In a very hot real estate market, competition and bidding wars are prevalent on most homes. That is what we are experiencing in Seattle at the moment. When a real estate market gets very hot, buyers will need to place offers without inspection contingencies to win. A seller will strongly prefer offers that are not subject to inspection.
In many cases, buyers will be forced to pay for a pre-inspection of the home prior to placing their offer. This allows the buyer to perform their due diligence ahead of time and make an offer that is not contingent upon inspection. The downside is that buyers have to spend money on inspections on a home they may not get during the bid process.
To simplify this process and potentially encourage even more offers for their home, some sellers are paying for a pre-inspection of their home and providing the inspection report to prospective buyers. If you come across a home that has been pre-inspected by the seller, is it OK to waive your own inspection based on the seller’s inspection report? In many cases, we do not trust due diligence performed by the seller and always suggest that buyers perform their own home inspection, even if that involves additional cost.
Conflict of interest
The seller’s goal when selling their home is to get the highest price possible and to sell the home in “as-is” condition. The buyer’s goal when buying a home is to get the lowest price and to make sure there aren’t any costly hidden defects or maintenance issues in the home. Clearly the buyer wants to know every possible defect in a home, while the seller wants to cast the home in the most positive light possible. The conflict here is obvious.
We have worked on hundreds of transactions over the years. Some sellers are highly ethical and diligent about home maintenance issues. Others are highly unethical or simply don’t know or don’t care. If you are receiving an inspection report from the seller, which type of person are they?
If a seller performs a home inspection and receives a report that they do not like, what is to stop them from hiring another inspector for a more “seller-friendly” report? This is unethical and possibly borders on illegal, but there is no way to prevent this behavior.
We have seen thousands of inspection reports from hundreds of inspectors over the years. What is clear to us after viewing so many inspection reports is that the quality of home inspectors varies wildly. Some are excellent. Others lack the skills or tools to properly assess a home’s condition or are simply incompetent.
If a seller provides an inspection report, a buyer would need to carefully evaluate the qualifications of the person who did the inspection. Our office has two lists of inspectors. One list is those that we trust and another list of those we’ve had bad experiences with. We always cross-check an inspector we haven’t used with these lists.
Home inspectors can be subjective, since they are non-invasive. If you compare inspection reports on a home from 10 different inspectors, chances are that all 10 will find slightly different things. That is the nature of home inspections.
Just having an inspector’s license is not adequate. A home inspector must be methodical, thorough and carry the correct tools to uncover as many problems as possible. Many of them don’t fit this description.
See issues in person
There is value to a buyer to be present for at least part of the home inspection. When an inspector discovers a notable issue, it is valuable to see the problem with your own eyes. Relying on a seller-provided inspection report does not provide this opportunity.
Can a seller prevent a home inspection?
A seller can choose to allow or prevent a home inspection. Obviously a seller who blocks a buyer’s ability to perform an inspection raises a huge red flag that they are concealing problems with the home.
We recently came across a home where the seller provided an inspection report, but wouldn’t allow the buyer to perform any sort of inspection of their own. Our buyers smartly walked away from this deal.
Think strategically about your offer
Buyers in a hotly competitive situation need to look for every possible angle to win the bid for the home. While offer price is usually most important, when offer price is similar across many parties, other factors come in to play.
A buyer relying on a seller-provided inspection report needs to understand that the existence of the report works against them. It may enable more bidders to bid who were unwilling to spend money on their own inspection.
Let’s play out a scenario. A home with a seller-provided inspection report receives two offers. Price, closing date and all terms are exactly the same. Buyer A ignores the seller’s inspection report and performs their own inspection. Buyer B relies on the seller’s inspection report to waive their inspection contingency. Which party wins? With all other things being equal, the seller should pick the buyer who represents the lowest risk. This is Buyer A, since they went the extra step and performed their own due diligence. They have also demonstrated that they “want the house more.”
Home inspection group buying
What about getting together with other buyers and sharing the cost of the pre-inspection? This might save you a few hundred dollars, but often it is a terrible idea.
A buyer who is aggressively competing with another buyer to purchase a home should never given another buyer an advantage, no matter how small. A buyer needs to make their competitors jump through the same hoops to get the house. Maybe a competitor doesn’t have enough time to inspect the home or maybe they aren’t willing to spend money on their own inspection. That potentially makes one less serious bidder for the home.
A sewer scope is another form of home inspection where a camera is sent through the length of the sewer line to check for pipe breaks and obstructions. We have seen a number of sellers in Seattle providing a video of the sewer scope performed by the seller.
In this case, we actually trust these reports because they are a video. Unlike a regular home inspection, a sewer scope is objective. The video camera will reveal problems with the sewer line pretty clearly and requires little interpretation from the inspector. The line is either broken, clogged or clear.
Buyers need to do their own due diligence
The advice we give to every buyer is they should always do their own due diligence when purchasing real estate. This applies to homes of all ages and all conditions, even new construction. We always inspect new construction homes and have always found defects that need to be corrected.
A buyer should never rely upon the representations of a seller or and agent to properly evaluate the condition of a home. This is why buyers hire qualified, independent inspectors who can accurately assess the condition of the home without conflict of interest.