine they’d find it curious that we replace roofs that don’t leak but have merely lost some of their surface granules after a storm.

Perhaps there are readers who are familiar with European construction methods who could provide me with additional information that I can then share in a future column, because I find the concept of building more durable homes highly attractive. 

The way we build homes in America strikes me as “penny wise and pound foolish,” but I don’t consider myself an expert on the subject and would like to know more.  Call or write me so I can learn more and share more!

Another new concept you’ll hear more about -- ‘Vehicle to Grid’

In discussing solar electricity with battery storage last week as an alternative to being “on-grid,” I neglected to mention something called V2G—Vehicle to Grid. The idea is that after you have charged your electric car from your home, you could draw upon the vehicle’s stored energy during a power failure. Another reason to own an EV!

From Wikipedia:

V2G is a version of battery-to-grid power applied to vehicles.^[5] There are three main different versions of the vehicle-to-grid concept, all of which involve an onboard battery:

• A hybrid or Fuel cell vehicle, which generates power from storable fuel, uses its generator to produce power for a utility at peak electricity usage times. Here the vehicles serve as a distributed generation system, producing power from conventional fossil fuels, biofuels or hydrogen.
• A battery-powered or plug-in hybrid vehicle which uses its excess rechargeable battery capacity to provide power to the electric grid in response to peak load demands. These vehicles can then be recharged during off-peak hours at cheaper rates while helping to absorb excess night time generation. Here the vehicles serve as a distributed battery storage system to buffer power.^[6]
• A solar vehicle which uses its excess charging capacity to provide power to the electric grid when the battery is fully charged. Here the vehicle effectively becomes a small renewable energy power station. Such systems have been in use since the 1990s and are routinely used in the case of large vehicles, especially solar-powered boats.^{[citation needed]}

It should also be noted that besides vehicles which have an onboard battery, vehicles without a large battery, but which connect to/recharge a battery placed at the house (for example being part of an off-the-grid electrical system or net metering system) could in effect form a vehicle-to-grid system. Even a renewable energy source (like wood gas) could be used.^[7]