Let’s face it. Selling a home can be stressful. You have to spiff the place up, find a good agent, decide on a price, and put up with a lot of visits, haggling, and phone calls. And, as if all of that is not exhausting enough, you then have to wait for the offers to roll in. In the mean time you have to plan for your impending move/next purchase without knowing when exactly you’ll even unload your current abode and therefore have the means to purchase another one.
Depending on the home itself and its location, the time that it takes for a reasonable offer to roll in can be shorter or longer. But—whatever the case and however hot the property may be—once you’ve finally accepted an offer, you will invariably find yourself in an “option period” or, as I like to call it, the purgatory of the home-selling process.
During this period (and for a nominal fee), a potential buyer gets to do his/her due diligence. This always entails a building inspection and, depending on what turns up on that, the option period can also include further evaluation of the plumbing, electricity, foundation, roof, and the like—with bids to boot. After that, the buyer may request repairs or a reduction in the price, hence the reason why—as I said above—selling a home can be so stressful.
To a certain extent, you kind of have to roll with it and hope that the last day of the option period will finally arrive without incident or, failing that, that the buyer’s requests won’t be too extreme. But this does not mean that you are completely powerless.
What many sellers don’t realize is that they can save themselves a lot of headaches, time, and stress by getting a pre-inspection by a building inspector that they have themselves chosen. Sure, once you do an inspection report, you have to disclose it to any potential buyer—and this regardless of whether it’s positive or not. However, if your own inspector finds a problem, then there is all probability that any other inspector was going to find it as well. Forewarned is forearmed.
With that in mind….
Here are the Top 5 Reasons Why I Love Pre-Inspections (and why so many of the experienced investors get them done).
1. You can fix the little things that will turn up on the inspection report and that may make it look all the more foreboding to a potential buyer. Inspection reports can be really long, as the inspector has to note every single thing he observes that is not up to modern day building codes. Oftentimes, a trip to the hardware store and a day’s worth of time can cut down on the sheer length of the report dramatically—thereby keeping a potential buyer from freaking out down the line. (On the length of inspection reports and what can come up on them, see my other post, “What to Expect When You’re Inspecting”).
2. You can price your house with all of its qualities and flaws in mind. And, if the problem is major, you can get your own bids. This point is key, as the prices of many big ticket repairs can vary widely from vendor to vendor.
3. Not all inspectors are equal. As is the case in any profession, some inspectors are simply better than others. And then there are those who like to use language of doom/tend to exaggerate certain problems.
Don’t believe me? Consider these two ways of describing the same observable fact:
“There appears to be some pooling (1/4 inch) on the flat roof over the addition. Further evaluation by a professional roofer is recommended.”
“There is ¼ inch of water pooling on the flat roof over the addition. The roof could collapse at any time.”
Sadly, I did not make this example up. I really and truly saw the latter written on a buyer’s inspection report a few years ago. The catch: the flat roof was brand new and functioning perfectly. Apparently, some pooling on a flat roof is to be expected when it’s raining (which it was at the time of the inspection). Of course, this same inspector also mistook a gas line for a water line, but I digress…. The point is this: get an inspector who comes highly recommended and who knows what he/she is talking about to do your pre-inspection. Find an inspector who is honest and frank about what he observes; recognizes the limitations of his own expertise; and doesn’t have a flare for drama. This is the best way to keep the ball in your court—and the language of doom out of the negotiation.
3. With a pre-inspection report in hand, you can request a significantly higher option fee. Seriously. Whereas an inspection might run you 250-300$, once you have one, nothing prevents you from requiring that a buyer pay an option fee that matches that (or even surpasses it, if it’s a hot property). Typically, option fees range from 100-150$. That’s a small price for someone to pay you for you to take your house off the market for 7-10 days, eh? If you have a pre-inspection done, there’s a good chance that you can get a potential buyer to put a little more skin in the game, thus making it more painful for them to back out later.
4. It weeds out those buyers and agents who like to go in for higher than they actually plan on spending. Unfortunately, some buyers put in offers that are higher than they are comfortable with/can actually afford in the hopes that, once they have a captive audience (the seller, in this case you), they’ll be able to bring the price down by flashing the inspection report.
I once had an agent confess to me that he recommends this approach to his buyers and that, once he’s got his buyer under contract, he combs through the report and asks for reductions for the littlest things (i.e. anti-tip devices on appliances). He actually, and I quote, “pulls stuff out of the air” and knowingly makes both reasonable and unreasonable demands during option period in the hopes of overwhelming the seller to such an extent that the seller will bring the price down. In a sense, more power to him. After all, when representing a buyer, the goal is to get the best price possible for your client.
However, if you’re the seller, both you and your agent need to try to avoid such buyers and buyers’ agents like the plague or, at least, preemptively disarm them: they can waste your days on market or, if you are in a rush to sell, they can nickel and dime you to death. Having a pre-inspection and demanding a higher option fee is a great way to push back against this type of buyer/agent duo. Why? Because it shows that you’re no nonsense, and that you’re not going to be taken for a ride. If it was disclosed on the pre-inspection report and was figured into your asking price, you have every reason to assume that it was figured into the offer (or at least it should’ve been). With a pre-inspection “as-is” really means “as-is”–and this emphatically. Experienced agents know this, and advise their clients accordingly. Note: this is precisely why so many experienced investors/professional house flippers get their properties pre-inspected.
5. It reduces the scope of any further negotiations. Ok, the buyer is still going to get her own inspection done. She’d be a fool not to. And her inspector may very well find a few things that your own inspector didn’t note.
However, the major problems and big-ticket items will have already been found by your own inspector (i.e. electricity that’s not up to code, foundation issues, major leaks, etc.). You will have priced your house with its major imperfections in mind and will have shopped around for the most reasonable bids. And your buyer will have presumably made his/her offer with the flaws and the estimated cost of repairs in mind as well. As a result, the margin where further negotiations can take place is reduced dramatically. With a pre-inspection, the only thing you have to worry about during the option period is the difference between the two reports—which, frankly, should be quite minor.