Metrowest Advertiser March 14, 2024

Here’s How to Play the Inspection Game on Both Sides of a Residential Transaction

A common strategy for winning a bidding war — and I’m seeing more bidding wars nowadays, including on our own listings — is to “waive inspection.”

Another is to waive appraisal objection, but I’ll deal with that in a future column.

There are three inspection fields in the state-mandated contract to buy and sell a home: inspection termination, inspection objection and inspection resolution.

use other termination deadlines (such as for title, HOA documents, insurability, etc.) to terminate for an inspection issue identified later on.

In composing a contract to purchase a home, the buyer might decide to sweeten his or her offer by eliminating the inspection contingency. This is obviously attractive to the seller, but “buyer beware!”

First of all, realize that the buyer can exercise one or the other — inspection termination or inspection objection, but not both, even though deadlines can be entered for both. (Inspection resolution only applies if there’s an inspection objection.) If a buyer submits an inspection objection with a list of requested repairs, he can’t change his mind later on and decide to terminate. At that point, if the seller submits an inspection resolution agreeing to every demand you made, the buyer is bound (in my non-legal opinion) to sign it as a matter of good faith (which is embodied in the contract), and once both parties have signed it, they are “past inspection.”

That good faith provision of the contract (Section 28) says that both buyer and seller must act in good faith with respect to sections of the contract, including inspection, which have termination provisions, and the Colorado Real Estate Commission has instructed us that this means you can only use an opportunity to terminate if you are terminating pursuant to the stated provision.

In other words, while you can terminate for any reason (including buyer’s remorse) under the inspection termination provision, which merely states that the buyer has found the property’s condition unsatisfactory “in Buyer’s sole subjective discretion,” the buyer cannot

(Given the recent increases in home insurance costs, however, a buyer could reasonably defend terminating on insurability, which again is at buyer’s “sole subjective discretion,” without revealing that it was really buyer’s remorse, or because of a newly identified inspection issue.)

Let’s say that a buyer has waived inspection objection but not inspection termination. Both buyer and seller need to recognize that this does not mean that the buyer can’t get the seller to fix a serious issue. The buyer still has the right to inspect every conceivable component or feature of the property — even whether there’s an externality such as a noisy neighbor or construction project nearby. If he finds that there’s a major problem (such as a structural issue or sewer line collapse), the buyer’s agent can notify the listing agent that the buyer intends to terminate because of it and, guess what? The listing agent will explain to the seller that this issue exists and will have to be disclosed to a future buyer, likely convincing the seller to say, “I’ll fix that problem if you don’t terminate.”

Upon receiving a purchase contract which waives inspection objection but not termination, a good listing agent will warn his seller about this possibility, just as a good buyer’s agent might advise the buyer that waiving inspection objection isn’t as final as it may sound.

One way to make a contract which waives inspection objection but not termination more attractive to the seller is one that was included in the purchase contract on our own Arvada listing featured a couple weeks ago. The buyer included an earnest money deposit that was higher than the minimum specified in the MLS and stated under additional provisions that $10,000 of it would be non-refundable upon acceptance of the contract by the seller. I wouldn't advise this strategy without a detailed inspec-

tion (perhaps with a professional inspector) during a scheduled showing prior to submitting a contract with this provision. The buyer could still terminate but would be out $10,000, and it might reduce the incentive for the seller to say, “Hey, I’ll fix that!”

Another common provision in a competitive bidding situation is for the contract to limit the extent of demands to be included in buyer’s inspection objection. For example, “health and safety items only,” or “only issues requiring over $2,000 to mitigate or repair.”

In responding to a list of inspection objections, it’s increasingly common, especially among elderly sellers, to offer a financial concession or a price reduction instead of fixing certain items. One drawback of this approach, however, is that if the buyer is financing the purchase with a mortgage, the lender won’t want to see that a serious problem is not being addressed prior to closing. This is completely understandable. And it’s hard to keep that information from the lender without being guilty of mortgage fraud, which is a federal offense.

A strategy I favor in that case is to have the seller pre-pay for the repair at closing, with the title company writing a check payable to a vendor for the repair out of the seller’s proceeds from the transaction. Alternatively, the title company might escrow the money for said repair, giving the buyer an opportunity to shop for the best vendor.

Sometimes not all inspections can be completed by the objection deadline. The buyer could ask for an amendment to the contract changing the deadline, but there’s another, simpler solution that I have employed. Let’s say you don’t have the radon results prior to the objection deadline. I would insert in my buyer’s inspection objection the following sentence: “In the event that radon is determined by the inspector to be above the EPA action level, seller agrees to mitigate it using a licensed radon mitigation company.”

The purpose of inspections is to discover “hidden defects,” but sometimes a buyer will want to ask for something that wasn’t hidden at all, such as a

cracked driveway or old carpeting. My suggestion as the seller’s agent is to deny those requests outright, since they should have been (and probably were) taken into consideration when the buyer chose to submit their contract.

Now let’s say the seller submits an inspection resolution that ignores too many of the buyer’s demands. If both parties don’t sign a resolution prior to the resolution deadline, the contract automatically expires. Remember, this is a negotiation, just like the negotiation which got the home under contract. Either party, not just the seller, can write the inspection resolution, so the procedure for “countering” an unacceptable inspection resolution is to write another one, back and forth if necessary.

Getting a backup contract has a role to play in handling inspection demands. With a backup contract for the same price, my seller can share the buyer’s demands (plus the full inspection report) with the backup buyer and ask if they would accept the house as-in without those demands for repairs. This creates a no-lose situation for my seller. I can tell the buyer that our backup buyer will accept the house as-is if they terminate. The buyer will then likely withdraw their inspection objection, but if they decide to terminate, that has the same effect. Either way, it’s a win for my client, which is what I’m hired to get.

This long column reflects over two decades of experience dealing with inspection issues for both buyers and sellers — and I have not covered all the scenarios one might encounter. If nothing else, I hope this article convinces readers that having an experienced agent, such as those of us at Golden Real Estate, on your side in a real estate transaction is the best way to assure the optimal outcome for you.

Inspection Is Buyer’s Responsibility

Now and then I see an inspection objection which calls for the seller to hire a specialist, such as an engineer or electrician, to inspect this-or-that and to fix any problem discovered, but the contract specifically says that inspection is the responsibility and expense of the buyer.

If you choose one of our broker associates or me to list your home, it will be featured in this weekly ad. But did you know how many newspapers publish this column? It appears every Thursday in all editions of the Denver Post’s YourHub section, plus the following weekly newspapers: Arvada Press, Brighton Standard Blade, Canyon Courier, Castle Pines News-Press, Castle Rock News-Press, Centennial Citizen, Clear Creek Courant, Commerce City Sentinel Express, Denver Herald-Dispatch, Douglas County News Press, Elbert County News, Englewood Herald, Fort Lupton Press, Golden Transcript, Highlands Ranch Herald, Hustler 285, Jeffco Transcript, Littleton Independent, Lone Tree Voice, MetroWest Advertiser, Northglenn-Thornton Sentinel, Parker Chronicle, South Platte Independent & Westminster Window. The total circulation is over 300,000!

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Obituary:

Bennietio Padilla, age 93, of Commerce City, passed away on February 27, 2024. He was born in Sapio New Mexico on June 21, 1930, to Manual and Eleanor Padilla. Bennietio proudly served in the military, with strong ties to his military associations. He was dedicated to his career and worshipped at Saint Augustine.

He is survived by his sons Walter Padilla, Benny Padilla, daughters Marylou Padilla, Darlene (Gary) Zurek, Annalee (Louie)

Rodriguez, grandchildren Walter Jr. Padilla, Anthony Padilla, Lisa Albert, Amy (Ross) Moody, Gerold Rodriguez, partner Norma Garcia, her sons Jimmy and Robert Gonzales.

Bennietio was preceded in death by his parents Manual and Eleanor Padilla, brothers Tito, Matias, Corcino Padilla, sister Eva Gallegos, daughter Rosemary Margaret Albert, and granddaughter Tiera Lee Trujillo.

In lieu of owers, contributions can be made in memory of Bennietio Padilla.

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