Home inspections and your decision to close the deal or not

[holymoly]

When you have an accepted offer with a condition of inspection, and the inspection find problems, do you have any principles or guidelines (financial or other) that you follow to decide whether it`s worth going ahead with the deal?

I`m wondering because I will likely be facing such a decision this week. I don`t want to make an emotional decision -- though I suppose the PITA factor counts for something when deciding if it`s worth taking on the work!

 

[gwasser]

QUOTE (holymoly @ Oct 20 2009, 07:28 AM) When you have an accepted offer with a condition of inspection, and the inspection find problems, do you have any principles or guidelines (financial or other) that you follow to decide whether it`s worth going ahead with the deal?

I`m wondering because I will likely be facing such a decision this week. I don`t want to make an emotional decision -- though I suppose the PITA factor counts for something when deciding if it`s worth taking on the work!

First of all, you should examine the phrasing of your condition from the negative point of view i.e. that you wish to terminate your offer rather than executing the purchase. Because sometimes you may find out that the wording of the condition is too vague to do so.

Typically, if you discover `material problems` i.e. health hazards or major structural problems that were not obvious (i.e. out-of-sight or hidden) and not disclosed by the seller or his/her agent, you probably could get out of the deal as well (in particular in Alberta where that could be classified as a material latent defect and then you would probably not even need the inspection clause).

If defects were obvious during your touring the place and you used them to reduce the purchase price in the first place, you may have a hard time to use the home inspection clause unless those defects were mentioned in the condition as needing a price estimate within certain limits.

Any other major defect or environmental problem that shows up and that is substantial in costs based on criteria in your condition can also be used to `get out` again depending on the wording of the condition possibly even on wording as vague as `subject to buyer`s satisfaction` although it would be assumed that you make reasonable efforts to make the deal work.

This is my take on the matter, there are probably other opinions. As said, a lot depends on the wording of your condition. If it comes really to the point that you, after all your work to get an accepted offer, want to use this clause to get out, first consult your lawyer. Using this clause as a way out because you get second taughts probably won`t work.

Hope this helps

 

[holymoly]

Thank you, Godfried! Those are all valuable things to consider. When I viewed the basement it was quite dark, so the inspection could very well reveal things that weren`t obvious to start with. Not that I necessarily am needing to get out of the deal... I just want to make the best decision.

 

[Nir]

I think holymoly meant how do you decide whether or not to buy following a home inspection, not if you have the option not to buy based on wording.
to answer the question: it depends on the total estimated cost to repair everything and how much of that you can get from the seller as credit on closing.
exact decision process can be more complicated than that but you get the idea.

 

[holymoly]

QUOTE (investmart @ Oct 21 2009, 12:19 AM) I think holymoly meant how do you decide whether or not to buy following a home inspection, not if you have the option not to buy based on wording.
to answer the question: it depends on the total estimated cost to repair everything and how much of that you can get from the seller as credit on closing.
exact decision process can be more complicated than that but you get the idea.

Thanks investsmart.

Say you want to get credit on closing. What would typically be the steps in the process and the paperwork for this? Do you get a verbal agreement, then both parties sign an amendment to the offer (and you waive the inspection condition)?

 

[gwasser]

QUOTE (holymoly @ Oct 20 2009, 06:28 PM) Thank you, Godfried! Those are all valuable things to consider. When I viewed the basement it was quite dark, so the inspection could very well reveal things that weren`t obvious to start with. Not that I necessarily am needing to get out of the deal... I just want to make the best decision.

I hope you`re inspection will work out and that you just have added a new investment on the way to your personal Belize.

 

[Thomas Beyer]

use this condition in the contract:
Contract is subject to home inspection satisfactory to purchaser on or before _____ (date).


Then you can use your discretion to walk.

In fact it is the ONLY condition you need in a contract.

You can always ask for an AMENDMENT ... and the seller can say yes or no.

You can also waive conditions, attach a 2nd deposit and change the purchase price .. all in one amendment .. and the seller can say yes or no !

Keep in mind that ANY deficiency has to be seen in relationship to seller motivation and the agreed upon price. It takes experience to decide if a leaky roof that may cost $20,000 to repair is OK (as the purchase price might be $60,000 below market) ! ditto with other major or minor items ..

Expect some deficiencies ! The price has to be right in light of it !

 

[holymoly]

QUOTE (thomasbeyer2000 @ Oct 23 2009, 03:09 AM) use this condition in the contract:
Contract is subject to home inspection satisfactory to purchaser on or before _____ (date).


Then you can use your discretion to walk.

In fact it is the ONLY condition you need in a contract.

You can always ask for an AMENDMENT ... and the seller can say yes or no.

You can also waive conditions, attach a 2nd deposit and change the purchase price .. all in one amendment .. and the seller can say yes or no !

Keep in mind that ANY deficiency has to be seen in relationship to seller motivation and the agreed upon price. It takes experience to decide if a leaky roof that may cost $20,000 to repair is OK (as the purchase price might be $60,000 below market) ! ditto with other major or minor items ..

Expect some deficiencies ! The price has to be right in light of it !
Thank you for the advice, Thomas!

 

[tahani]

QUOTE (holymoly @ Oct 20 2009, 08:28 PM) Thank you, Godfried! Those are all valuable things to consider. When I viewed the basement it was quite dark, so the inspection could very well reveal things that weren`t obvious to start with. Not that I necessarily am needing to get out of the deal... I just want to make the best decision.

to add to this

The purpose of the inspection is for this exact reason your talking about. There are things that is hidden and obvious, can’t be seen by looking and walking around. Hidden problems. Inspections should tell us what they are and then you can decide what you want to do.

You can ask for credit (by reducing price was negotiated)
You can fix the problem
The owner fixes the problem
The cost is divided 50/50 by both.
or you walk away and you get your full deposit back.



Just but make sure the clause says that you can do anyone of the above. Very important.

 

[RedlineBrett]

Dealing with poor inspections and managing client expectations is one of the hardest things about being a buyer agent.

Bottom line is listings and feature sheets will only talk about the good. All you ever get with property inspections is bad news... which can kill the vibe a buyer has about a deal.

I try and manage expectations before we do the inspection. I tell my clients "The house is not brand new. There will be problems. You wouldn`t expect an out of warranty used car to not need a dime of work and houses are no different." I tell my clients this before we ever do a showing (when I`m going over the process with them from 5000ft)

More often than not my clients acknowledge that part of the reason they are getting a good deal is because the place needs some work. As long as there are no serious (5k+) issues and that the sum total of all the small issues is in line with what they would pay for an obviously better property then there is no reason not to waive the condition. If you go into the inspection expecting everything to be perfect then you are only setting yourself up for a letdown.

Like others have posted there are lots of ways to get around bad inspections and come out with a way better deal... and it will all come down to how you and your realtor make your case to the seller.

 

[Thomas Beyer]

QUOTE (holymoly @ Oct 21 2009, 06:37 AM)
Thanks investsmart.



Say you want to get credit on closing. What would typically be the steps in the process and the paperwork for this? Do you get a verbal agreement, then both parties sign an amendment to the offer (and you waive the inspection condition)?


Rule of thumb is that credit or price reduction is TWICE the estimated repair cost to account for time, hassles, risk and management of subtrades .. possibly higher if risk on issue is higher or a detailed estimate cannot be obtained in time !



Send written contract amendment ... ideally with final condition waiver .. then seller will more likely accept it .. as he does not have to agree to your price reduction .. so be careful what you ask for !!



Send s.th. like this:



The contract MLS ________________ dated _____________________ is hereby amended as follows:



1) Purchase price is reduced from ____________ to _______________.



2) Closing date is amended from __________ to ____________.



3) ..



All other clauses remain in effect.



This amendment is open for acceptance by seller on or before _______________.



The condition clause ____ is hereby waived. THIS IS NOW AN UNCONDITIONAL CONTRACT.



________________ (Seller Name) _________________ (Purchaser Name)



________________ (Seller Signature) _________________ (Purchaser Signature)



________________ (Date) ________________ (Date)







....



Also, in most cases, banks do not lend you ANY money on that repair money required .. so it comes out of your own pocket usually !



related post: http://myreinspace.com/search/public_forums/Real_Estate_Discussion/62-8262-42752-what_now_after_inspection.html#42752

 

[holymoly]

Great info, thank you. Based on an inspection yesterday, I`ve decided not to buy a property on which I have an accepted conditional offer. I really appreciate everyone`s input and will keep this info for the next time around.