Presale inspections for smoother sales

Homes are selling for less. Everyone's trying to cut back. Yet, many real estate agents think it's wise for sellers to provide presale inspections for buyers to review before they write offers. Is the cost, which could run from a few hundred to $1,000 or more, worth the expense?

Last year, a home seller in the hills above Oakland, Calif., did a lot of work renovating a home before putting it on the market. Her agent recommended a home inspection, which involves a more comprehensive investigation of the property. A wood pest or termite report covers damage caused by wood-destroying organisms, and conditions that would be likely to lead to future infestation.

A complete home inspection usually covers the roof to the foundation and everything in between, although this differs from one inspector to another. The seller in the above example was financially exhausted after taking care of the fix-up work and decided against providing a presale home inspection.

The house was priced under market value and showed well. It brought in multiple offers and sold well over the asking price. However, the buyers' home inspection revealed that the foundation needed replacing. The deal stayed together, but only after a much lower price was negotiated.

Changing the price in the middle of a transaction can be a red flag to the lender, particularly if it's a significant price reduction. The lender could require the work be done by closing, which could delay the closing by months. If the buyer's loan commitment expires, the transaction could collapse.

HOUSE HUNTING TIP: One benefit of providing presale inspections on your home is that you have the opportunity to correct defects before marketing the property. This will make your home more salable and increase the odds of a smoother transaction.

Another benefit is that by providing as much information about the property as possible upfront, you decrease the risk of a transaction falling apart when buyers discover information about the property they weren't aware of when they made their offer.

One seller failed to provide a foundation report to the buyers before they made an offer. When the buyers were given the bad news, the transaction fell apart.

If you have reports on your home, make sure that the buyers receive copies of them before they decide whether or not to buy your home, especially if the reports reveal conditions about the property that could influence the buyers' decision to buy or what they would pay.

Sellers often see no good reason to pay for inspection reports upfront because the buyers will want to have their own inspectors investigate the property. Buyers should have the property inspected by their own inspectors.

The purpose of getting presale inspections is not to preclude the buyers from having inspections -- it is to educate the sellers and buyers about the property condition before they enter into a contract.

Sellers are in control of who inspects their home when they pay for presale inspections. Make sure to use inspectors who are well respected in the area. The buyers' comfort level with your presale reports will be higher if their agent can vouch for the inspectors.

Even though the buyers will probably do their own inspections, having presale inspections can cut down on negotiations that can occur after the buyers do their inspections. However, don't be surprised if the buyers ask for something as a concession for removing their inspection contingency.

Recently, buyers of a home in Oakland's Rockridge neighborhood asked the seller to have the garage roof replaced, even though they were given a roof report and replacement proposal before they made their offer. Their offer was based on taking the property in its present condition.

THE CLOSING: The seller said no and the buyers removed their contingency.

 

 

Not all buyers are worth a counteroffer

After mustering the emotional energy to make an offer on a listing, it can be devastating if you hear nothing back from the seller.

In most cases, if the offer isn't what the sellers are looking for, they will issue a counteroffer detailing the price and terms they can live with. When a seller doesn't respond at all to your offer, it's usually because the offer is so low that the seller thinks it's a waste of everyone's time.

Ask your agent to talk to the listing agent to find out why the seller didn't counter your offer. Then, make another offer if you think the house warrants a higher price. If the sellers want too much for their house, take a breather. Let the listing sit on the market awhile before you make another offer.

The risk of this approach is that another buyer could come into the picture who is willing to pay the sellers' price. Nothing is lost if you wouldn't have paid that price.

Your agent should keep in touch with the listing agent during your wait-and-see period. Ideally, you'd like to know if the sellers are going to reduce the price before it shows up on the multiple listing service. A price reduction to market value could elicit interest from multiple buyers.

Risk-averse sellers can be skittish about working with buyers who have a low cash down payment. It's wise to include a mortgage preapproval letter with your offer. Also, some sellers aren't in a position to accept an offer that's contingent on the sale of the buyers' home.

Another reason buyers don't receive counteroffers is because there were multiple offers. The sellers can accept only one offer in primary position. If there were five offers and yours was the lowest, you're not likely to receive a counteroffer.

Multiple offers are occurring in low-inventory, high-demand markets. Buyers were out early this year due to lower home prices, low interest rates and homebuyer tax credits.

HOUSE HUNTING: A typical reaction from buyers who lose in a multiple-offer competition is that they would have paid more. When you're competing against other buyers, you need to make your first offer your best offer. This seems counterintuitive because you run the risk of paying more than you might need to.

One way to ensure that you don't pay too much is to include an appraisal contingency in your purchase offer. Generally, an appraisal contingency allows the buyers to withdraw from the contract if the house doesn't appraise for the purchase price. In today's wary lending environment, lenders are requiring appraisers to be conservative on appraisals, particularly in declining markets.

Be aware that some buyers in a competitive situation will not include an appraisal contingency in their contract. If they have a large enough cash down payment and the appraisal value is less that the contract price, the lender may still approve a loan amount that will enable to the buyer to proceed with the sale.

THE CLOSING: Buyers who want a house badly enough will often pay more than the appraised value if they have enough cash to make up the shortfall.