Real Estate Inspections

Real Estate

An important part of any real estate transaction is the inspection period. I posted this video awhile ago that answered some buyer FAQs about it, but I think I need to go into more depth on the topic. Before we even discuss the inspection period and requests for repair that may be made after, let’s talk about the different kinds of contracts that can be used to purchase residential property.

The contract most commonly used in Florida is the Florida Realtors/Florida Bar AS IS Residential Contract for Sale and Purchase (“FR/Bar AS IS Contract”). With this contract, buyers have a set amount of days in which they can choose to have the property inspected, and during that time the buyers can choose to walk away from the purchase due to findings during the inspection or personal reasons.

Now, if you’re a seller, you may not think this sounds very fair, but here is why this contract is most common: The inspection in this contract serves the purpose of letting the buyer know the condition of the property. The seller is not obligated to make any repairs (hence the term AS IS). In a way, this is kind of a win-win for both parties. If the seller does not want to spend money to make repairs, the buyers have the right to cancel the contract without losing their deposit.

Notice earlier that I said a buyer can choose to have a home inspected. Yes, although it is not recommended, a buyer can choose not to have the property inspected during the inspection period but still walk away from the contract. If buyers give written notice of the cancellation before the inspection period ends, it does not matter what the reason is or whether the sellers agree with it; the buyers can walk. By default, an inspection period is 15 days; however, this is a term that can be negotiated, and anywhere from 10-15 days is common. Sellers using this AS IS contract may want to have shorter inspection periods so that if the buyer chooses to cancel the contract, the property is not off the market for too long.

In contrast, the non-AS IS contracts that can also be used have repair limits for sellers for anything that needs to be fixed after the inspection. Therefore, if sellers don’t want a buyer to be able to walk for any reason, they may choose to use this type of contract, but the trade-off is that they would be obligated to make repairs. In addition, if sellers are using one of these non-AS IS contracts and they refuse to make the repairs that are in the contract, the buyer may be able to cancel the contract and get his money back. 

Ok, now we know why this AS IS contract is used most often, so let’s talk about what happens after the buyer receives the inspector’s report.

From the buyer’s perspective, the findings from the inspection are often viewed as an opportunity to negotiate price or to get a seller’s credit. Not so fast. As we’ve already said, with the AS IS contract the sellers are not obligated to make any repairs, and depending on their motivation or urgency to sell, sellers may choose to gamble on the fact that the buyer wants the house so badly that he or she will still be willing to proceed without the repairs being made or without getting a credit.

So, what should buyers and sellers do? Let’s assume you’re under contract with the AS IS contract:

1. If you’re buying a house, even if it’s new construction, expect that the inspection will uncover something. Before deciding if these findings are enough to make you want to ask for repairs or cancel the contract, speak to the inspector who performed the inspection on the house. After all, buyers pay for this service, so they have the right to ask questions. Also, the inspectors are the experts here, not the real estate agents. Even if agents THINK they know about the life expectancy of a roof or AC, or whether or not certain types of pipes are likely to leak, or if a particular coating for wires is highly flammable, this is where agents should be directing buyers to those who are licensed to offer opinions on such matters.

2. Buyers should also speak to insurance carriers about the insurability of the house based on the findings in the inspection, as well as their lender, because they may be unable to move forward with the purchase if they can’t get insurance or the loan due to problems with items uncovered during the inspection, such as the roof or electric panels, and the seller refuses to make repairs.

3. Sellers, regardless of what your motivation is for selling the house, if an issue came up during inspection that affects the buyer’s ability to get insurance or move forward with getting loan approval, it’s probably in your best interest to take care of this repair. Yes, you have the right not to, but your house was off market for this inspection. Once it goes back on, savvy agents will ask you why it went from active, to pending, to back on the market, and even if they don’t ask, most agents will assume it’s for one of two reasons: that the buyer couldn’t get financing or that the inspection uncovered issues. It’s not helping you at all to go off market a second time and have the process repeated all over again.

As you can see, the inspection is an important phase of the real estate transaction. If you have questions and questions, whether you’re buying or selling, contact the A Team.