Saturday, August 30, 2008

Ask Erin: Buyer Investigation, Inspections, and Request for Repairs

This is a long-winded blog...needless to say I have been dealing with literally 5 separate requests for repair during the last week, so for me this is a timely post. On 3 of them, I am representing the buyers, and on 2 I am representing the seller.

Buyer Investigation, Inspections, and Request for Repairs are all inter-related, and kind of a broad, sweeping topic that I am often asked about. In real estate transactions in California, the seller has the duty to disclose any and all known material facts and defects affecting the subject property...the buyer has the right to investigate and inspect the property. Even though most sellers are thorough with their disclosures, often times sellers may be unaware that a certain condition in their home represents a safety hazard, is not working properly, is defective, etc. For this reason, most buyers opt to obtain a whole house inspection by a qualified professional home inspector.

A whole house inspection generally costs anywhere from $300 - $600 on average, depending on the size, age, and condition of the house. These inspections are not intended to be a warranty or guarantee of any kind. These inspections are intended to give you a qualified opinion regarding items that may be in need of immediate or future repair or servicing. The home inspector will crawl the attic, crawl the sub-area of the home, and thoroughly evaluate the different systems in the house to make sure they are in adequate, operational order. Home inspectors are generalists, and may refer you to specialized trade contractors for further evaluation of different things. Buyers usually pay for this inspection.

In addition to the whole house inspection (whether the home inspector recommends it or not), I often recommend other inspections such as a chimney inspection, HVAC inspection, roof inspection or certification, pest inspection or certification, sewer line inspection, etc.

A Chimney inspection is something that most buyers will not even think to do...but chimneys can be quite expensive to repair if they are damaged. It is very common for there to be missing or deteriorated morter, cracks in the firebox, missing spark arrestors, missing weather caps, etc. The seller may not be aware of these conditions. A chimney inspection usually includes a cleaning/sweeping, and costs anywhere from $125 - $175 on average depending on the number of stories, pitch of the roof, and age of the chimney. The buyer usually pays for this.

An HVAC inspection can also be quite important. Ideally, the seller has had routine maintenance and cleaning of the unit twice annually since the unit was installed, but that is often not the case. A licensed HVAC contractor can evaluate the unit, tell you if it is heating and cooling the house properly, and recommend any maintenance to be performed. An HVAC inspection usually costs between $75 - $150. The buyer usually pays for this.

Roof inspection and certification is generally something that is agreed to by buyer and seller at during the initial contract negotiations. It is very common for the seller to agree to provide a 2 or 3 year "Roof Certification" from the start...most agents will include this in the residential purchase agreement (aka, the offer). A certification entails a licensed roofing contractor inspecting the roof, recommending/performing repairs, and giving a written guarantee that the roof will not leak for 2 or 3 years. Common repairs include sealing around roof vents, installing flashing, replacing shingles, etc. The certification itself usually costs $250 - $400 (repairs are extra), depending on the age and pre-existing condition of the roof. If properly negotiated in advance it is very common for the seller to pay for this.

Pest inspection and certification is generally something that is agreed to by buyer and seller at during the initial contract negotiations. It is very common for the seller to agree to provide a "Section One" and/or "Section Two" pest certification from the start...most agents will include this in the residential purchase agreement. Section One pest work will be items of active infestation - termites, dryrot, etc. Section Two pest work will be items that are conducive to creating a future active infestation - plumbing leaks, contact of the siding and soil, etc. A licensed pest company will do an intial inspection and make recommendations to remediate these types of items. The work is then performed, and the pest company issues a clearance that the house is free from infestation. The pest inspection generally costs $90 - $125, with repairs being an additional cost.

A sewer line inspection, especially with older homes, can be very important. Orangeburg sewer pipe is known to deteriorate over time, so that great home in Land Park that you love likely has an old sewer line unless the current or previous owner replaced it. It is also common for sewer lines to be obstructed by tree roots. Scoping the sewer line with a camera and recording the images on tape will let you know one way or the other if the line has collapsed or has any obstructions - or if it has been replaced with ABS, clay, cast iron, copper pipe, or whatever. A seller may have no idea that the sewer line is defective. A sewer collapsed or obstructed sewer line may appear to function normally for a while before it backs up. Scoping the sewer line generally costs between $125 - $250. Repairs to the line can be costly. The buyer usually pays for this item.

In any transaction, make sure you are satisfied with the condition of the property before moving forward. I also want to point out - with the presence of SO MANY bank owned properties on the market, performing these inspections becomes even more important. When banks sell properties, they are sold with NO disclosures regarding the condition of the property. If you are lucky, the bank owner may provide you a pest inspection. Take your right to buyer investigation very seriously with these types of transactions.

On to the actual request for repairs...a little known fact to buyers an sellers is that all properties are sold "as-is" unless otherwise agreed to. Buyers can certainly ask for repairs, but sellers do not have to grant those requests...heck, per language in the purchase agreement, they are not obligated to respond to those requests. Buyers must provide any inspections obtained to the seller as a reference point and basis for any requests for repairs...see the contract language below...

So what does all of this mean to buyers? Make sure you investigate your heart out! If you want a house to be up to current code standards - buy a new home. It is not reasonable to ask the seller to upgrade the entire house. It is reasonable to ask for broken, malfunctioning, or defective items to be fixed. Most sellers will respond to and take action to repair reasonable requests - or give you a credit (if your lender allows it) for you to perform repairs at a later time after the close of escrow. Do not submit unreasonable requests to the seller, as they will likely not be well-received. It is not advisable to "split hairs." No home will be perfect.

So what does this mean to sellers? It is advisable to obtain these inspections in advance and provide the reports to the buyer. Doing so protects you in the transaction, and allows you to negotiate potential repairs with the buyer in the early stages of the transaction - rather than the middle or end of the transaction. Expect that the buyer will find issues, and expect to allocate a certain amount toward "unexpected" buyer repair requests.


Contract language - straight out of the California Residential Purchase Agreement...

In paragraph 7 of the California Residential Purchase Agreement (on page 3), item A reads, "Unless otherwise agreed: (i), the Property is sold in (a) its PRESENT physical condition as of the date of Acceptance and (b) subject to Buyer's Investigation rights; (ii) the property, including pool, spa, landscaping, and grounds, is the be maintained in substantially the same condition as on the date of Acceptance; and (iii) all debris and personal property not included in the sale shall be removed by the Close of Escrow."

In the same paragraph 7, item D reads, "NOTE TO SELLER: Buyer has the right to inspect the Property and, as specified in paragraph 14B, based upon information discovered in those inspections: (i) cancel this agreement; or (ii) request that you make Repairs or take other action.

Paragraph 14B (referred to in paragraph 7 described above), item (2) reads, "Within the time specified in 14B(1), buyer may request that Seller make repairs or take any other action regarding the Property (CAR Form RR). Seller has no obligation to agree to or respond to Buyer's requests.

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