The Home Buying Process, Part Four: Home Inspections

We had our home inspection a couple of weeks ago, but it’s a process that takes a while to resolve, so I’m just now posting about it. Basically, once you reach the home inspection stage, you’re entering a hurry up and wait situation. In my area, a homebuyer has 10 days to get their inspection and request their repairs, and the seller has another 10 days to respond — so you spend the bulk of the month bickering over whether something is truly broken or not.

If you’ve been following our journey, you know that the house we put under contract isn’t perfect — and you know that we know that our house isn’t perfect, too. We’ve got big plans and the ability to carry them out, so it’s going to work out in the long haul. In the short run, it’s a lot of chaos and headaches and pulling hair and gnashing teeth, though.

I wrote about home inspections earlier, so you should read it before you proceed. Here I want to talk about what happens after the home inspection — that’s where the rubber truly hits the road.

The Purpose of a Home Inspection

I want to reiterate an important point from my earlier article. The real and true purpose of a home inspection is to look for hidden latent defects in a home — that is to say that you get a home inspection in order to flush out the problems in your house that you can’t otherwise see on a walk-through. That caveat is important, and one that many people don’t grasp fully.

Latent defects aren’t those that you didn’t notice, they’re the ones that were somehow hidden to a regular real estate buyer. So, things like plumbing defects, furnace problems, things in the attic like insulation covering old wiring, or wiring issues in the walls are good examples. This is the best time in the process to have those things fixed or choose to walk away if they’re too insurmountable.

Trust Your Inspector, But Don’t Panic

When you get your inspection report back, however hairy it is, your inspector will generally include a summary sheet as one of the first pages. Pay much more attention and give a lot more weight to this page — this is where you’ll find out which items your expert believes need correction right away. The rest of the report is informational, to let you know the condition of the property, but that first page…that’s vital information.

If your page one is actually three pages long, don’t panic right away, just read it all carefully and with your Realtor. Sometimes, you’ll need to call the home inspector to clarify what they mean on particular items and how serious these things really are. It’s okay to call them, they know you might.

I noticed over the many years of my real estate career that when an inspector lucks upon a really good house, they still feel compelled to write a long list of repair items — that’s just what they do. Their critical eye can’t let them do anything different. They see the problems in every home, even one that’s freshly built. This is why it’s so important to go back to the inspector and ask questions when you’ve got them.

Repair Addendums are Balancing Acts

Once you’re certain you know which items from the home inspection that you want the Seller to repair, it’s time to put pen to paper and have your agent send the Seller’s agent a repair addendum. This is a special form that allows you to make repair requests, attempt to renegotiate the price based on the inspection or get out of the contract entirely based solely on the opinion of your experts. Your form might not look like the one above, but it’s just as important.

There are some caveats that come with a repair addendum. Certain types of Sellers require special handling — for example, if you’re buying a foreclosure or a short sale, the chances that the Seller is going to fix anything are slim to none. They may consider a price reduction, though, so that strategy is still worth a try if you’ve got the funds to make those much-needed repairs after closing.

Generally, you should be asking for repairs on your repair addendum because otherwise you’re going to be dealing with potentially major problems that can affect your ability to get homeowner’s insurance. Issues like old wiring are huge red flags for insurance agents — and they often won’t cover you until the problem is corrected. You can’t close without insurance in place, so that’s where the rub lies.

This is where you have to balance your wants (a perfect house) with reality (no house is perfect). Nitpicking your new house to death is a huge mistake, instead focus your efforts on the big ticket items that are going to affect you in a major way. On my house, we asked for the air conditioner because it was completely non-functional, but there was a long list of little things that we didn’t ask for — everything from missing screens, missing drawer hardware and missing light fixtures, all the way to a non-functional attic fan.

When you write a repair addendum, you need to ask yourself, “Is this something I can fix on my own for very little money?” If the answer is yes, the decent thing to do is to fix it yourself — after all, this is about to be your home and you’ll have to do those little maintenance things for as long as you own it. If it’s a big problem — like a roof or a furnace (or an air conditioner in an area with hot, swampy summers), write it up!

Your Seller’s Response

Once you write your repair addendum and get it just right, your Realtor will send it off to the Seller’s Agent. They have a certain number of days, as specified in your contract, to look into the cost of repairs, have experts out to assess the situation and reply to your punch list. If your punch list is very long and petty, that Seller is going to say no — I can almost guarantee that. This is why it’s important that you don’t sweat the little stuff.

What usually happens, though, is that the Seller comes back saying they will do certain repairs and not others. That’s what happened with us — and that’s ok, because they agreed to fix the air conditioner, so we dodged that giant bullet. We had also asked that they have the ductwork professionally cleaned since it was insanely filthy (someone apparently didn’t realize they needed a filter in their crawlspace-mounted furnace), but they couldn’t understand why that was so important. So, we decided we could live with the compromise and have that done ourselves.

Once in a great while, the Seller will completely refuse your repair list. This is the worst situation you can be in — especially if you’re getting an FHA loan. When the Seller says no, you’ve got some options: you can accept that no and keep moving forward, you can reply with an counteroffer accepting the house as is, at a reduced price, or you can walk away. Depending on the Seller’s reasons for refusing reasonable repairs on large-ticket items, it’s often better to pay for the inspection and part ways with that property.

In the case that the Seller says no, make sure your Agent forwards a copy of the inspection along with your reduced-price offer. This serves two functions. First, it makes the Seller aware of your reasonable reasons for the reduced-price offer. Sometimes it’ll sway them when they see all the expenses they’re not going to have to deal with.

Second, and most importantly, it makes the Seller aware of the flaws in the home. This is vital because most states require a Seller and their Agent disclose everything they know or should have known about the property. That means that after having the home inspection in their hands, they can’t keep denying the roof is leaking. They must then disclose those issues to future potential Buyers.

I know it’s an ugly way to be, but that’s how the process works — Sellers often don’t want to truthfully disclose problems for fear of losing Buyers, sometimes you have to force their hand for the greater good. Most of the time, once a Seller has been made aware of major problems, they’ll concede in some way because they simply can’t risk that issue scaring the next pack of Buyers away. I encourage you to dance the ugly dance.

The Bottom Line: For Your Protection, Get a Home Inspection

There’s a reason FHA requires a special form called “For Your Protection, Get a Home Inspection” with every contract. A home inspection is your single most powerful negotiating tool as well as the most valuable insurance you can ever get on a property. Most of the time, there won’t be much to see on that inspection, but if you wrote an offer on that one in twenty houses that has an issue that needs to be addressed, you may save yourself a lot of heartache with this simple report.

Even if you think you can handle all that homeownership can throw at you, don’t set yourself up for a house full of problems — know what you’re getting into before you close. Some home inspectors are more thorough than others (mine sent a 73 page report), but be thankful for those home inspectors that see everything. Your Realtor will wince when these inspectors come into their transaction because a lengthy report can be frightening to Buyers, scary enough they want to run, even.

Don’t be scared, be informed. No house is perfect.

The home inspection isn’t a report designed to scare you, it’s there to provide a complete picture of your future home. Buying a house is nothing like renting one — this is the time in your life where you can absolutely make or break your financial future. Buying a really worn out piece of real estate means you’ll be throwing money at it forever, or at very least at the most inconvenient times as high ticket items rapidly reach the end of their lives and catch you by surprise.

Remember, no house is perfect, but one with many major flaws should only be tackled by people who know what they’re doing and who have negotiated a price that allows for major repairs. So, for your own protection, please, I beg of you, get a home inspection.