Pre-sale Inspections

PRE-SALE INSPECTIONS

OK, you’re ready to sell your home. You did everything by the book: you painted, cleaned, sorted, de-cluttered, pruned, and scaled down. You cleared the surfaces, washed the windows, cleaned the curtains. You got a termite inspection. Heeding the wise columnists’ advice, you interviewed three local agents, asked them all the right questions, selected one and decided on an asking price. You are primed and ready to roar. Right?

Well, maybe.

How is this for an idea: Invite a professional home inspector to come through your home. The sole purpose of his life during the three hours he spends in your home is to identify every defect he can find. He then writes up his nit-picky report and packages it in a neat little binder, so you can scare hell out of all your potential buyers. For this privilege, you get to pay him $400-$600. Sound like a pretty good deal?

That is the smartest thing you can do, according to the University of California educator and trainer Guy Berry. In a recent continuing education class for brokers entitled “How to Avoid the 10 Biggest Deal Killers”, he asserted that nation-wide studies show that an astonishing one out of three home purchases collapse before the close of escrow. Red Oak Realty’s count for failed escrows is 10-15% -- far less than half the national average, I am happy to report, but still a figure which represents countless hours, considerable expense, and frustration for everyone involved.

Can anything be done to minimize failed escrows? Berry spent all but the last 10 minutes of the 4-hour course discussing the number one deal killer of all time: Lack of pre-sale inspections.

BENEFITS TO SELLERS

The theory is that pre-sale inspections best serve the interests of all parties, but particularly those of the seller. How is this possible? Here is why:

	Fewer surprises: If a buyer knows most or all defects up front, the defects take on their proper perspective. If the buyer is the one who discovers the defect during inspections, that defect takes on ominous proportions and suggests a plethora of unseen horrors. He wonders, “What else has not been disclosed that I haven’t discovered?”
	Less re-negotiations: If a buyer is not aware of a defect prior to making the offer, quite naturally the tendency is to re-negotiate the price once the defect becomes known. With prior knowledge, he should have already taken the defect into consideration. If not, he has little leverage for renegotiating.
	Helps fair pricing: Prior knowledge of defects helps the seller to determine a realistic asking price in the first place. If the asking price reflects the true condition of the property, buyers are more likely to complete the sale as originally contracted.
	Less litigation: Problems disclosed up front defuse future litigation. If litigation should occur, the seller has a better defense.
	Higher sales price: Yes, you read that right. Prior knowledge of defects leads to a higher, not lower sales price. When the buyer knows about defects, he feels more comfortable. He knows what he is buying and does not “hold back” for unexpected problems.
	Seller has more leverage: The seller’s strongest point of leverage is at the time the buyer first presents an offer. This is particularly true in a hot seller’s market. When there is re-negotiation during the escrow, the buyer has more leverage. At that point the seller is already mentally set for a sale. He is more inclined to give concessions to avoid the risk of having the house come back on the market.
	Seller controls options: If a seller has prior knowledge of a defect, the seller can chose to 1) ignore it -- offer the house “as is” with the defect intact; 2) repair it, either with his own hand or with a contractor of his choice; or 3) downgrade -- for example, he can remove that rickety old deck altogether rather than repair it.
	Screens disqualified buyers: If a buyer is the sort who doesn’t want a home near an underground creek, better to disclose the creek up front and let him pass.

Obviously, pre-inspections do not circumvent the need for the buyer to conduct his own investigation. The buyer should still hire his own professionals and come to his own conclusions. The existence of a pre-sale inspection, however, should at least touch on most areas of concern which will be discovered anyway during the buyer’s inspections. The more advance knowledge the buyer has, the less likely that buyer will turn and run somewhere down the road.

PEST REPORTS COMMON

Until fairly recently in our area, no pre-sale reports of any kind were expected by buyers. Now it is common practice for a seller to obtain a pre-sale structural pest control inspection report (“termite”). These reports are provided by the seller, even when the seller has no intention of paying for any corrective work. And because they are often the only pre-sale reports available, buyers have come to rely upon them as a key to the general condition of the property.

This is a mistake. Structural pest control inspections are very limited in scope. Their narrow purpose is to identify wood destroying organisms, including termites, beetles, and dry rot. Why not provide information about other areas of the home as well? Doesn’t the prospective buyer care about the roof, hazardous materials, earthquake resistance, soils stability, plumbing or electrical? A general inspection, while not necessarily complete, will give a buyer a better overview of the property as a whole.

When a home falls out of escrow and comes back on the market (“BOM” in Realtor-talk), that wonderful excitement and momentum of the home’s initial entry to the market is lost forever. A BOM property is stigmatized. Everyone wants to know, “What happened? Is there anything wrong with the house?” Ask anyone who has been through this process. They will tell you that anything which can reduce the chance of a failed escrow is worthy of very serious consideration. Pre-sale inspections may be the best preventative medicine a seller can take.