Recently, I’ve had a number of discussions with StepStone Agents about their listings and the inevitable contract amendment after their buyer’s inspection report.
After Ashley Patten, Patten Title Company, came to our Austin Mastermind and talked about how to handle inspections and amendments, this is our advice to our agents.
REFUSE AND REMOVE
If you are the listing agent or seller of a property (or both!), and a buyer’s agent sends you a copy of the inspection report, or attempts to reference an inspection report in their amendment, refuse it!
Now, you have to do it nicely, but be firm. The proper way would be to reply to the email, and simply say, “I’m sorry, as a rule, I do not accept inspection reports or references to inspection reports. This will be deleted. If you are requesting repairs, replacements or revisions to the property, please do so with specific requests in an amendment to the contract.”
After that, delete the email with the attachment immediately!
OPEN IT, OWN IT
If you open the inspection report, or accept an amendment that references an inspection report, you now own it. And anything in that inspection report must now be disclosed to any and all future buyers.
Buyer’s agents can be lazy. And sending you an inspection report with an expectation that you repair everything in it is lazy. Sometimes it isn’t clear from an inspection report what needs to happen to remedy the problem and it certainly shouldn’t be yours or your clients’ responsibility to figure it out.
Remember, the contract is a promise to buy and a promise to sell, and asking for repairs can be a condition of selling. But it is perfectly fair to ask what specific repairs they want completed.
For example, an inspection report may say that the water pressure in the property is too high. You may see an amendment that says “reduce water pressure”. Where? How? By how much? I could reduce water pressure simply by slightly closing the main valve at the street. Is that sufficient?
Ask for a specific repair instead. A more proper amendment request would be “add a water pressure reducer to the main water line”.
YOU LOSE ALL ARGUMENTS WITH INSPECTION REPORTS
I realize it can be tempting to want to argue with an inspection report. Particularly in areas where state and local code don’t agree. Remember, inspectors are licensed by the state and are governed by state building code. But state building code does not apply to your locality. Local city code is what builders and contractors have to follow and local city code and state code do not always agree.
Therefore, you may see inspectors claim a deficiency where one doesn’t really exist. And you will want to argue or point out the inspector’s errors. Or an inspector may claim to find other problems that you do not believe are really problems.
So the natural reaction is to want to read the report and argue those line items armed with your personal knowledge or that of your contractor. Unfortunately, only one person in that scenario is licensed by the state to make that determination and it is not you or your contractor. And now you own the inspection report and must disclose the deficiency that you don’t even believe exists.
Avoid this argument and instead, focus on YOUR job… negotiating the contract. By asking for a specific list of requests in the amendment, you can then focus on costs and counter the amendment on repairs you are willing to make and those you are not.
If the negotiations are unsuccessful and a new buyer is found, there is now nothing additional that needs to be disclosed to the buyer and they are free to get their own inspection.
Some flippers or homeowners want to “pre-inspect” so they can repair everything and then present the inspection with a list of repairs. However, this can actually open you up to more liability.
If one of your “repairs” didn’t actually resolve the deficiency, and it causes a major problem with the property later, you could be found to be negligent, having known about the problem and then not properly fixing it.
The real reason homeowners do a “pre-inspection” is to avoid the buyer getting their own inspection because they are afraid of what an inspector might find. But in reality, they either open themselves up to liability OR the buyer still gets their own inspector who now looks extra hard to find problems to justify their cost.
The fact is, a buyer getting an inspection is not the real issue at hand. The bottom-line is what matters. And repair requests will always be the factor in the bottom-line, not the inspection report. An inspection report is like Medusa, harmless unless you look at it. Stick to negotiating specific repairs and maximizing the bottom line and you will have more success in the long-run!