The Real Estate Law Podcast

7 - The Many Ways a Home Inspection Can Kill a Deal

May 14, 2019 Jason Muth + Rory Gill Season 1 Episode 7
The Real Estate Law Podcast
7 - The Many Ways a Home Inspection Can Kill a Deal
Show Notes Transcript

In this episode, we're talking about home inspections!  We are dissecting the home inspection process - how do you use the information that you learn and when should you panic?

Is a Home Inspection a required part of the process?
Negotiating for repairs and credits.
When a Home Inspection will kill a deal.
Who are the key players involved with a Home Inspection?
It’s not always about the problems - sometimes a home inspection can be good homeowner training.

Learn all of this and more!

Join Jason Muth and Attorney / Broker Rory Gill of NextHome Titletown and UrbanVillage Legal in Boston, Massachusetts for another episode of The Real Estate Law Podcast!  

Support the show (https://www.urbanvillagelegal.com)

Speaker 1:

You found the Real Estate Law Podcast because real estate is more than just pretty pictures and law goes well beyond the paperwork and courtroom arguments. If you're a real estate professional or looking to build real estate expertise, then welcome to the conversation and discover more at realestatelawpodcast.com.

Jason + Rory:

Welcome to the Real Estate Law Podcast, episode number seven. Hello, what's going on? Not too much. Are we having a good weekend and we are okay. Well you might not be listening to this on the weekend, but we are recording it on the weekend. It was a beautiful day here in Boston today. Probably the warmest day of the year so far. I'm hoping it gets even warmer because that's kind of what happens as the year goes on. And we thought it would be a great time to sit inside and record a podcast all about home inspections. Exciting! I love talking about home inspections while I'm looking out the window to see a beautiful day. I've been on home inspections, you've been on plenty of home inspections. I've read through lots of reports of home inspections afterward. I'm sure you've read through even more. and I think it's probably worth dissecting the entire process. Finding out is this required? How do you use the home inspection? What's some advice that we have for the agents? What else are we going to talk about? How to treat a home inspection if you, how not to panic. Okay. Not to panic. I've had home inspections, torpedo deals before. I'm sure you have too. Yeah. and it's funny cause sometimes the inspections come back from a different inspector and everything seems to check out. Yup. And somebody really wants to back out of a house because the paint chip is off in one room. So yeah. Well that's happened before. So, okay. So let's, let's start from the very basics. I should introduce you. This is Rory Gill, attorney and broker. Attorney with UrbanVillage Legal and Broker with NextHome Titletown. Hello. Yes, I'm here. You're still here. Okay. So Home inspections. So let's start with - is this even something that is required to transact? No. But I get that question a lot from buyers who think that it's a required part of the process. It's not, in fact, it's something that you have to ask for as part of your offer to purchase. Most people do it, but it something that you have to ask for, and it's typically done at the buyer's expense. You could wave your home inspection contingency. In a hot market that happens all the time. Right? Yeah. I would never advise anybody against getting a home inspection if it's something that they want. Waving a home inspection, would strengthen your offer to a seller. Letting them know that there are less reasons why he'd back out. Right. But in most situations where you are purchasing a residence in which you're going to live, you're probably doing a home inspection. Absolutely. In situations where you're an investor and you are looking at a property, sometimes even sight unseen, you could waive it if you want to, if you want to make a strong offer. Yeah. So if you're in a position where you can stomach problems going wrong with the place, if you can pay for or undertake repairs yourself, then sure. I feel like we have an entire episode about strengthening your offer. I think it was number four. Yeah. Good cross-selling. Okay, perfect. So at home inspection is not required and who pays for it? The buyer does. And what's it usually run between 400 and 700, depending on how, how large the place is and how booked up the home inspectors are. Right. If it's a mansion or complex home inspection, it's probably going to run on the higher side. Or if you need it done tomorrow or if you also want the radon check, if you want the insect check, if you want all of that, that'll cost you more. Did they try to upsell you? Sometimes. Any good business person is going to upsell people, so they should be right. But getting, inspect what you feel like you need to have inspected. So who should have a home inspection? Really anybody who can't handle the risk of having to pay for or repair problems with the house on their own. So if you have a tight budget or if you're just not very handy or if you're intimidated by any kind of potential repair, then you'll want to have a home inspection done. Or really anybody who just wants more information with the property before they go ahead and proceed. Because the home inspector has little to do with the actual financing of the property. Right. But that's not something that the lender is going to require In most cases. That's correct. For some specialty loan programs like VA loans, a home inspection has to be done. So some specialty, low down payment loans, they want to make sure that the property is not going to cost somebody who doesn't have any money set aside a lot of repairs out of the gate. What are some of the situations where a lender might require it? Is it really just to protect what they're lending? It's actually not to protect them at all. It's to protect buyers who are in special loan programs that have very low down payment. See, this is why I don't do what you do and you're the attorney in the realtor and I just kind of talk and lead the conversation because I'm full of misinformation. Hopefully not too much of it. So you have an offer in on a house yes. Or property after you put the offer in. That is the time you're having the home inspection. Typically within the first week after the offer to purchase. As soon as you can get a home inspector out there. Now is this something you should just Google and get some recommendations from the search engines? Should you ask around, should you listen to your agent to find a home inspector? Do you listen to the agent on the other side? Like how do you go about finding one? You shared, ask around and get recommendations. your real estate agent in some cases may be able to give you a recommendation but don't get upset with your agent if they dodge this question because they don't want to be liable for referring a home inspector if there is indeed something wrong with the property. So in the capacity as an attorney where you're working on a deal, are you usually at a home inspection? The attorney is typically not at a home inspection. They'll help you address particular concerns in the inspection report afterward. As a buyer's agent, I am typically there following the home inspector around. As a listing agent. I'm outside hiding in my car. Why is that? Because your fingers are crossed, you're hoping everything is fine. Well, as a listing agent you're responsible to disclose, only certain things in Massachusetts. We are a nondisclosure state. So the listing agent doesn't have to go out there and do a pre inspection of the property themselves and disclose everything that they find. But a listing agent may need to disclose any defects in the property that they learned from an expert. So if they are there listening to the home inspector, identify problems, then the listing agent may need to disclose that in the future. But if they're not there to witness it, then they have no actual knowledge. So listing agents are served well by greeting the home inspector, letting them in and that's it. Right. And then going to get an iced coffee and conveniently having another appointment. Yup. And with headphones on too. What do you do on the day of the home inspection? Who is the group of people walking through? Is it a home inspection team and you and your agent kind of paint the picture for what the day looks like? both the listing agent may be there to greet you and let you in. The buyer's agent may be there to help, but the key players here are the buyer and the home inspector and the buyer absolutely should be there in all cases. This is not a report that you just commission and have done. It's an interactive process where the home inspector will tour you around the property and point out any issues with it. But almost more importantly pointing out different things in the property you should know about that aren't necessarily problems, but things that you may need to maintain things that you should know about. So it's an interactive process and every buyer should be there for their home inspection. Such as, oh look, here's where you pump the septic tank. Yeah. So pointing out, putting up those kinds of issues, letting you know what the schedule should be for maintaining your furnace or your HVAC equipment. Bring a notebook with you and take good notes and follow the home inspector around. You're paying for it and it's a great orientation to the home you are likely about to own. And the home inspector's coming into it in an independent fashion. That person's never usually has never seen the property before, is coming into it for the first time, is being hired by you. So that they are not speaking on behalf of the seller or looking to sell the property further because you're already under agreement probably. So they're hired directly by the buyer, they work for the buyer, they don't work for the seller, they don't work for the lender, they don't work with the agents. They really are looking at for the buyer's best interest. We're talking to Rory Gill, attorney with UrbanVillage Legal and broker with NextHome Titletown. And we're talking all about home inspections. Now you could probably speak on with with both your hats right here as an attorney and as an agent, let's call it a buyer's agent. How do you use the home inspection? So start off with, let's start off with, you are representing a client. Your client is purchasing a property and just received the report from the home inspector. Well let's start with the most drastic issues because they're the easiest to deal with. If there's something revealed about the property that's a deal killer. Well, it's used as the rationale for backing out of the deal and recovering the deposit. And then the buyer the seller can go on their separate ways. So if there's a major problem that can't be remedied, it will kill it. It'll sink the deal. Then if there are the issues that the buyer just is not comfortable with and can't, can't take the property on or is a risk they can't take, then it opens, reopens up the negotiation between the buyer and the seller. And typically a credit will be negotiated to pay for the repairs or the seller may agree to repair the issue before closing, right. When, when we sold my first, actually I've actually only sold one place. When I sold that place, I remember the first buyer was from out of Boston. They were using a inspector from outside of Boston as well. The neighborhood, Southie, has a lot of triple decker units. We had a triple deck, part of triple decker where they have back decks or front decks. And a lot of times the decks are pitched away from the house, so rainwater doesn't come into the house. And I don't quite think that this inspector got that process or maybe they were just kind of looking for an out. But I remember they reported that was one of the many things that they reported on that unit about like the pitch of the deck. I said it was all slanted and they were concerned that it was falling apart, which it wasn't. It was very structurally sound. Just like an appraiser. It's sometimes it's important to have a home inspector is familiar with the specific market so that they can orient themselves. Well, I know Massachusetts is not a particularly big state, but if we have an area code calling that's outside of market, it makes me cringe a little bit in a little extra nervous just because they may or may not understand how things are constructed right here in the city. Right. So if it, if it's in Boston at 617 you're okay. If it's 508, you're guarded. And then if it's 978, you start to sweat. And then if it's something else, what Springfield's area code? 413. 413 - I mean we love Springfield, but if you're buying property in Boston, you've got to know how things work in Boston. I know 401 is Rhode Island. All right, well the more you know. Back to that property with the inspection, I remember there was like a long list of things with that one deal. You remember this? And then the buyer backed out. We relisted the property. We had another offer immediately, at list actually. I think the one thing that we had to do or the one or two things we had to do was repointing some of the brick work that was in the basement and that actually came up from the home inspection. Yup, absolutely. So sometimes sellers or other condo owners get a free inspection where they learned things that have to be done. So that was actually a condominium issue. And that was addressed by the association. Oh, I didn't pay for that? You paid a certain percentage. Yeah. Okay. Indirectly. Yeah. I forget these things. okay. So now if you are an attorney, are you brought in yet? Like all right, let's say that you have been now been hired. As an attorney, you're hired as kind of to do the title work and to do the closing. But at some point are you talking to a buyer that saying, hey, listen to this inspection doesn't look right? Yes. So this is a collaboration between the agent, the attorney, and the buyer to make sure that everybody understands the objections, understands the issues. the agent might put together the first draft of the agreement of the list and then the attorney will shore it up just to make sure that it's binding and in proper form. But all three people work together to get, get that done. Right. So as we come to a close with these, episode about home inspections, we should probably talk about a couple points of advice that you might have for buyer's agents and for sellers agents as you venture down the potentially scary path of what does the home inspector find. So let's start with, a buyer's agent. Yeah, that's a good question because the advice I have to give is not just for the buyer themselves, but the agents sometimes have to know how to treat these. So a buyer's agent needs to sit down with their client beforehand and set proper expectations. We know that no house is perfect. So it's, everything that comes up in the home inspection isn't fatal. Be careful - the buyer's agent shouldn't be advising the buyer against getting home inspection or not taking it seriously, but walking them through and setting the proper expectations can be helpful. And letting them know what the options are going to be after the home inspection so that it doesn't feel so intimidating or, a shapeless of a process. And then if you do get a home inspection, don't just forward it to the listing agent. That's kind of the nuclear bomb scorched earth approach to the interaction. Why it that? Remember the listing agent has to disclose everything that comes from an expert, right? And if you afford the whole home inspection report to them, if you have to back out and they have to sell this to another buyer, how you've just saddled that poor listing agent with a whole home inspection. So it's not particularly fair to forward it on the whole thing wholesale to the seller side of the transaction. So you're saying it's a professional courtesy that this does not happen usually. It's a professional courtesy and it's, it's just kind of overwhelming the system. so don't, don't necessarily afford the whole thing off. Instead, if you have to negotiate points, convert everything into action items instead of describing the problem. Okay. That's good advice. Now what about advice for sellers' agents? So they, they have a property that is under agreement ,and the buyers have a home inspection contingency in my offer. We're going to do the inspection. What now? So I alluded to it earlier, but they should not be intimately involved in following the home inspector around to discovery issues for themselves. That being said, if they are aware of a problem with the property, disclosing it candidly and early in the process can actually help with the home inspection. If you leave something to be discovered at the home inspection, it looks like the seller's hiding things and then it might be other problems. So no house is perfect. Admit to and disclose any defects that are known ahead of time. That way, you're up front and it doesn't seem like a bomb that was discovered at the home inspection. If you ever see a property go back on market, which happens all the time, it could be for a variety of reasons. You have a buyer backing out or for the deal, not actually going forward. The new buyer, they don't know who had an offer on the property. Right? So there's no way you can kind of track back and say, Hey, can I take a look at your home inspection? Like here's what my guy came up with. What did yours come up with that that doesn't happen. Right. It doesn't happen in that direct way. But, if the seller side is saddled with the home inspection report, they may have to disclose it if asked. Right? What if - I'm just thinking of weird situation. So let's say there was a contentious period of time after you put an offer in, before you actually move forward with the purchase and sale or whatever the next step is in your state. And the home inspection came in and it was just like terrible. Like, do you ever see people just forwarding that on and be like, Hey, listen, like I'm done with you and here. I don't see why anybody would have that incentive. Right. You especially cause they're going to probably get to cross paths again, the agents at least. Well, right, but it's that that report was prepared for that buyer only for that buyer's own information. It wasn't meant to condemn that property now and perpetuity for all potential buyers. And then also if there are inspection items that come up, the listing agent shouldn't necessarily think that puts the seller in a position of weakness. Any requests that come from the buyer are simply that just requests. The seller doesn't have to agree to any particular repair items. So in a strong market, the seller can hold their ground. The listing agent doesn't have to give into every, everything, everything that comes up in the home inspection. Right. Great. Well if we had a couple of things that we had to remember with this episode about home inspection, like what are kind of the top three takeaways in your opinion? Number one, no house is perfect. So don't panic if there are issues there. Okay. Number two, use it for informational purposes too. It's not just about uncovering problems, it's about getting a coach on how to maintain the home once it's yours. And do you have one more in you, you think? I'm throwing you on the spot right here. For agents, coach your clients in advance so that once the home inspection happens, they are aware of the potential outcomes so that they're prepared and they can enter into negotiations that are productive, not warlike. Right. Excellent. Awesome, Rory. Thank you so much once again, lots of great advice. You're the one that actually has only information on the one that just keeps the conversation going. So, where can we find you Rory? You can find me easily at nexthometitletown.com or at urbanvillagelegal.comOkay, so thanks again for listening. This has been the Real Estate Law Podcast, episode number seven, all about home inspections. My name is Jason Muth. Please subscribe to this podcast. If you found that on our website, great! But there's tons of other episodes available in iTunes, Google play, Stitcher, Spotify, and a couple other places I'm forgetting right now. But wherever you like the podcasts, I think we're there. If you want to review us, we're hoping it's a five star review. If it's not, then you don't have to review us. But if it is, we love five star reviews, so feel free to email us or check us out at realestatelawpodcast.com. The transcript will go up live. We'll have tons of links in the show notes and we really appreciate you listening. I need to go because the grill is on and I actually want to put the steaks on and make sure that the house isn't on fire, so I'm going upstairs. All right, thank you. And go take care of dinner. Okay, great. Thanks Rory. Bye everyone!

Announcer:

This has been the Real Estate Law Podcast because real estate is more than just pretty pictures and law goes well beyond the paperwork and courtroom arguments. We're powered by NextHome Titletown, Greater Boston's progressive real estate brokerage. More at nexthometitletown.com and UrbanVillage Legal Massachusetts Real Estate counsel serving savvy property owners, lenders and investors more at urbanvillagelegal.com. Today's conversation was not legal advice, but we hope you found it entertaining and informative. Discover more at realestatelawpodcast.com. Thank you for listening.