(This is an update, published May 2021, from an original blog post published in May 2019.)
Just when you thought the negotiation portion of the home-selling process was complete, owners are faced with the potential for more negotiation.
So, let’s assume sellers grant buyers the privilege to inspect the home before completing a purchase. In other words, buyers are using the home inspection contingency to make a final determination on whether to buy the property. The objective is to uncover defects in the home that may require a response from the seller – or, conversely, confirm there’s nothing serious and give buyers peace of mind.
Let’s be clear, though, that sellers never grant permission to inspect his/her home to empower the buyer and apply pressure on owners to accept demands from the buyer, such as seeking a price reduction when an inspection identifies an issue. Yet, that is how some buyers use the inspection report, taking advantage of the seller’s good-faith allowance to access his/her home.
Buyers typically have 10 calendar days after mutual acceptance to complete the inspection process. The timing is critical. Ten days covers the general home inspection as well as possible additional inspections from specialists, reading and reacting to the inspection report(s), and submitting through his/her broker a request for repairs (if any) or a request for time to conduct further inspections.
When he/she submits a request for repairs, the buyer sometimes asks for particular contractors to do specific work. The seller typically has three business days from the time of receipt to respond to buyers. In that period, the buyer cannot change his/her request.
A seller has a choice of three responses. He/she:
- Agrees to buyers’ repairs, with all work completed within three business days of closing to allow buyers to view the completed work (or seller gives monetary concessions, paid at closing, based on a contractor’s bid for services);
- Does not respond (same as seller rejecting the request), or;
- Makes a counteroffer, seeking compromise.
What if the buyer calls for all the items from the inspection report to be addressed? The seller may respond by agreeing to complete three items, pay a concession (typically cash at closing) for two more issues and ignore the others. Both sides can also agree to do a “hold back;” similar to monetary concessions, escrow holds back about 1.5x (times) the repair estimate, with the work completed soon after the buyer moves in and seller is responsible for payment (not the best position to be in for sellers, who may be asked to fork out even more if a major issue is discovered after the start of repairs).
Buyers then usually have three business days to reply to the seller’s counteroffer. This is the only reply period for buyers. There is no protracted negotiation. Buyers can either accept or reject the seller’s response. Rejecting the seller’s response equates to the buyer’s termination of the purchase and sale agreement. No response from buyers is the same as acceptance to the seller’s reply.
A buyer can attempt to continue to negotiate for inspection-related repairs during his/her three-day response period, but sellers are not obligated to reply. By taking this extra step, buyers have essentially rejected the seller’s initial response for repairs. Once a buyer counters a seller’s offer for repairs, the seller’s original reply becomes void. Sure, a seller can agree to the second response or, more possibly, ignore it and either complete the agreement without making repairs or the seller is lining up a potential backup buyer (one that may have few – if any – inspection-related demands).
This process can run any length of time as long as all parties agree and provide signatures. The timeline can be extended, for example, should something more complex – like a sewer-line inspection – requires hiring a contractor to examine underground pipe from home to street.
The inspection (potentially including checking septic systems on more rural properties) takes place at a time convenient to all parties. The inspector is hired by the buyer and licensed in Washington state, and no one else – except for the buyer – has the authority to inspect the home. The seller should make sure his/her listing agent does not allow the buyer’s contractor/uncle or neighbor/roofer to inspect the home; that’s against the law.
The licensed inspector, buyer’s broker and his/her clients should all be present for the inspection – and not the seller. The broker has a duty of care to ensure the inspection takes place without issue. The seller can demand that inspectors are bonded although it is not required by the state.
Should the seller accept a copy of the inspection report during this process? If I’m the listing agent, the answer is “Absolutely not!” Once a complete report is delivered to the seller, he/she has a legal obligation to attach the documents to the Seller Disclosure Statement for future buyers to see. (The disclosure statement asks sellers if an inspection has been recently performed and a “Yes” response places sellers in a difficult position of possibly knowing far more about the condition of the home than they would like.)
As recently as 2021, the Northwest MLS revised some of the contract addenda to protect the seller in this scenario. If a buyer – through his/her broker – provides any portion of the inspection report to the seller without consent, the inspection contingency is deemed waived and of no use. The sale can move ahead without addressing a request for repairs and the buyers risk the forfeiture of their earnest money deposit (up to 5% of the mutually agreed price) if they decide to pull out of the deal after not following the contract terms. A seller will typically accept a portion of the report that relates to the request for repairs as validation of the issue but not, for example, a whole page that includes other issues.
As it states in the bulleted item above, no seller is obligated to make repairs to the home unless they are bound by state or local laws (such as to provide a heat source, install working carbon/smoke detectors and install railings in certain circumstances). For example, some sellers are incapable of making repairs and others just do not want to make them. Perhaps they have “moved on” and are thinking about their next home. On the other hand, some sellers want to repair everything and sell their property for top dollar, in top condition. And in other cases, buyers prefer to make the repairs themselves after purchasing the home.
Buyers can typically receive an additional five days to complete secondary inspections after the initial 10-day period – to check on special issues such as pests in the walls, cracks in the chimney or potential issues with the roof. They should request one set of repairs to sellers after ALL inspections are completed. A buyers’ right to request secondary inspections is waived after they send a repair request to sellers. The inspection contingency is also waived at the end of the mutually agreed time limit whether both parties have agreed on how to address lingering issues.
If the seller responds to the buyers’ requests for repairs after the seller’s due date, the buyer’s reply period is unaffected. The buyer’s reply period still expires as though the sellers responded timely and do not collect extra time because of the slow response from sellers.
Sellers typically get a week or two to hire contractors or do the work on his/her own, depending on how the buyer and broker wrote the request for repairs. They agree to complete the negotiated repairs no less than three days from the closing date.
Buyers waive the inspection contingency if they don’t meet mutually agreed deadlines, even if it’s not their fault. However, they can pull out of the deal before the deadline, citing the inability to complete the requested repairs.
In fact, buyers can get out of a purchase and sale agreement for any cause – without explanation – if they have a signed home inspection contingency as part of the contract. They don’t even have to conduct an inspection if they change their mind and follow the timelines.
Yes, this part of the inspection process can spark frustration – or even anger – on the part of the seller, but there is generally little that he/she can do without having completed a seller-favorable counteroffer earlier in the purchase/sale phase that can include a demand for non-refundable earnest money should buyers fail to meet certain terms (something we see in a seller’s market).
To be sure, when buyers terminate an agreement it is typically after they learn of an issue with the home following the inspection – and not to aggravate a seller.
Contact me with your seller-related inspection questions – or to start working with an experienced listing agent. Thanks.