Chapter 14
The Home Stretch
In This Chapter
• The home inspection (again?)
• More tests, more details
• The post inspection negotiation
• Let the buyer know what you know
• To extend or not extend?
Now that the Purchase and Sale Agreement is signed, it’s time to start fulfilling some of the duties and responsibilities the document lays out. In fact, in some cases, what happens now may effectively repeat a step you took yourself—possibly even before you even hung out your For Sale sign.
But it’s all part of the process that keeps you moving toward that happy day when pen is applied to paper and your house is sold. In this chapter, we cover the various types of inspections that may or may not take place, what you can do if a problem comes up as a result, and other necessary steps that finalize various elements contained in the Purchase and Sale Agreement.
The Home Inspection
Sound familiar? It should. We covered this back in Chapter 3, identifying a home inspector as a valuable part of your overall FSBO team. We also offered a brief overview of what a home inspection can entail and why, as a seller, it is a smart idea for you to hire an inspector proactively to uncover any significant problems.
But maybe you skipped that step, figuring you’d rather hang onto the several hundred bucks that an inspector can charge. (It’s not a great idea, but don’t feel too guilty—a lot of home sellers forgo a home inspection.) Maybe you just figured that any reasonably thorough buyer would insist on a home inspection anyway.
No matter the case, chances are good you may be looking at a home inspection—either the first your home has had or another one at the buyer’s direction.
It is common for a buyer to order a home inspection, even though the seller had one done already. All things being equal, a lot of buyers would rather spend the extra cash to have an inspection by someone they know. And, if a fair amount of time has passed since the first inspection occurred, there’s always the off chance that something has gone wrong since then that the first inspection couldn’t identify.
Another reason that buyers may ask for their own inspection is some inspections are more thorough than others. Have a look back at our discussion in Chapter 3—as we mention there, some inspections may not cover roof conditions. Others may bypass parts of a home in which a buyer is particularly interested, such as a swimming pool or home sprinkler system.
The bottom line is that you should never be surprised if a buyer insists that a home inspection follow the signing of the Purchase and Sale Agreement. Most agreements stipulate a certain time frame in which the buyer may complete the inspection—say 10 days or thereabouts.
Even better—most homes have something wrong with them. If you’re aware of them, let the buyer know before they come up in the home inspection. That can save some haggling over costs further in the process.
Selling Smarts
Even if it seems like you’re watching a movie that you just saw a week ago, it’s a good idea to be home when the home inspector arrives to give your house the once over. For one thing, you may be able to answer questions or explain certain elements of the home. Just as important, you get a first hand view of the inspector and his professionalism. Watch what he examines and what he might miss. Don’t be afraid to ask about his credentials and qualifications. That way, if something comes up later that seems puzzling or unreasonable, you may be able to call the inspector’s abilities into question rather than just the condition of your home. By the way, some inspectors would rather you not be there when they’re conducting the inspection—politely insist otherwise, even if your presence has to be exceedingly low key.
Negotiating After the Inspection
After the home inspection has been completed, make sure you obtain a complete copy for you to review in detail. Go over it with a fine toothed comb to see if there are any significant issues raised in the report.
At this point, the buyer may notify you—in writing, naturally—regarding any sort of action she would like to pursue as a result of the inspection. As we’ve mentioned before, in certain cases, a home inspection may prompt a buyer to call the whole deal off and request all deposits be returned in full.
Just how easily a buyer can back out of a deal as a result of the home inspection can depend in large part on how the contingency is worded in the Purchase and Sale Agreement. If, for instance, the contingency says a buyer may withdraw from the deal if he is not satisfied with the inspection, he has a right to pull out. You return whatever deposit he may have given you and your house goes back on the market.
That can offer an easy out for a buyer who simply isn’t all that serious or just gets a case of cold feet. By the same token, more specific wording—citing things such as significant structural or electrical defects—mandate that a buyer show specifically what he doesn’t like. Check with your attorney to make sure the wording of the inspection contingency doesn’t offer the buyer an easy way to bail.
The unfortunate possibility of a buyer who opts out of a deal shows the importance of keeping a tight timeframe for the inspection to take place. If by chance, things don’t work out, you lose as little time as possible in beginning to work with other interested buyers.
A buyer who bails also reinforces the importance of conducting your own home inspection before putting your house on the market.
Selling Smarts
Don’t get too worried if a buyer finds something in a home inspection that he’d like to negotiate. Given the wiles of individual buyers and sellers, it’s all too likely something will crop up that the buyer wants to negotiate. Roll with the punches and look to seal the deal.
Provided the contingency clause is worded appropriately, most serious buyers will have to uncover some fairly significant problems to call a deal off. Those sorts of problems can be identified and addressed long before that, thanks to a proactive home inspection.
But, if a buyer is genuinely interested in your home, chances are slim she’ll simply want to call the whole thing off. Rather, she’ll likely ask that the problems be addressed in some fashion. And this brings us back to the heart of home buying—negotiation. This time, we’re specifically dealing with issues raised in the home inspection report.
So the buyer has presented you with a list of issues included in the home inspection that trouble him. Review the list—some may be minor and incidental, while others, such as major roof repairs, perceived plumbing problems, and other issues, may be significant and costly.
It happens on occasion that a buyer’s home inspection report and a separate one obtained by the seller differ significantly on an issue of some importance—say, one finds the roof in good shape while the other likens it to a sieve. If that’s the case, consider obtaining a third inspection. Find someone mutually agreeable and split the expense. Another look can often uncover a common ground and, ultimately, a solution.
Selling Smarts
When negotiating after the home inspection, it’s important to distinguish between repairs and upgrades. Repairs, as is obvious, mean something isn’t working properly and needs attention, such as a dead electrical outlet. Upgrades, on the other hand, don’t necessarily mean something’s not working—rather, at least in the eyes of the buyer, something could stand to be improved, such as a paint job or windows which are not particularly energy efficient. Repairs are often the sole responsibility of the seller; negotiate upgrades more aggressively, as they can come more from the whim of a buyer rather than something not working as it should.
Consider the list of problems carefully. If, by chance, they’re fairly minor and don’t amount to much in the way of expense, the path of least resistance would be to agree to pay for them. If they’re more substantial than that, ask if the buyer would be willing to share the expense in some manner.
When negotiating after a home inspection, never lose sight of your financial requirements. Selling your home may be your ultimate goal, but don’t be in such a hurry you agree to pay $10,000 for a new roof and, in the end, leave you with less cash than you need to take away from the deal.
It’s important to know that you, as the seller, may be obligated to make certain repairs. Certain defects may have been identified in the contract that you’re obligated to address. Additionally, local and state requirements may come into play as to what a homeseller must agree to according to the law. Issues such as earthquake safety requirements, smoke detectors, and other requirements may fall under this. Check with your attorney to see if any of these happen to apply.
Keep in mind that agreeing to pay for problems raised in the home inspection is only one possible option. If you simply don’t have a large supply of cash on hand, offer to adjust the sales price to compensate for the expense. That way, the buyer’s concerns are addressed and you meet those obligations with as little cash out of pocket as possible.
Always keep the dynamics of your local market in mind when negotiating home inspection issues. If homes are moving slowly, it may be prudent to be rather generous in your willingness to pay for certain costs. On the other hand, an active seller’s market puts the ball in your court. You can be more aggressive in turning down some of your buyer’s requests, reasoning that another buyer might be less demanding.
Other Inspections
In many cases, home buyers will opt for a basic home inspection and leave it at that. However, that’s not always the case. Some buyers, aware of the various, more specific issues that conventional home inspection may not address, may add on other forms of inspection. Should these pinpoint problems or other issues, these will have to be addressed the same as problems identified by a basic home inspection.
Where you live can play a big part in what additional tests, if any, a buyer may choose to pursue. In some areas of the country, drinking water is a major concern. By contrast, in neighborhoods where the homes are particularly old, lead-based paint may be an issue. As you’ll see, there are three primary tests that may come into play: water, radon, and lead-based paint.
Water Tests
It goes without saying that safe, clean water is an absolute necessity, both for cooking and personal hygiene. That’s why many home buyers will insist on a thorough test of a home’s water supply.
Concern over the quality of water may be puzzling to some. Aren’t all public water supplies routinely tested and treated for any sort of significant problems? Yes, but remember that’s only at the source. Water passing through public water systems may become contaminated en route to a home. Additionally, old indoor plumbing systems—which may contain solder or lead in their network—may also impact the overall quality and safety of the water.
Water tests involve a basically simple procedure in which a sample is taken from a home’s water system and examined for various characteristics, such as iron content, water hardness, and other issues. Depending on the test, issues such as chlorine, lead, bacteria, and industrial waste may be targeted by the test.
As an example, Master Water Conditioning Corp’s website offers a sample water test report, outlining some of the findings such a study may include (see the following figure).
The www.masterwater.com website offers a sample water test report.
Should the test identify any problems, possible solutions range from relatively inexpensive forms of disinfection to more costly options, such as replacing or upgrading pipes or installing cleansing and disinfection systems that cover an entire home.
The decision to test a home’s water is pretty much up to buyers of houses on community water systems. That’s not necessarily the case with homes on individual wells. Because those do not undergo the cleansing and purification that many municipal water systems do, many lenders will require well testing to make certain no problems specific to that well exist. But know that many lenders will only insist on bacteria checks and ignore other issues.
Radon
Another common test that can be added to a home’s overall inspection program is for radon.
Although radon can be found in any home, there are certain types of homes in certain areas where radon is of particular concern. That makes it a good idea to check out the particulars of the gas: how it occurs, the damage it can cause and what to do about it. The following guide provides that information and more. You can check out the Environmental Protection Agency’s Citizen’s Guide to radon online at: www.epa.gov/radon/pubs/citguide.html (see the following figure).
Tools of the Trade
Radon is a radioactive gas that has been found in homes throughout the country. Naturally produced through the breakdown of uranium in the soil, it can seep into homes through cracks in the foundation and other areas. Breathing radon in sufficient quantity has been connected with lung cancer and other illnesses.
For instance, many northern states have pockets where significant levels of radon have been identified. Older homes may be more susceptible to radon than more recently built houses. Research has also shown that radon can enter homes through well water.
But the tricky side to radon is the lack of consistency in the homes it invades. Whether well-sealed or drafty, with or without cellars or basements, almost any home can suffer from a significant amount of radon.
Although there has been some disagreement over the prevalence of radon and its potential health effects, the federal government is sufficiently convinced of the gravity of the problem. Both the Environmental Protection Agency and the U.S. Surgeon General recommend all homes be tested for radon, no matter their condition, when they were built, or the part of the country where they happen to be located.
The www.epa.gov/radon/ pubs/citguide.html website offers a map of radon zones.
Radon tests come in two primary forms. The first, known as the short term test, can involve anything from a charcoal canister to collect radon in the air to an automatic tracking device that measures and prints out ongoing reports of air borne radon. The latter can take in as many as 90 days of readings. Although that can be far more accurate, the time involved is far too great when a home sale is involved.
The general rule of thumb is that results of 4 pCi/L or higher warrant additional testing to see whether the high levels hold up. Solutions to high radon levels can be as simple as a fan to increase circulation in certain parts of the home to more involved radon mitigation systems that can cost several thousand dollars.
FSBO Facts
Radon is generally measured in terms of picoCuries per liter of air, otherwise referred to as pCi/L. This is a measure of radioactivity, named after the famous French physicist Marie Curie. It’s complicated, but one picoCurie is equal to the decay of two radioactive atoms per minute.
Radon testing may not be limited to air in a home. Radon can also appear in a home’s water supply. Contact your local water supplier if you’re on a municipal system. If your home uses a well and radon is detected in that water source, the most effective solution is a point-of-entry cleansing system to purify the water before it actually enters the house.
Lead-Based Paint
It’s ironic. Lead is one of the most dangerous and toxic substances to human beings, yet its use in residential paint was only banned in the United States in the late 1970s. That’s nearly three decades for the problem to pass, but the fact remains that many homes still contain significant amounts of lead-based paint.
That’s a serious health issue. Prolonged exposure can lead to damage of the nervous system, particularly in young children. Other problems ranging from learning disabilities to Attention Deficit Disorder have also been connected to the presence of lead.
Although the problem of lead in paint may seem to be one of ingestion by eating, lead is far more insidious than that. Many problems result from simply breathing lead laden dust that gets into a home’s air as the paint ages, deteriorates, and flakes. Even worse, everyday vacuuming doesn’t address the problem because the particles are much too small to be trapped by vacuum bags.
That, in turn, may prompt some buyers to ask for a lead test. This usually involves a simple chemical test to measure the presence of lead in paint samples. Fortunately, if a lead dust problem is identified, the solution is usually simple and relatively inexpensive—either through repainting or specialized cleaning with a HEPA-filtered vacuum.
Occasionally, other environmental-related issues may crop up that can warrant further investigation or testing. These can include asbestos, formaldehyde, water contamination, and other problems. They are, however, of decided less concern than the issues we discussed earlier in this chapter.
Selling Smarts
If your home was built prior to 1978, it may be a good idea to proactively test for lead in your home’s paint—a potentially poisonous substance may scare off even the most motivated of buyers, no matter how simple the remedy might be. If you want to save some money, inexpensive in-home test kits are an option.
Duty to Disclose
In the old days of home buying—whenever you happen to identify that particular timeframe—buying was not far removed from the old shell game. You paid your money and took your chances. If you got stuck with a lemon, tough luck.
Not any more. Now, as the seller of your home, it is your legal obligation to inform the buyer of information about your home—or, more specifically, any detail that may impact the buyer’s decision to buy your home. It can also impact the overall purchase price upon which you had both previously agreed. This is known as duty to disclose.
Tools of the Trade
Duty to disclose basically refers to material facts about your home or the neighborhood that would not be evident to the buyer. In effect, it is your duty to make sure the buyer is aware of this information.
You can see why we included duty to disclose at this juncture. Up to now in this chapter, we’ve been covering elements and issues relating to your home that are identified through various types of inspections. In other words, those steps the buyer takes to uncover things that can affect how much she’s willing to pay for the home or, indeed, if she’s willing to buy it at all.
Now the reverse is true. Instead of the buyer working to identify problems and issues that need resolution, the onus is on you to tell the truth. If you know something about the house that the buyer should know as well, it’s your legal duty to let them know.
The difficulty here is that duty to disclose requirements can differ quite a bit from one state to the next. What one state mandates you tell the buyer will differ considerably from what another may require.
Check with your attorney to determine the particulars of duty to disclose where you live. Your state’s housing authority will also likely be able to provide you with all pertinent guidelines. Your attorney or the state should also be able to supply you with all legally applicable documents pertaining to duty to disclose.
Even though states are different in what they require in a duty to disclose, you can expect most places to hit upon a number of common topics, including:
• General condition of the house. No home inspection is going to uncover every single problem. For instance, the inspector may overlook—or be unable to check—the fact that the dishwasher’s rinse cycle doesn’t always work. It’s a very thorough inspection that uncovers bathroom blinds that don’t go down all the way. Likewise, a nice sunny day during the inspection does a thorough job of hiding the fact that the rook in the garage leaks in the smallest of showers.
You get the picture. If there is a problem with anything to do with the home, you have an obligation to let the buyer know. As you can see, some of those may be significant, while others are more picayune. In either case, be sure to make your buyer aware of them.
• Environmental and safety issues. It’s no coincidence that inspections target issues such as lead-based paint and the presence of radon. In fact, your duty to disclose goes beyond covering things such as contaminated soil and water, impact from faulty chemical storage tanks, and things of this nature. Even your home’s exposure to natural disasters, such as floods and earthquakes, should be addressed.
• Legal issues. If you have any lawsuits in the works that may affect the property, you have an obligation to advise your buyer. This can even include covering any improvements or modifications you made to your home without obtaining the necessary building permits.
Selling Smarts
It goes without saying—if you have any legal issues that somehow tie into your home, try to get them cleaned up before you put your house on the market. Few buyers will want to buy a home that’s dragging a legal anchor behind it.
The bottom line to duty to disclose may be unpleasant—depending, of course, on just what you have to come clean about—but it’s always a good idea to err on the side of complete honesty. If you’re not sure whether you need to disclose something, check with your attorney. There’s a good chance you should go ahead and let the buyer know. The consequences of failing to disclose can be drastic, from lawsuits to sales that are wiped off the books because the seller failed to disclose something that affected the value or appeal of the home.
Try to look at duty to disclose as something you can use to your advantage. Rather than coming off as a seller who’s looking to mask every flaw in your home, full disclosure characterizes you as an honest, forthright person who wants to sell her home with the highest integrity possible. That can only bolster a buyer’s confidence in you.
Considering Buyer Extensions
Not all aspects of the process moving toward the closing puts the responsibility on you, the seller, to disclose and fix everything. Occasionally, the buyer may step into the picture with a problem that he asks your permission to address.
More specifically, this refers to a buyer’s request for an extension of some sort. In certain cases, it may have to do with a home loan. The process has not gone as quickly or as smoothly as the buyer expected and the loan is not going to be in place by the time the closing is slated to occur.
When this happens, the buyer will first let you know about a hold up in the loan process. In so doing, he’ll also ask to call off the deal and get his earnest money back. However, at the same time, he also requests that you grant an extension to allow additional time to obtain necessary financing.
That leaves you with one of two choices. Either grant the extension or insist that things continue to move forward according to the schedule on which you’ve both agreed.
That can prove a tricky decision. On the one hand, if you agree to the extension, you may be giving the buyer the time he needs to arrange all necessary financing. On the other hand, agreeing to the extension but seeing the buyer fail to get the loan he needs just needlessly ties up your home.
By the same token, refusing to grant the extension may kill the deal that otherwise could have gone through had the buyer had a little extra time. Remember, by refusing to approve the extension, you’re agreeing to the end of the deal. From there, you may agree to return the earnest money deposit in its entirety. Since you also had your home off the market for a while, you may try to negotiate a split of the earnest money.
The issues to bear in mind here are, first, the buyer obviously wants to buy your home if at all possible. But, by asking for an extension, it’s also obvious that the loan necessary to buy your home is in doubt. So, negotiate carefully. Find out what the holdup is with regard to the loan. If it seems imposing, you may want to agree to call the deal off.
If, on the other hand, it seems possible that the financing may go through, you have a bit of room to negotiate. First, think carefully about how long of an extension you’ll agree to. If the buyer wants two weeks, counter with one. This allows you to keep the extensions going, week by week if you so choose, while keeping you from being locked into a longer-term agreement. Additionally, ask the buyer to forfeit a bit of her earnest money in return for your agreeing to the extension. That takes all the risk off you and, by all accounts, will likely be seen as more than a fair tradeoff for the extension. Moreover, should the deal eventually go though, that portion that was forfeited can be applied to the purchase as originally intended.
In other cases, a buyer may request an extension on the closing date. If that happens, follow the same procedure. Investigate the reasons for the request and, if appropriate, ask for a forfeiture of the deposit to protect you in case everything falls through.
Online Resources for the Home Stretch
For more information about topics covered in this chapter, check out the following websites:
• An excellent overview of environmental hazards in homes can be found at www.hsh.com/pamphlets/hazards.html.
• More specifically, The Environmental Protection Agency’s Citizen’s Guide to radon is located at www.epa.gov/radon/pubs/citguide.html.
• You can find a thorough overview of water quality and testing at www.inspect-ny.com/water/watrtest.htm.
The Least You Need to Know
• Don’t be surprised or alarmed if the buyer insists on his own home inspection, even if you’ve already had one done.
• If your inspection and the buyer’s differ substantially, consider obtaining a third opinion.
• Depending on where you live, other more specific inspections may be necessary prior to closing.
• If, during negotiations after inspections, you decide you don’t want to lay out cash for repairs, consider dropping the sales price.
• Investigate guidelines on your duty to disclose. Failing to be as forthright as possible can jeopardize the sale of your home.
• Don’t necessarily rule out a buyer’s request for extensions. Instead, negotiate terms that are favorable to you that offer the best possible chance of the sale ultimately going through.
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