Tuesday, December 1, 2009

How inspection findings are used by Buyers - A Home Inspector's Point of View

This a a repost of a response I made to a Blog titled "Should it be assumed, by the Buyer, that the Seller should bear the cost of repairing any and all defects uncovered during a home inspection?

I'm reposting my response because I hope it provides some useful insight from a home inspector's perspective to better serve our mutual clients.

My response is based in part on the following observations I've made as an experienced home inspector and former market analyst. First, consider the following generalized and categorized mindsets with respect to how inspection findings are used by Buyers.

Expectations of Buyers vs. The Seller's Representation of the Home's Condition. - A real situation I just had with a client explains this well. The home was only a few years old, well maintained and decorated, and had the hardly lived in appearance. The Seller's flyer marketed the home as "better than new." My inspection found about a dozen issues to address, mostly maintenance type items and a couple of minor cost repair items with potential bigger consequences if not corrected sooner than later. The Buyer was not discouraged with the inspections findings. However, he stated to his wife (they were there with me for the entire inspection) that he (Buyer) wanted the Seller to fix everything. He was surprised the inspection discovered anything as the Seller presented his house as being defect free (the Seller stated, "I've maintained this newer home and you shouldn't find anything") and the flyer said "better than new." If you were the Buyer in this scenario, how would you respond? His expectations, as sold to him, were that the home was defect free and better than new.

Expectations of Buyers in a Buyers vs. Sellers Market - This one is self explanatory. Most Buyers are going to take advantage of market conditions and use it to their benefit. Why not? I thinks it's the Buyers (or Seller's) prerogative, depending on those market conditions. Wouldn't you?

Risk Tolerance Level of Buyers - This one I find few Realtors either fully understand or take the time to understand their client's position on risk tolerance. I use it to gage how I speak and interact with my clients in order to best communicate the inspection findings. We all have different risk tolerances and this is especially true when making a big, if not the biggest purchase decision and emotionally charged purchase of buying a home. The bottom line is some people want to eliminate as much risk as possible and others don't care as much. Where your client falls on this scale will help answer this blog's posted question. For example, a low risk tolerant Buyer with "minor" inspection items, yet with the potential to become a bigger problem regardless of likelihood of occurrence, is more likely to request the Seller correct the items or provide an allowance. I see this often, with the Realtor frustrated in trying to understand why the Buyer is being "nit-picky" or assuming the home inspector lead the Buyer to this position. Regardless, I find this to be a very common occurrence that could be a useful means for a savvy Realtor to come out as a hero for their client by simply understanding the client's level of risk tolerance.

Negotiation Savvy of the Buyer - Many Buyers just don't know what options they have or how the purchase inspection negotiation process works and are not the subject of this Blog question or discussion. However, other Buyer's are pretty sophisticated and actually look forward to using whatever inspection information they have to negotiate a better position with the Seller. This may include a strategy of asking the Seller for everything, sometimes even upgrades. Their approach is that they don't know what the Seller will do until they ask, so why not ask for everything as a starting point and make trade-offs from that point. I've often heard back from Realtors how they were surprised the Seller agreed to correct or make financial allowances as requested by the Buyer. I've seen banks with foreclosed properties under contract in "as is" condition give up concessions on repairs because the Buyer (or their savvy Realtor) simply asked for them.

Here's another noteworthy observation. I've had investor clients ask me not to share the inspection report with their Realtor because they "didn't want the Realtor to interfere in their negotiation strategy."

Anyhow, if I were a Realtor, and it should be apparent that I'm not, I would understand my Buying client's mindset and expectations going into an offer with respect to your question and the position points I've observed and stated above. Knowing this would then enable me to best advise and serve my client in meeting their needs with regard to handling inspection items and negotiation expectations. I would also be respectively open to the Buyer's decision to negotiate whatever they want, even if my professional advice was contrary.

I hope this helpful. I welcome other insights and comments.

Jon Rudolph

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