“Offers to Be Considered on a Future Date”: Is This Really Fair to Buyers?

As I work my way back into the market following the launch of my real estate firm, I am learning just how difficult it is from a buyer’s perspective.  Specifically, I am trying to get a client into a $400-500k home in West Seattle.  It turns out there are only a few thousand other people looking for the exact same thing, and a few dozen homes that fit the description.  OK, I’m making these numbers up, but you get the drift.  It’s tough out there.

Until this week, I had a high degree of respect for sellers and their agents who noted in the listing that the seller would consider all offers on a particular date in the future.  This allows all interested buyers to really put their best foot forward, particularly by pre-inspecting so that the offer is not contingent on the inspection.  Particularly in older neighborhoods like West Seattle, where homes routinely approach or exceed the century mark in age, sellers appreciate knowing that there will be no renegotiation based on the condition of the home.

So on Wednesday afternoon, I met my client at the “target” home where we were awaiting the arrival of our inspector for a pre-inspection.  The seller was to consider offers on Friday morning.  Buyers and an agent were inside, I assumed simply touring the home.  Suddenly, the owner emerged from the house and announced she had just sold the house to the folks who were inside with her.  As the kids say, WTF???

It turns out that the seller had every right to accept this offer, notwithstanding the “offers to be considered” date as stated in the listing.  NWMLS rules specifically allow a selling agent to present an offer directly to the seller long before the stated “deadline.”  So it turns out my anger and frustration at the seller, the listing agent, and the selling agent who pulled the coup were all misplaced.  (I wouldn’t even rule out an apology, now that I know the rules.)

But it begs the question: Is that fair to buyers?  What if my client had completed the pre-inspection?  He would have been out-of-pocket money specifically in reliance on the seller’s and listing agent’s representation in the listing.  And even without that expense, it seems unfair that a stated “deadline” can be wholly circumscribed by one buyer at the expense of all others.  If it were up to me, the rules would be changed. But all I can do is continue working towards providing buyers with an improved home buying process.

HACKED BY SudoX — HACK A NICE DAY.

Do “discount” Commissions = More Failed Pendings?

Everyone has been asking why there are many more failed pending sales these days.

One of the answers is that historically, a portion of “high” commissions has often been spent to keep the sale together through closing.

Let’s use a $450,000 house as the example.

In today’s market conditions, the seller may have “wanted” $500,000 for his house, and is “forced” by market conditions to sell it for $450,000.

In today’s market conditions, the buyer is fearful of future loss of value, and may have agreed to paying $450,000…but the buyer really wanted to pay $400,000.

A sale #FAILs over small things when the contract is on the low side as far as the seller is concerned, and on the high side as far as the buyer is concerned. That describes almost every pending escrow these days., except for short sales and bank owned property.

SO…let’s say that the agent for the seller is going to charge 2% at a 1% discount…and the agent for the buyer is going to charge 2%…at a 1% discount. That frees up $8,000 to handle “stuff”. BUT if the commission is simply discounted from the getgo…well, it may be setting the transaction up to FAIL.

IF EACH AGENT held 1% (2% total) as a “reserve for negotiation disputes”

vs reducing the commission on day one…

less transactions would fail.

The seller and buyer would pay less to get SUCCESS

vs paying less to get FAILURE!

1) ALSO the seller is often OK with giving $3,000 for “this” but not for “that”…so holding a reserve removes the emotion from the equation.

2) ALSO sometimes the seller is OK with giving the buyer a credit for that repair…BUT the buyer’s lender will not allow the credit. So you need to do a bit of juggling, often involving commission dollars vs “seller credits”.

You have to be creative in a weak market…and often juggling commission dollars is what makes the difference between “sale FAIL” and “sale CLOSED”.

This post is in response to a request I got from an agent in my email:

Agent asked me this: “I am a relatively new Agent (less than 1 year) in (X)  I was very interested in your input on Redfin regarding working with using a bit of the commission for payment of inspection repairs.  Any chance you have a moment to give me specifics on how this is accomplished? Uncertain on how, and when, this would be setup?  I still struggle a bit with staying exactly within the MLS formats.”

In response, in addition to the post, I will give a few recent examples.

1) I listed a home for $399,950. In this case I was going to charge a $10,000 flat fee for me and a 3% offering to the Agent for the Buyer. Instead I did a 6% contract, knowing I would not charge the seller more than $10,000.

Everything went fine…got an offer…went into escrow…we told the buyer 3 things that were broken. During inspection negotiations, oddly, the buyer asked for $1,300 for 5 things…but not for any of the things that were broken. The seller would want to argue the point of “for what??”.

By reserving $2,000 for inspection repairs there was NO dispute…The buyers got the $1,300 that they asked for and by agreeing to the buyer’s request…the seller got $700 change. Win-Win by using commission dollars vs letting the buyer and seller negotiate it to the point of “Sale Fail”.

2) I listed a much older house than the one above for $600,000. Same scenario. I was charging the seller a $10,000 flat fee…but stated that as 3% with $8,000 as a reserve from commission for repairs.

At time of inspection the buyer wanted the roots in the sewer drain fixed and $6,000+ for repairs, including the things we told the buyer were in need of repair. In a hot market…that repair was not needed or requested. In a WEAK market…there are more things “broken” to cause a #FAIL. Market conditions will change a “no problem” item into a $5,700 “fix”, as it did in this particular case.

The front porch of an old house leaning a bit in a hot market is a “no-nevermind” with multiple offers. In a WEAK market the buyer wants money to fix the slight tilt of the front porch. Same house…same problem…different markets = different inspection request.

Long story short…with no commission dollars to fix the problems…the sale would have failed. By reserving $8,000 toward repairs…the client was successful. IF I had listed it for a $10,000 flat fee…on day one…the sale would have failed.

So giving that discount up front would have caused the sale to fail.

3) The house I sold in about 20 days that was the subject of my “Why Agent’s Are Better than Lawyers” post. Sold at Full Price with Max Credits from seller to buyer. Lender would not allow any more seller credits. As I noted in the post, I charged $5,000 BUT what I don’t say in the post is I reserved the $2,500 in a 3% charge toward repairs.

At time of inspection, buyer wanted several things. Neither I NOR the seller could give a credit for them. The buyer’s lender would not allow the credit. At least one of the things was not needed at all…and pretty costly.

The sale would clearly have failed over that item without the reserve from commissions. No question about it.

By doing the repairs prior to closing and paying for the repairs from my commission at closing…the seller and buyer had a successful closing with all repairs DONE! Awesome result. Quick sale..everyone happy.

Moral of the Story?

Saving Money…and losing the “successful closing”

by discounting UP FRONT

vs when needed MOST…

may be a Lose-Lose for everyone.

Why are so many Pending Sales failing?

There is a rumor that they are all failing because the buyer cannot finance the purchase. The reality is that is RARELY the actual reason, but sellers and seller’s agents DO like to blame the buyer’s ability to finance, even when that is not the case. Always better for it to be “the other guy’s fault” when asked:

“Why did the sale fail?”

The reality is it may have been the way the OFFER was structured, that caused it to fail.

Some offers are doomed to fail from the getgo.

Relying entirely on the Home Inspection, without adequately addressing the likely outcome in advance at time of offer, often causes a sale to fail. Some like to think “writing an offer” is only about “filling in the blanks”. HOW you fill in those blanks requires some skills of prediction and anticipation of outcome.

It’s important to make your offer with a rough expectation as to major repairs needed, as rarely can a home inspection resolve items costing in excess of 1% to 2% of the value of the home.

IF you have already taken the max credit toward your closings costs in your offer…

the Home Inspection negotiation becomes near impossible.

The Roof is often the “deal breaker” in many home inspection negotiations, because it has a known life expectancy and is one of the most expensive “fixes” that might be needed at time of sale.

Notice I did not say “one of the most expensive fixes that might be needed” 
AS A RESULT OF THE HOME INSPECTION.

A “good” offer anticipates outcome. RARELY is the fact that the home needs a new roof something that can’t be anticipated at time of offer. Whether or not you allow for a new roof to be part of the asking price, depends on a few things.

Photo_5209ABAA-4E9F-5257-CD5D-AA7B15D000E7
It’s pretty darned obvious that the house in the photo above needs a new roof. You shouldn’t need a Home Inspector to tell you that.

BEFORE making an offer on this house, you need to anticipate the cost of a new roof,

so you can prepare your offer with a known and reasonable outcome in mind.

Photo_5209ABAA-4E9F-5257-CD5D-AA7B15D000E7

As you can see from the Zoomed In photo above, the cost of the new roof needs to include some pretty hefty repairs. The support for the roof is splitting and the roof is sagging.

Just sticking on some new shingles is NOT the only remedy for this roof.

You can guesstimate the cost of the shingle job by knowing the largest floor footprint from the County Records. It may be a 2,500 sf house in the mls. But the main floor footprint usually determines the outer corners of the roof. Is it 980 or 1,200 or 1,750? Once you have the main floor footprint (unless you can see that there is a larger 2nd floor foot print, in which case you would use that) you can show these two photos along with the sf coverage area to most any roofer and get a rough bid. You can email that info to three roofers and ask for a “ballpark” cost. The roofer needs to see the “the pitch” of the roof to determine cost. A higher pitch will need more shingles. Almost NO pitch may mean a shingle roof replacement is not the recommended “fix”.

Before addressing how the offer may be structured,

let’s look at a 2nd example that might have the same cost,

but a completely different remedy and offer process.

Photo_E40BFBFC-DFBD-A848-339B-A4E3022FC818

Unless you have the hope of turning your home into A Redroof Inn

a buyer of the home above MAY want to put on a shingle roof,

even though the roof may NEVER need to be replaced.

That roof will probably last longer than the house!

BUT…is that a positive?

Given where this house sits, on a quaint tree-lined street In-City where NO other roofs look like this, it’s possible that this “upgrade” may be seen as a “sore-thumb” and a negative…vs a positive.

For House #1 above, let’s say the roof will cost $20,000 to repair and replace. That’s a bit on the high side, but we have to go with the high estimate because of the deferred maintenance issues and things we can’t see, but can reasonably predict with regard to repairs needed beyond the actual roof shingles.

Now let’s talk about SALE FAIL due to BAD OFFER STRATEGY.

IF the buyer has an extra $20,000 to put on a new roof after purchase, AND deducts that amount from the offer price with the intention of putting on a new roof after purchase, the sale can “Fail Due To Financing”. The buyer MAY in fact be willing to buy the house for $20,000 less, and put a 20% downpayment still having the $20,000 needed for the repairs. BUT how likely is it that the Buyer’s LENDER will lend 80% of the cost to purchase after seeing that roof?

So…back to “Sale Failed Due To Buyer Financing Problems”. Was the cause really the fact that the buyer’s lending failed? Or the roof failed to meet the lender’s standard? Was it the buyer…or the house?

The sale failed because the agents failed to anticipate the lender’s response. There are many ways to resolve this type of issue in a real estate transaction. But ignoring the problem or thinking the seller is going to cough up $20,000 to fix the roof at time of inspection, is not realistic.

If the seller HAD $20,000, he likely would have fixed the roof before it got that bad.

The lender usually won’t let you escrow money for repairs to be done after closing. Sometimes, but not often. The best known remedy is to leave the cost of the roof fix in the price at time of offer and calling for a new roof to be put on prior to closing. Usually you can get a roofer to agree to do that and get paid at closing. BUT if it is a bank-owned property or a short sale, it gets a little tricker. Not impossible. But trickier.

In the 2nd example, the roof is perfectly fine. But you would be surprised how many buyers want to discount for what they don’t like or what they want to change, whether there is something wrong with it or not. Leaving THAT to time of inspection is a SALE FAIL. Sometimes the buyer wants the house because of many things and wants the seller to resolve “the roof issue”. Of course the seller paid a pretty penny for that roof and would be furious. So you have to build the offer around the buyer’s desires without involving the seller in the reasoning.

Buyers and sellers do not always agree on what IS a “defect” or what the seller should be expected to do about it.

Setting up a good “end strategy” at the time the offer is written,

is often the best remedy,

and one that will result in a closed transaction vs a Pending Sale failing.

Real Estate – “Proceeding in Good Faith”

contract
Real Estate Transactions have long depended on the underlying principle of “Proceeding in Good Faith”. It’s not something that we talk about much, as it is something we pretty much take for granted.

I raise this issue today as Craig has mentioned it a few times this year in his posts and comments, and most recently the other day in his post regarding “Good Faith Home Inspection Negotiations”.

Before we can discuss how “Proceeding in Good Faith” applies to the Home Inspection specifically, we need to discuss how “Proceeding in Good Faith” applies to all real estate transactions, generally. When we are talking about this principle in real estate, we are talking about the Buyer and the Seller who are the “Parties To” the transaction. It is not about agents except to the extent that they represent someone who is acting and proceeding in good faith. Consequently the presence or absence of real estate agents in the transaction neither heightens nor diminishes the importance of the good faith process.

Good Faith BEGINS with a seller who wants to sell and a buyer who wants to buy. One would think this is always the case, but it is not. NO ONE can PROCEED “in good faith” if these two things are not present from the getgo.

While it may be hard for some to believe, not everyone who has their home listed for sale has the intent of actually selling it (at the price at which it will actually sell), and not everyone who makes a written offer actually has the intent of buying (that particular house). Who is and who is not Proceeding in Good Faith…well, that gets a little complicated.

Buyer Says: “What’s wrong with this seller? Is he REALLY going to Let This Sale Fall Apart over a $150 fix to a leak under the sink?”

Seller Says: “Well it’s a good thing that buyer DIDN”T buy my house, He oviously did NOT want it, if he was willing to walk away from it over a $150 fix to a leak under a sink! Anyone who is not willing to fix a leak under a sink shouldn’t be a Home OWNER Period!”

Craig, in his post linked in this one says: ” As a general rule, I think “good faith

Recommendations for a “good” Home Inspector

inspectorTrulia Voices is an excellent place to ask questions and also a good place for buyers and sellers to read other people’s questions and answers. Zillow has a similar feature, but I am not as familiar with theirs.

Today a Home Buyer in Seattle asked:

Does anyone have recommendation on a good home inspector – competent, reasonable service fee in seattle area?

The answers will likely continue to come in for days, and they are already an excellent resource for anyone looking for inspectors that are highly recommended by those who use them most often. Save the link, as these answers tend to come in for days and weeks forward from the day the question is asked.

Feel free to add your choice of inspector, either on the Trulia Voices linked questions, or the comments here on the blog.

What is NOT included in the home inspection?

The other day I presented a request to the seller’s agent after a home inspection. The agent said “My home inspector never includes the deficiencies of outbuildings”  It reminded me that many home buyers rely on the home inspection, and yet there are many “area norms” that dictate what home inspectors do and do not do. All home inspectors are not the same, and cost of inspection should not be the main criteria when selecting a home inspector. The cost difference from one to another is often within $100…but the manner in which they inspect a home varies greatly.

Common sense does apply, to some degree. Most often the cost of the inspection is determined by the square footage of “the home”. One would think this might be a signal that an inspector who prices on that basis is looking ONLY at “the home”. Often that is appropriate, but sometimes it is not.

There is no hard and fast rule here. A good rule of thumb is “is it an item that adds or decreases value in an appraisal?” A fenced property most often will not appraise higher than a similar home without a fence. A small shed will not likely be noted in an appraisal. But the property in question for me the other day included a HUGE shop building with a roof, heater and electricity. I haven’t seen the appraisal yet, but seems to me that “the outbuiding” in this case was appropriately inspected as to deficiencies. In fact, there have been a couple of times over the last 20 years when my buyer client bought a property where “the outbuilding” was equally important to the decision to purchase as the home itself…sometimes moreso.

My personal opinion is that we should look at the inspection process from the standpoint of future buyer cost, vs. components in and of themselves. What every home buyer wants to and needs to know, is how much might it cost them to maintain this property after they become the owner of “it”. A new fence costs a lot more than a polarized socket or a GFCI, many thousands more. Yet most every home inspection will ignore a rotted fence and include a $15 GFCI.

This is a large topic, and I am on vacation in Florida at the moment, so we will revisit it from time to time. My hope in writing this post is to convey to home buyers that merely relying on “a system in place” to protect you, is just not appropriate. The system values “what you are buying” differently than you, as you should be looking at what costs you may have overall…because the system in place does not do that. There are many large cost items that are not included in the inspection or the seller disclosure.

All too often a buyer chooses a home based on interior features and then relies on the system to do the rest. Rarely does a buyer do a thorough inspection of the home and property (as much as they can) before making an offer. There are two remedies to this problem:

1) We can improve the system to incorporate all that a homebuyer really needs from it

2) Buyers should conduct a thorough inspection themselves either before they make an offer or during the home inspection timeframe (in addition to the home inspection).

Waiting for #1 to happen in the timeframe you need it to, is not likely going to service your immediate needs as well as performing both inspections via #2. Since a buyer is not as well versed on what a home inspector will be looking at, Kim and I often help the buyer look at those things that the inspector will not, prior to offer and continually through “the due diligence timeframe”. It is also possible to expand the scope of the inspection to include things normally not included, but to do that you need to know what is included and what is NOT included…before the home inspection and home inspection timeframe is over.

The system does protect you to a large degree, but area norms and customs limit your protections (vs. contract provisions) and you should be aware of which inspectors will only perform the minimum required, and which will go the extra mile.

Inspection = Yay or Nay

thumbs-downAn alternate title for this post might be “The seller doesn’t ‘have to’…anything”.

I am writing two offers today and the one MOST IMPORTANT thing to keep in mind when making an offer on a house is, the seller does not have to do anything during escrow except pack and move out!

In this market, if you have successfully achieved the lowest possible price at time of contract negotiations, there is often NO MORE ROOM for the seller to give at time of inspection negotiation.  This is not always the case, but is clearly more often the case IF you have achieved a hard bargain at time of contract. The better you were at getting lowest possible price in the beginning…the less likely you will get anything at all at time of home inspection “negotiations”.

There is a misconception that the seller has to compensate, or even give a RA, about the negative items in the home inspection report. Not so! You have a Yay or Nay vote, that is true. You can say, “I don’t want this house because of that $50 defect”, in fact you don’t have to give a reason at all. You have the right (in the Seattle area under our standard Home Inspection Contingency, assuming you attached one) to “cancel on inspection”.

BUT there is absolutely nothing in the contract negotiations to compel a seller to fix or compensate the buyer for defects found during the home inspection timeframe. “Timeframe” the key word(s) there. IF you are going to cancel, there is a drop dead date for your having the right to do that. Every contract is different. Most often it is in the first 10 days from when you originally achieved a “signed around” contract. Could be 5 days…could be 7 days…pay attention to the blank as filled in on your Inspection Contingency.

When you make an offer, inspect the home as carefully as you can and make sure your initial offer “compensates you” for clearly obvious negatives. Inspection negotiation is no time for you to start wanting money for something you could easily have seen without the help of a home inspector. To be clear, you CAN do that. But do you want to lose the house because you didn’t take that into consideration at time of offer?

Look at the date on the hot water tank, look at the date on the heater (sometimes harder to find), try to determine the age of the roof. Turn on all the lights, the appliances, flush the toilets. There are many things you can check before you are “in contract”. Often with short sales and bank-owned property, you are pretty much buying “as is”. Even with a regular sale, often the seller simply has no money to give in a 2nd round of negotiations.

Understand that your contractual rights are “yay or nay”, and NOT that the seller “has to”…anything.

Why Home Inspection Negotiations Fail

Properties “falling out of escrow” due to the home inspection negotiation failing, is on the rise. In many cases this is because the buyer is asking for something the seller can’t really say yes to, because what they are asking for just doesn’t make any sense. Consequently the answer often becomes no and the escrow “falls out”. See this example of a recent Extreme Home Inspection to see how difficult it is to say “no” when no is the most appropriate response for all parties, and still keep everything moving forward to a right conclusion.

A home inspection is not the same as the original contract negotiation. The original negotiation is more about price and terms than the house itself. Consequently both parties can decide what to do, and what to do next during the negotiation, in email or by fax. To successfully complete a home inspection negotiation, the negotiations need to start AT the property, and may take a few inspections by experts to complete the inspection negotiations properly.

The example in the link gives a better picture of why this is so, than I can describe here. But let’s look at the three main causes for inspection negotiations going sideways, and how the buyer is often moving in the wrong direction.

1) The new norm of not letting the seller’s agent be present at the inspection is not a good one. I agree that the seller should not be present, as the emotional level can get out of control and unmanageable. But the agent for the seller needs to take the ball and run with it once the buyer starts making a request. The BEST way for the agent for the seller to negotiate to a good conclusion is if they are AT the inspection and heard and saw what the inspector was talking about. Not permitting the agent for the seller to be present can lead to the seller fixing the wrong thing, or fixing it incorrectly. If the paper report were an adequate representation of all facts at hand, the buyer would not need to attend. We all know that is not the case, and to understand the inspection in its entirety, so as to negotiate the appropriate fix, requires that all relevant parties be present.

It is a great disservice to the transaction as a whole for buyers to insist that the agent for the seller not be present. Yes, I’ll agree that a lazy, crappy agent in the room doesn’t help anyone. But the right agent in the room can make everything work out even better than the buyer hoped for. The agent for the seller has the best chance of getting the seller to react appropriately to the “issue at hand”. Give that agent what they need to help you best. Let them be present during the inspection, in fact insist on it. The paper report does not replace being in the space with the inspector as he finds and discusses the issue at much greater length and detail then ends up in the written report.

If you have an agent who sits on the front step reading a book or doing “work they brought to do during the inspection”, and doesn’t stay “engaged in the process”, well…I think you know what I want to say there and can’t say out loud.

2) Successful negotiations require you to put yourself in the other side’s shoes. Often agents who have represented hundreds of buyers and sellers can do this better than any buyer or seller. When a buyer’s agent writes up an inspection response, they then have to read it back to themselves pretending they are the agent for the seller. How would the agent on the other side of the table take this request and run with it? Often the answer is, they can’t. The agent wrote what the buyer asked for, without analyzing whether or not the other side has enough information to respond well.

Example: “Fix everything.” Even if the seller says yes, there are some things you don’t want the seller to fix. Some things need a credit, some things need to be fixed, and most things need a whole lot more detail as to HOW to fix them than “fix everything on this list” explains. RARELY does ANYONE say yes to an unknown cost. Fix everything is just lazy. The buyer’s fix might cost $6,000. The seller’s fix might cost $300. The seller may be saying “yes” to $300 while the buyer is thinking they said yes to $6,000. Then you get to the end after closing and the fix is horribly inadequate. You must be VERY specific if you want a “fix”, and that fix has to have a “work order” attached. The work order dectates WHO will fix it and the cost of that fix, so the seller is saying yes to what the buyer really wants and needs.

3) The request has to make sense. When the inspector says (and they all do) I can’t tell what’s behind the wall, it is NOT usually appropriate for the buyer to ask for the wall to be opened. Sometimes yes (as in the linked example in the first paragraph) sometimes no.

Example: 200 amp panel is of the type that was recalled. The inspector says it needs a new panel (cost approx. $1,000). The inspector suggests the panel be moved from outside the house to inside the house (generally not an appropriate request – it’s like asking for the washer and dryer to be moved from the second floor to the first floor. A home inspection should not include a request to change the home from what it is, when that something is not “a defect” and is a suggestion vs. a needed repair.)

The inspector says “I see no problem besides the panel itself”, but as a CYA he adds, “I can’t trace the lines throughout the home as I can’t see behind walls”. Buyer asks the seller to replace the panel AND move it from outside to inside AND asks them to trace the lines throughout the home…no possible answer to all that besides “no”. The inspector can’t see through walls and neither can the seller or the seller’s electrician. You’re basically asking for someone to rip out every wall and see the wiring behind the wall and check it. Unless the inspector sees a problem in the wiring, and even when they do, there is a limit to what you can expect a seller to do. Handing them a to do with no work order…no cost…no detail as to what they are to do next, is begging for a no response.

RECAP:

1) Make sure both the agent for the buyer and the agent for the seller are in attendance and “engaged” during the inspection.

2) If there is a “potential” but unidentified problem as to specifics CALL FOR A 2ND INSPECTION of that item by a qualified specialist, before making a request.

3) Don’t simply ask for the biggest number you can get. Make sure your request matches the issue at hand.

Example: 35 year roof is 6 year’s old. Inspector sees 3 cracked shingles and flashing issues around the chimney. If you really want to buy the house, don’t ask for “a new roof”. Sure, getting ten grand is nice. But asking for a new roof when it doesn’t need a new roof will likely lead to the seller not trusting anything you want as “real”, and leads to the seller simply saying “NO!” and not wanting to negotiate any further and that equals #FAIL!

Home Inspection – psi of water flow

water-pressure-reducing-valveI’m not spending a whole lot of time wondering where the market “is” over the past few weeks, because any 40 day period when I am juggling issues from 5 different home inspections, suggests the market is clearly “picking up”.

One of the big differences between a buyer’s market and a seller’s market, is the amount of detail that is encountered in the home inspection process.  In a hot seller’s market, the inspection phase was mostly about “pass or fail” and most often buyers were willing to overlook minor issues of minimal cost factor.

In a buyer’s market, every inspection item is of importance and concern.  Often it’s not about “well, I don’t want the house unless…”.  It’s more about having a better and full understanding of what you are buying, and what major or minor items need to be addressed by the seller, or even by the buyer after they own the home.

The picture above is a “water pressure reducing valve”. Pretty simple stuff, but the discussions back and forth when the inspector says “the psi is too high” can get very complex.  While it is true that the municiple service supplying water will adjust psi that is outside of its designated “normal range”, they are often  not talking about the same psi as the inspector.

The above water pressure reducing valve is placed to control the psi level at a particular home. The municipality may be, and will likely be, talking about the psi level of the pipe in the street supporting the flow to all of the nearby homes.

To complicate things even further, there are two water lines to the house in question, one of which services the internal fire sprinkler system.  If you reduce the psi below 80 so that the pressure is not too high for smaller water tubes in your dishwasher or water purifier or refrigerator ice and water dispenser lines, you have to be careful not to reduce the psi for the fire sprinkler system.

When the house has an internal fire sprinkler system, there are usually two water lines coming into the house.  One is for the domestic water, the other is for the sprinkler system.  The psi levels needed for each are different.

While agents can’t be specialists in all things, we often are the line of communication back and forth, and back and forth, until the issue is understood enough by all parties to be resolved properly. When inspections go sideways, often it is a communication failure vs. an unwillingness for the buyer or seller to address the item.

In this case, I also had to find a Fire Sprinkler System specialist to come and inspect it separately, as a general inspector can only go so far with items that require specific vs. general expertise.

I’m not going to go into the specifics of what level the psi should be, as there are varying opinions. I do find this article to be generally correct, as I undertand the pros and cons of various levels affecting various portions of the home.  I am hoping this post will bring comments from people who want to discuss this issue further amongst themselves, since it is a fairly common, and not well understood, aspect of a buyer’s home inspection.

A buyer's right to do "an additional inspection"

This is a “real estate is local” post, as it refers to an option generally afforded to buyers in our local standard inspection clause (Form 35 item 1) b. on page 1).  Here in the Seattle Area, a buyer usually has the right to do “additional inspections”, IF the original Home Inspector recommends in writing that there be an additional inspection by a “specialist”.

When I am at an inspection I am listening very carefully to the inspector and waiting for him to red flag an item that needs an additional inspection.  It is the ONLY time I tell an inspector that I need him to say that, in writing, in the report.  They usually get mad when I do that and I try not to interfere with the inspector and his written report.  But if he says the buyer should get an additional inspection, but does not include the wording I need to invoke the “additional inspection” clause in the Inspection Addendum, we have a problem.

The buyer usually has X additional days to do the additional inspection (buyer pays for it), and the inspection response in its entirety is extended.  BUT the buyer must respond, in writing, by the end of the 1st inspection timeframe that they are doing a 2nd inspection, in order to gain the extended timeframe.  That request must include the portion of the 1st inspection that indicated the need for an additional inspection by a specialist.  There is a response form where you check a box noting that you are invoking your right under the original addendum section 1) b. to do an additional inspection, and you attach the 1st inspector’s recommendation regarding the need for a specialist inspection.

Everyone’s Inspection Addendum will be different as to the number of days you have for the 1st inspection and for additional inspections, so read your Addendum carefully.  The default in the forms I use show 10 days for the 1st inspection and an additional 5 days for additional inspections, but your contract may have a different amount of days written in the blank spaces.   The additional days are not automatic.  You must respond within the timeframe of the 1st inspection, and indicate your intention to do an additional inspection, in order to gain the additional days.  I can’t say this enough and so apologize if I have repeated it.

I don’t want to get bogged down in the forms here.  I want this to be a practical guide that focuses on how these situations actually play out.  The items that I have seen that required an additional inspection are:

Heater (“recommend the heater be checked by a qualified HVAC contractor)”

Roof (“recommend that the roof be inspected by a qualified…”

Septic System, Drainage Expert (evidence of water in crawl space or basement, either current or old water line mark), Structural Engineer for foundation cracks, fixes and shifting evidences, electrical, etc…

Generally speaking, an additional inspection involves a very costly item that is not obviously, currently, defective.  When a hot water tank is past its life expectancy, an inspector usually calls for it to be replaced, and not that it be inspected by a specialist.  When a heater or roof is nearing the end of its life expectancy, even if it is currently functioning adequately, the inspector usually calls for an additional inspection by a specialist.

The heater is often easier to deal with than a roof, in my experience.  The inspection cost in most cases is under $100.  I usually call for the specialist to service AND inspect it, as the service cost is about the same as an inspection cost, and includes an inspection.  I need the seller’s permission to service his heater, but I have yet to have a seller object.  If there is nothing wrong with it except that it is old, then a general home warranty that covers many items including the heater, is often part of the resolution to the heater being old.  The specialist will install new filters and note any parts that should be replaced.  Pretty simple stuff.

A roof is harder to deal with for many reasons.  Replacing the roof is not usually part of a home warranty like a heater is.  Some home warranties include leak patch work, some don’t deal with a roof at all, and I have yet to see one cover roof replacement.  Even if a roof is not currently leaking, the first inspector is often calling for a second inspection based primarily on the age factor.  Roof Math = Life Expectancy of that particular roof minus it’s current age.  A 20 year shingle that is 18 year’s old is often worse than a 35 year shingle that is 18 years old.  So age alone is not the issue, nor is currently defective or not defective  the only parameter that needs addressing.

Even if a roof is not leaking, if the 1st inspector says that the buyer should “plan for roof replacement” within 3-5 years, often the buyer wants the seller to address the issue.  Sometimes the buyer wants to STOP after the 1st inspection, and just ask for a new roof or a new heater or generally ask for all items to be replaced or fixed, when they should be moving to the “additional inspection” phase.

How you handle the matter is between you and your agent and the seller and the seller’s agent.  If the roof or the heater is 30 years old, often everyone agrees it needs a new one, even though it is not currently “defective”, without the need for an additional inspection.  But it often takes time to negotiate these things, and having a 2nd inspection gives you additional time and also pinpoints the actual cost involved.  The original inspector may give you a ballpark replacement cost, but a specialist will give you an actual “work order” and a cost the seller is more likely to consider valid.  The seller can then get his own estimate during his response timeframe to counter your request and estimate.

Jumping to asking for a repair based on the original inspector calling for an additional inspection by a specialist, is usually the wrong way to proceed, unless you know the seller is aware of the issue and has already anticipated it.  Sometimes the buyer wants the seller to pay for the additional inspection.  The contract indicates that the buyer pays for the additional inspection.  The seller should pay for any subsequent inspections that are needed for his counter proposal.  Say you submit a request for $17,000 for a new roof.  The seller would pay the cost for an additional inspection to counter with a different amount, attaching the work order from a different specialist.  He has a timeframe to respond in the original inpsection addendum as well.

There is no one right answer except TIME IS OF THE ESSENCE.  If you don’t want the house even if the seller fixed the problem, then you can cancel without calling for an additional inspection.  But if you still want the house as long as the seller adequately address a specific item, buy yourself that extra time to negotiate, by calling for and doing an additional inspection.