When Your Home Inspection Report Has Nasty Surprises

Posted by Bobby Montagne on Apr 18, 2017

You've gotten an offer on your fix and flip, and the buyer has ordered a home inspection. What happens next? Sometimes you'll sail through an inspection and the deal will close quickly.  But what is the best course of action if an inspection report contains unexpected, expensive or (in your judgment) unnecessary items that need to be addressed before you can proceed to the closing table?

HOME INSPECTION SURPRISES


No one likes to see problems or surprises on a home inspection report. When responding to the report, you basically have three options:

  • Agree to all the stipulations. This is often done if you want to sell quickly, the list of fixes is fairly short, or if you want to show goodwill toward the buyers.
  • Agree to nothing.  If the current buyers don't agree to waive the inspection report recommendations, wait for another offer on the property.
  • Pick and choose. This is the most common solution. You can almost always compromise or negotiate with the buyer by agreeing to fix some of the issues noted.  Some sellers fix the items whereas others give credit for the repairs at closing so the buyer can choose their own contractor and timeline for the fixes.  

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The very nature of renovating, renewing and refreshing older properties involves some judgment calls. No reputable flipper or their contractor should ignore an obvious problem or take shortcuts that endanger life and property. A home inspection can, however, become a problem because there are often multiple options to deal with both structural and aesthetic requirements. At times an over-zealous inspector might note that some areas warrant "professional evaluation" or that specific systems, including roofs, plumbing and HVAC, might need attention. This often scares buyers who may know little about these systems themselves. 

Don't panic. Take the following steps and follow through with the real estate agent and the buyer in a logical, professional manner.

  • Ask to see the actual written report if you have not been supplied a copy. Read it thoroughly. 
  • Double check any noted deficiencies or problem areas personally. Fixing a perceived deficiency might involve a quick adjustment, a replacement part or the installation of a trim piece. 
  • Figure the time and expense involved to deal with each specific request or recommendation.
  • Finally, weigh the total cost and the time against additional carrying costs in the event a sale does not close as scheduled. 

Finding Solutions is Key

While most professional home inspectors are fair and well-trained, they are also human. They are not experts in all areas of construction and remodeling, so there may be ample room for misunderstanding and misinterpretation. Don't take any repair requests or noted deficiencies personally, and try instead to find simple ways to comply or find solutions. 

If your property and the renovation complies with local codes, and if you have sign-offs and appropriate warranties to pass on to a buyer, there should be little question of actual compliance. 

Again, home inspectors are charged with performing a visual inspection of the property and noting possible issues. If, for instance, there is evidence of a previous water leak or foundation problem that you have corrected, chances are that a buyer will accept your documentation of corrective work, and a potential problem becomes a non-issue. If, on the other hand, a buyer requests a new air conditioning compressor, major roof repairs, or all new appliances, it is your decision whether or not to agree to these requests. Often a compromise will be the best solution. 


So, in the end, how you deal with buyer requests -- and with a less-than-glowing inspection report -- is all up to you. Just know your options and keep your eye toward finding solutions that are best for all parties.

Walnut Street Finance can help you fund your next fix and flip investment. Remember, we have your back because we have experience walking the same path! Give us a call!


 

Bobby Montagne

Author

Bobby Montagne is a real estate entrepreneur with three decades of experience in commercial and residential property development, finance and sales. Having successfully overseen $15 billion in career transactions, he is among an elite class of real estate innovator that has consistently delivered high quality returns to partners and investors.